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House Panel Close To Approving Deal On Legal Aid Funds House Panel Close To Approving Deal On Legal Aid Funds

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House Panel Close To Approving Deal On Legal Aid Funds

The House Financial Services Committee was expected to approve a measure today that would authorize $35 million in legal aid to borrowers on the verge of foreclosure, settling a dispute among Democrats on whether the language could be used for class-action suits against lenders. The amendment, offered by Rep. Ed Perlmutter, D-Colo., lets Democrats revisit the issue after an effort by Rep. Melvin Watt, D-N.C., was unexpectedly defeated last week during a markup on a bill that would allow the Federal Housing Administration to insure up to $300 billion in new mortgages for distressed borrowers. The Watt amendment was defeated last Thursday after seven moderate Democrats joined with Republicans to oppose funding for such services through the Neighborhood Reinvestment Corp., a nonprofit created by Congress to allocate grants for community revitalization efforts. The banking industry launched a last-minute opposition campaign against the Watt amendment, contending that it was poorly written and could trigger a wave of class-action litigation against lenders.

Financial Services Chairman Barney Frank said the delay in the FHA bill markup allowed Watt to convince moderates, led by Rep. Dennis Moore, D-Kan., that his language would not allow such class-action suits and would apply only to individual cases. "Everybody has been reassured that even if we have not gotten where we need to be, we can continue to work on that and there will be open minds to try to resolve what everybody thinks is a serious issue and problem," Watt said. The Perlmutter language would make minor changes to the Watt amendment, such as authorizing $5 million less. Frank added that if any concerns linger, he would go to Judiciary Chairman John Conyers to obtain language explicitly ruling out class-action suits before the overall bill goes to the House floor next week.


Republicans said they were not satisfied with the changes, however, noting the Perlmutter amendment would still allow federal funds to be used in civil suits against lenders rather than restricting money to legal counseling. Rep. Tom Price, R-Ga., sponsored a competing amendment that would specifically prevent funds from being spent for civil suits. Price noted that his language is similar to an amendment by Sen. Barbara Mikulski, D-Md., that would provide $30 million for the Neighborhood Reinvestment Corp. to fund legal-aid services. The Mikulski amendment, which is not opposed by the banking industry, was adopted during passage of a Senate-approved housing bill. "It would be counseling that would result in solutions so that they may be able to stay in their homes as opposed to counseling that results in litigation. I don't think the American taxpayer is interested in increasing the number of lawsuits that we have in this nation," Price said. But Frank said that some abusive lending cases are handled though bankruptcy proceedings and would have to be addressed with litigation to help the homeowners. Watt said, "For us to sit here and say that we are going to allow people to be counseled ... yet I can't do anything beyond that, is a disservice to the people that we have sent out there to do counseling."

This article appears in the May 3, 2008 edition of National Journal Daily PM Update.

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