Cramdown Breakdown

Obama's mortgage fix plan revolves around getting Congress to update bankruptcy laws to allow judges to change mortgage rates, but banks and mortgage brokers are virulently against it, and have lobbied Congress hard to kill the measure.

If the so called "cramdown" provision fails, Obama's mortgage fix is sunk. The Blue Dogs and Senate DINOs are strongly against the measure, and the Obama administration just doesn't have the numbers to pass the bill right now. A full-court press is on this week to get the votes, but it's going to be yet another long, hard slog of deal-making for this to pass -- and those objecting in Congress have their sights on deals to be made during budget time.

President Obama is in danger of losing the biggest stick in his foreclosure prevention arsenal.

The administration's plan to stem the housing crisis depends on Congress amending the bankruptcy laws to allow judges to modify mortgages, in particular by reducing principal to make monthly payments more affordable.

The so-called cramdown provision could put pressure on loan servicers to modify mortgages before borrowers file for bankruptcy.

A major critique of the voluntary modification programs is that servicers aren't doing enough to help struggling borrowers. But servicers will likely be more aggressive in working with homeowners if they know that the borrowers can turn to judges for relief.

"Reforming mortgage bankruptcy laws is the only remedy available that will provide the stick to go with the carrots that we have offered lenders to modify mortgages voluntarily," said Rep. Brad Miller, D-N.C., who worked on the legislation.

But congressional Democrats, who first introduced a bill broadening judges' power two years ago, are running into trouble gathering the support needed to pass the legislation. The House postponed a vote on the measure until early this week after a group of centrist Democrats voiced concerns. And its future in the Senate remains in doubt with many powerful Republicans strongly opposed to the legislation.

This is the real test of Obama's political clout on the Hill. The stimulus had to pass, but cramdown has interests on both sides of the aisle waiting for the opportunity to kill it. If Obama can't get this through, the budget is pretty much DOA, as it will be a much, much harder fight.

Even the nuclear option of sliding this through as a Senate-filibuster proof budget amendement may not work. We'll see.