Bankruptcy Compromise Draws Clear Line Between New Dems & Blue Dogs

No group of congressional Democrats is better at getting under progressives’ skin than the House Blue Dogs, the caucus of conservative Democrats that excels at grabbing headlines while watering down and delaying liberal priorities.

But the simmering debate over the so-called “cramdown” proposal, which would change the law to permit loan modifications on primary residences for homeowners declaring bankruptcy, has minted a new villain for many liberals: the New Democrat Coalition, a moderate group of free-traders that claimed White House chief of staff Rahm Emanuel as one of their own until recently.

The progressive case against the New Dems predated the cramdown scuffle, but tempers flared last week when Speaker Nancy Pelosi agreed to delay consideration of a broad foreclosure-aid bill in order to modify the provision on mortgage-holders declaring bankruptcy.

Now, the cramdown plan is a no-brainer and a definite benefit to the nation’s at-risk homeowners — but were the New Dems really trying to kill it?Not so much. The compromise under discussion would require banks to offer mortgage-holders a workable loan modification plan — the same one proposed by President Obama — before bankruptcy proceedings could begin. Any loans being modified in bankruptcy would also have to be verifiably unaffordable based on homeowners’ income, as opposed to simply totaling more than a home is worth.

Whether that constitutes an unacceptable watering-down of the cramdown bill depends on one’s perspective. But the question of how many people would actually be helped by the provision is easy to answer: about 350,000 new bankruptcy filings over 10 years are expected as a result of the cramdown change, according to the non-partisan Congressional Budget Office (their report is downloadable here, under HR 200). The state of Florida alone is expected to be hit by 150,000 foreclosures this year alone.

“This is not an ideological fight for them,” one aide to a New Democrat told me, adding that members of the coalition “have worked closely with Democratic leaders to improve the bill, make it more expansive and push it in the direction of President Obama’s housing plan by including a loan modification plan.”

And Pelosi herself defended the cramdown compromise in an appearance earlier today. “It’s a question more of message, about what we are doing for people and giving them some hope about how they can stay in their homes beyond saying to them you can declare bankruptcy,” she said. “Because not all of them can, and it’s not a good option.”

My response to any progressives who’d love to lump the New Dems in with the Blue Dogs: Direct that ire at the Senate, where cramdowns were negotiated with the help of Citigroup.