Rep. Barney Frank (D-MA), Chairman of the House Financial Services Committee today threatened banks that they'd better stop foreclosures, or else. Or else what? Or else Congress will pass cramdown legislation -- that's what! That would allow bankruptcy judges to rewrite mortgage contracts to whatever struggling homeowners could afford. I wouldn't count on any follow through to that threat.

Frank said:

"People in the servicing industry and in the broader financial industry must understand that if this last effort to produce significant modifications fails, the argument for reviving the bankruptcy option will be extremely strong, and I think there is a substantial chance that the outcome will be different."



That may be true for his chamber of Congress. After all, Democrats have an easy time passing pretty much whatever they want in the House. Not so for the Senate. In fact, when cramdown legislation was offered in the Senate last spring, it failed miserably. Only 45 Senators voted in favor -- no where near the 60 necessary. In other words, the Senate would have at least as difficult a time passing cramdowns as passing national health care reform and cap and trade.

But the climate for passing cramdown legislation has changed: now it's even less likely. Unlike last spring, the economy and housing market are showing signs of stabilization. That should make moderate Senators even more unlikely to change their votes in favor. These days, the Senate has all the power. Frank can threaten all he wants, but unless he knows of some way to sway moderate Senators, those threats may fall on deaf ears.

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