Foreclosure Reduction Plan Clears Hurdle

Apparently Citigroup has dropped its opposition to amending bankruptcy law in an effort to reduce foreclosure rates. Now that the Feds control a portion of Citigroup that was to be expected. Here is the story from WSJ today:

WASHINGTON — A Senate bill aimed at giving strapped homeowners more leverage in renegotiating their mortgages cleared a hurdle Thursday when Citigroup Inc. dropped its opposition.

The legislation, which is being advanced by top Senate Democrats, would let judges set new repayment terms for mortgage holders in bankruptcy court. Lawmakers say the measure is aimed at jump-starting broader efforts to renegotiate millions of underwater mortgages now weighing down the housing market.

Until recently, Citigroup had fiercely opposed proposals to give bankruptcy judges latitude to change the terms of mortgages. Its about-face comes after the federal government has pumped $45 billion into the company since last fall. The government is now keeping the company on a tight leash.

In letters Thursday to congressional leaders, Citigroup Chief Executive Vikram Pandit praised the legislation as a way to help borrowers stay in their homes. “Given today’s exceptional economic environment, we support its swift passage,” he wrote.

The Mortgage Bankers Association remains opposed to the bill. The main reasons for the opposition is as follows:

But the banks argue that any help the proposal might provide to troubled homeowners in the short run would be offset by the higher costs that borrowers would have to pay to get mortgages in the future. The reason, banks say, is that they would pass along the added risk to borrowers in the form of higher interest rates, larger down payments or increased closing costs.

We’ll see how this develops.

One Year Later: Sorting Through the Subprime Mess

Former executives at New Century, which went bankrupt early last year, should be sued and so should it’s auditor KPMG. That is what a bankruptcy investigator is recommending. New Century as you may recall was the No. 2 sub-prime lender before it went down in flames in the Spring of 2007. An excerpt from Yahoo! Finance:

Michael J. Missal, a Washington, D.C. attorney appointed by a bankruptcy judge to probe years of accounting missteps by Irvine, Calif.-based New Century, said the company’s leaders turned a “blind eye” to the increasing risk of making loans to people with bad credit.

Operating out of a “brazen obsession” with cranking out mortgages, New Century ignored an alarming rise in signs of trouble with it loans, Missal said. He found the company engaged in seven improper accounting practices, including one that some witnesses said was recommended by KPMG.

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