The ABA Says Citi Is Off The Reservation On Cram-Downs

Last night I put up a post about Citi throwing in with the Congressional Democrats on mortgage cram-down legislation. I speculated that Citi was probably just doing its new masters’ bidding. Since then a couple of stories, both from Housing Wire have come out that adds a bit more meat to the bone.

The first reports that Citi did indeed break with the banking fraternity in endorsing the proposal.

“ABA was not a participant in the recent agreement between Citigroup and Congressional proponents of mortgage cram-down legislation,” said Floyd Stoner, the executive director Congressional relations & public policy at the ABA. “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.”

The ABA has traditionally been a tight and powerful industry group. For Citi to split off on an issue of this size is not a trivial action. One could speculate that the tsunami that has hit banking may well have fundamentally changed the relationships within the group. Or, you could have the take on it that Paul Jackson has.

It’s certainly interesting timing for Citi to break with the pack; the bank has received $52 billion in bailout funding from the government, more than its peers. It’s also got a loss-sharing agreement in place covering $306 billion of its loans and securties, as the Wall Street Journal noted in a story Friday morning.

In other words, to the extent that any cram-down push leads to higher loan losses, Citi may actually be somewhat sheltered from those losses — meaning taxpayers could end up picking up the tab. The Journalsuggested that other banks are likely to line up behind Citi to support the bill, but will look to obtain similar loss-sharing arrangement in exchange for their support.

A lobbyist on Capitol Hill, however, said that the banks likely face a “fat chance” of getting such concessions from lawmakers, were they to push for it. “With Citi’s support, it doesn’t matter what the MBA says on this issue as much,” said the lobbyist. “A break in the ranks of financiers puts Congress in a power play.”

All of which underscores just how good it may have been to be first in the government handout line through this mess; critics have long suggested that the government relief efforts to the financial sector have singled out clear winners and losers. The cram-down agreement reached yesterday may be the first of a growing set of evidence to support that argument.

If there is some truth in what Jackson has to say, and I suspect there is, then it’s a good warning sign of the dangerous path were wandering down. The Citi cave-in is a perfect example of the influence government can have on private enterprise once given a lever. There have been a lot of levers handed to the political class lately and you can rest assured that they aren’t shy about using them.

more: here and here

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