Senate Majority Whip Richard J. Durbin (D-Illinois) will introduce so-called bankruptcy cramdown legislation Thursday, seeking a vote on the controversial proposal, say Congressional and industry sources.
The legislation, which has been stuck at the committee level for some time now, was still being worked on Wednesday.
“It will be on the floor,” said a Senate source
Industry opposition to the proposal, which essentially lets financially-strapped homeowners use bankruptcy court to restructure their debt and avoid home foreclosure, has been strong.
Industry groups Wednesday sent a joint letter of opposition to Senate members, saying the measure would hurt an already unstable housing market by allowing bankruptcy judges to rewrite mortgage contracts. (CNBC.com has obtained a copy of that memo.)
The House passed what some consider a watered-down version of cramdown legislation earlier this year.
Consumer groups and the White House support the cramdown idea, as a key component in the effort to forestall home foreclosures.
Under one scenario, the measure would be attached as an amendment to an existing piece of legislation, known as the “Helping Families Save Their Homes Act of 2009," which the Senate is expected to vote on.
The bill, which already passed the House, increases the FHA's borrowing authority and provides other forms of mortgage relief.
Sen. Durbin has been pushing the cramdown measure for more than two years, but there have been persistent concerns that it could not attract the 60 Senate votes necessary to avoid a GOP filibuster.
Majority Leader Harry Reid (D-Nev.), however, supports getting the measure to the floor. “It’s something we want to do," said another Senate source.
Supporters of the plan were emboldened earlier this year when Citigroup (NYSE: C) broke ranks with the rest of the industry and said it would support the bankruptcy court alternative.
Proponents say the threat of a bankruptcy court filing—chapter 15 for individuals—would encourage lenders to make a more concerted effort in working with borrowers trying to avoid foreclosure.
Opponents say it underlines contract law and will raise the cost of borrowing as lenders factor in the possibility of bankruptcy proceedings.
Opposition aside, major industry players such as Bank of America (NYSE: JPM) and JPMorgan Chase (NYSE: JPM) and have been negotiating terms and specific language for a narrow version of the measure for about a month. Those talks are said to have failed to reach any agreement.