[JURIST] A bill [S.896 materials] that would have aided homeowners in foreclosure was rejected 45-51 [roll call vote] Thursday by the US Senate [official website]. The financial industry had lobbied heavily against the proposed legislation that had come to be known as the "cramdown bill" for a provision that would have allowed bankruptcy judges to modify mortgages from lenders that had not already offered better terms to their borrowers. The bill had been sponsored by Senators Christopher Dodd (D-CT), Richard Durbin (D-CT), and Charles Schumer (D-NY) [official websites], and had been touted as a way "to prevent mortgage foreclosures and enhance mortgage credit availability." After the vote, Durbin vowed to continue working to pass the legislation [statement], saying "[w]e’ve given the bankers who got us into this crisis every opportunity to responsibly address this crisis and they have failed. I’ll keep working to give homeowners every legal means to save their homes." Among those opposing the legislation, US Senate Republican Whip Jon Kyl (R-AZ) [official website] countered [statement] that "while attempting to solve a specific problem for a particular group of people, we could end up exacerbating the situation for all the people that want to refinance or take out loans in the future."

Durbin had been working on the bill for two years and had also been working intensively in negotiating to calm lenders' objections that the measure could cause mortgage rates to go up to compensate for the "cramdowns." Earlier in the week, the Obama administration announced that the Making Home Affordable [official website] plan would increase in scope to lower payments on second mortgages [official press release] by using money from the Troubled Asset Relief Program (TARP). The $700 billion financial rescue bill [JURIST report] creating the TARP, which provides economic assistance to at-risk financial institutions, was passed in October.