With Banks Stopping Pro-Consumer Measures, Foreclosures Could Become Common

May 25th, 2009

The USA’s largest banks still exercise a lot of control over Washington. The banks have still not allowed the White House to give some leeway to homeowners clamoring for lower payments on mortgage. The banks are also clamoring that the government should refrain from lowering the interest rates on credit cards. If the banks have their own way, then it may be difficult for the government to take the pro-consumer steps. With homeowners faltering on loan payments, then foreclosures could become a regular feature.

During the election campaign, Barack Obama stressed on the excessive fees charged by the credit card companies and said that these should be reversed. But after becoming the President he has remained silent on the matter. The administration also wants to push for new lending principles. Homeowners who are in financial trouble should be given the option of moving the bankruptcy court and the terms of mortgage should be eased in such cases. This proposal was again endorsed by the President last month. However, banks are against the proposal as well. After rallying around the Republicans, they are clamoring that bankruptcy judges should not be given the power to modify mortgages.

Earlier, both the proposals had run into rough weather. However, the situation is set to change what with the House Financial Services Committee expecting to approve credit card legislation. This would not only reduce the fees but also put a cap on the amount that companies can charge as penalty.

Now the Democrats are in talks with the Republicans to solve the problem. Even if the bankruptcy Bill comes into effect, it will be a watered down version. There will be certain clauses definitely in the industry’s favor. Citigroup is the only major financial institution that supported the bankruptcy Bill. This bank was in favor of giving more authority to judges to modify mortgage lending. There are other supporters of the bankruptcy bill who wish to tie it with another bill that the industry wants.

The situation facing the Obama administration is indeed a tough one. Jobs are scarce and unemployment is at its peak. Foreclosure have become common in the US. Not only the middle class but the very rich have become victims of the recession. People are calling it the Great Depression and are keeping their fingers crossed that the economic crisis blows over soon. However, unless the government takes certain pro-consumer measures, economic revival seems difficult.