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Lending Industry Still Fighting Changes In Bankruptcy Laws

The lending industry continued its war Wednesday against legislation designed to let some struggling homeowners save their houses in bankruptcy court.

A coalition of banking and lending industry groups, joined by the National Association of Home Builders, sent a letter to Senate Judiciary Committee members, voicing strong opposition to measures that would allow bankruptcy judges to alter some primary residential mortgages, even in a limited number of subprime-only cases.

The Judiciary Committee has two such bills on the docket for consideration Thursday – one of which is Pennsylvania Republican Sen. Arlen Specter’s attempt at significantly narrowing the new powers original proposed by Senate Majority Whip Richard J. Durbin (D-Ill).

Such measures “would increase the cost of buying a home, and thus would price many Americans out of the housing market and make owning a home more expensive for others,” the letter warns.

The coalition praised Congress for steps it’s already taken to help the housing market, such as making mortgage debt forgiveness tax-free, and promised that voluntary industry measures would continue to bring help to troubled homeowners.

Plenty of Democrats believe more needs to be done. House Financial Services Chairman Barney Frank (D-Mass.), for instance, is readying a housing package, which he could unveil as early as next week that includes a plan for the federal government to purchase some distressed mortgages at a discount from lenders.

The White House isn’t thrilled by the idea, but the mortgage industry has been cautiously positive about it.