Moderate House New Democrats showed their influence Thursday after they forced changes and later stalled consideration of legislation allowing bankruptcy judges to modify home mortgages, including reducing the principal of a loan.
It signals a potential problem as the House considers measures that divide Democrats, such as health care, climate change and financial services overhaul, among others.
Senior Democratic sources said that whether the bankruptcy bill is approved or not, changes already made to it represent a win for New Democrats. "No matter what, the New Dems have a big win here," said the chief of staff to one Democrat.
Sources close to the process said House Speaker Pelosi wants to pass the bill soon. And while Judiciary Chairman John Conyers, who sponsored the bill, said Thursday he did not foresee further changes, other Democratic aides and lawmakers said they did not see that as realistic.
"I don't think this is going to get fixed without going back to Rules," said one aide.
Rep. Allen Boyd, D-Fla., a prominent Blue Dog Coalition member, told CongressDaily Thursday it is his understanding Democratic leaders plan to send the bill back to the Rules Committee next week to make additional changes along the lines of those called for by New Dems like Rep. Ellen Tauscher, D-Calif., the coalition's chairwoman.
One K Street source stressed that, despite the drama, the intent has not been to derail the package. "New Dems don't want to kill this bill," the lobbyist said.
New Democrats have had success in other battles this year, said Rep. Melissa Bean, D-Ill. She said the 67 members have played a role in the stimulus bill to ensure inclusion of funds for health technology and a more efficient electricity grid.
In addition, members pushed for tax breaks that would extend net-operating losses for businesses over additional years.
"[A] lot of things we considered pro-growth, innovative, moving us forward -- those are all New Dem issues and we are very proud of them," Bean said.
The wrangling over the bankruptcy bill provides the coalition even more prominence as Tauscher, a former Wall Street investment banker who held a seat on the New York Stock Exchange, helped lead her members in negotiations with leaders over the bill, which is bitterly opposed by the banking industry and is looking to narrow its scope.
"They recognize the dangers of this bill," said one banking lobbyist. Seven of the 26 Democrats who Thursday voted against the rule on the legislation were New Democrats.
Its members also have been successful on the fundraising circuit. The group's PAC raised $1.5 million during the last election cycle. It received $10,000 from the Mortgage Bankers Association PAC, which opposed the bill, and the same amount from Citigroup Inc's PAC., which supported it after working on a compromise with Senate Majority Whip Durbin.
Industry groups contend the change in bankruptcy law would add uncertainty to the mortgage market, result in higher interest rates and encourage at-risk borrowers to seek bankruptcy relief rather than work with lenders.
Proponents contend the threat of bankruptcy is the only stick that will force lenders to modify loans, as voluntary efforts have failed to stem the foreclosure rate.
New Democrats are setting their sights on legislation to overhaul the nation's financial regulatory system. Sixteen of the 42 Democrats on the Financial Services Committee are New Democrats.
On Thursday, the group released its principles for reform, including calling for a revamping of insurance regulation to provide advice and expertise on insurance regulation to the White House and Congress, especially on international trade matters. But in deference to division within the ranks, it did not call for insurance companies to be allowed to stay with the current state regulatory system or opt for oversight by a new federal agency.
It will likely play a role on other issues, such as revamping mark-to-market accounting rules requiring companies to value assets at current prices, not their value when they mature. Some Republicans have called for elimination of the rules, arguing that it forces banks into precarious financial straits because they are forced to write off losses on devalued mortgages even though the property will likely regain its value in the long-term.
Rep. Ed Perlmutter, D-Colo., suggested his group might push for bank regulators to be given flexibility on how to judge capital standards on long-term assets. "We're trying to determine how to maintain the disclosure and provide discretion within the regulators and the regulatory system to understand these things are held long term."