WASHINGTON (Reuters) - A top bank industry group said on Friday that it opposes an agreement between financial giant Citigroup Inc and Democratic senators that would rewrite U.S. bankruptcy law to help troubled mortgage borrowers avoid foreclosure.
The American Bankers Association said in a statement that it did not participate in Citigroup's agreement with lawmakers and has consistently opposed giving bankruptcy judges broad authority to unilaterally modify mortgage terms.
"ABA is opposed to the agreement because it will leave in place overly broad mortgage cram-down authority and other provisions that will harm thousands of banks across the country that have made, and continue to make, good loans," said Floyd Stoner, ABA's executive director for public policy.
Citigroup said on Thursday that it would support a plan put forth by Democratic Senators Charles Schumer and Richard Durbin, among others, that is aimed at preventing foreclosures.
Citigroup had previously opposed changing the law to let bankruptcy court judges, in some circumstances, cut mortgage debts to help bankrupt homeowners.
The proposal comes amid a recession and a mounting housing market crisis.
The senators said on Thursday they hope to attach the bill to a broad economic stimulus package that is expected to move its way through Congress in the coming weeks.
The ABA said the so-called cram-down proposal would "bring additional risk and uncertainty to an already volatile mortgage market and would make home loans more expensive and less available for consumers."
Other industry groups, such as the Financial Services Roundtable, have also opposed the proposal while a coalition of five consumer groups embraced the bill, calling it "urgently needed legislation."
The government has injected billions of dollars of taxpayer funds into Citigroup since October, making the bank a top recipient of federal bailout funds. As part of the government's rescue package, Citigroup was forced to adopt a systematic loan modification program for distressed mortgages.
(Reporting by Karey Wutkowski, editing by Dave Zimmerman)
