WASHINGTON — As congressional negotiators labored over the giant financial bailout plan last week, business leaders saw little to applaud in more than a few of the ideas under discussion, including one that proposed changing the nation's bankruptcy laws to make it easier for homeowners to downsize troubled home mortgages.
On Sunday, when the head-butting ended and the dust cleared, a well-funded coalition of banking and mortgage industry lobbyists had reason to celebrate. The final bill included no changes in federal bankruptcy laws.
Americans who take out loans to purchase cars, boats and even investment properties can file for bankruptcy protection and have a judge restructure their payments. But that's not the case with their home mortgages. Since 1978, bankruptcy laws have prohibited judges from adjusting loans on a "principal residence."
Some Democrats had called for the bailout bill to change bankruptcy laws to permit such restructuring as a way to offer something for Main Street America.
But those proponents -- major labor unions, consumer groups and other pillars of the Democratic Party establishment -- proved no match for a coalition that included the American Bankers Assn., the Mortgage Bankers Assn. and the National Assn. of Home Builders.
Starting with a core of Republicans who adamantly opposed any such change, the coalition persuaded key Democratic leaders in Congress that pushing the idea could doom the rescue effort and endanger the whole economy.
So successful was the effort to portray the bankruptcy idea as a deal breaker that Democratic presidential candidate Barack Obama, while campaigning in Florida last week, said he thought the proposal was meritorious but did not belong in the emergency bailout bill.
Some analysts saw Obama's statement as a practical recognition of political reality: Republicans would never accept the bankruptcy provision, and the bailout plan was too important to the economy to jeopardize. The Illinois senator's position drew cheers from business and banking lobbyists and from Republicans.
Consumer and labor advocates consider Obama a friend, but his statement rankled. They say that current law has made it more difficult for homeowners to work their way out of difficult financial straits and that a change in the rules would have eased the crisis for all concerned.
