By Patrick Rucker
WASHINGTON May 6 Troubled U.S. banks and
delinquent homeowners will both get fresh government aid under
legislation passed by the Senate on Wednesday that lawmakers
hope will help reverse a deep economic downturn.
A controversial provision that would have given bankruptcy
judges the power to rewrite some home loans failed but the
bi-partisan bill's sponsors said that they were pleased.
"This bill will equip homeowners and lenders with new and
improved tools to combat foreclosures," Senate Banking
Committee Chairman Chris Dodd said in a statement after the
measure passed with 91 votes in the hundred-seat chamber.
The legislation eases the terms of a $300 billion housing
rescue fund - Hope for Homeowners - that has been so hamstrung
by bureaucracy and costly fees that the program meant to
refinance 400,000 borrowers has only reached a few dozen.
Another provision of the bill will shield mortgage service
companies from investor lawsuits when they lower monthly
payments for troubled loans.
An amendment that would have narrowed the terms of that
'safe harbor' provision was defeated in a result that one
lawmaker said would wrongly help pick the winners and losers of
the housing bust.
"There are some perverse incentives where four large banks
in our country that helped originate many of these investments
are now [mortgage] servicers," said Sen. Bob Corker, the
Tennessee Republican who authored the amendment. "It's very
much like the fox guarding the henhouse."
Bank of America (BAC.N), Citigroup (C.N), JPMorgan Chase
(JPM.N) and Wells Fargo & Co. (WFC.N) are among the largest
mortgage servicers that stand to gain from the senate bill.
Large insurers like Prudential Financial Inc (PRU.N) and
MetLife Inc (MET.N) along with asset managers like Fortress
Investment Group (FIG.N) and BlackRock Inc (BLK.N) stand to
lose since their ability to sue mortgage servicers will be
Mortgage servicers -- firms that collect monthly loan
payments -- have said they cannot retool problem loans while
the threat of lawsuits hangs overhead.
The House of Representatives has already passed its version
of the legislation and Senate leaders carefully tailored their
bill so the two could be easily reconciled. If that happens in
the next few weeks, as Democratic leaders want, the bill would
go to President Barack Obama for his signature.
BANKS SIGH RELIEF
The Federal Deposit Insurance Corp., which guarantees bank
deposits, will be able to tap a fresh $500 billion credit line
through the end of next year under one measure pushed by the
The FDIC's reserves, which are funded by premiums the
agency charges banks, have been depleted in the last two years
as a deep housing downturn and economic recession has pushed
many banks over the edge.
Regulators have been contemplating a sharp rise in premiums
to restore the insurance fund but expanding the Treasury credit
line eases some of that pressure.
The FDIC's credit line will be permanently increased to
$100 billion, from the current $30 billion, under the new
Another provision of the law would give fresh rights to
renters when their landlord defaults on his mortgage.
"Tenants who do no wrong shouldn't be evicted without
notice and without the necessary time to make alternative
living arrangements," said Sen. John Kerry, the Massachusetts
Democrat who sponsored the amendment.
The provision will let renters serve out their original
lease even if a bank has reclaimed the property.
(By Patrick Rucker with Thomas Ferraro, Al Yoon and Nancy
Leinfuss contributed from New York; Editing by Andrea Ricci and