Dem Spat Delays Mortgage Relief Bill In House

[Purveyor]

Source: Associated Press

(02-26) 09:36 PST WASHINGTON, (AP) --

House Democratic leaders have abruptly canceled votes on legislation to let bankruptcy judges reduce the principal and interest rate on mortgages for debt-strapped homeowners.

The measure, backed by President Barack Obama, is the most controversial part of a broader housing package that was expected to pass on Thursday.

It hit a snag after a group of moderates expressed concerns in a closed-door meeting of House Democrats about how the bill would affect homeowners who are still struggling to make their mortgage payments.

The banking industry has lobbied hard against the measure, mounting a successful multimillion-dollar effort last year to kill it. The House is debating the measure and leaders hope to reschedule votes for next week.

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2009/02/26/national/w000634S89.DTL

[notadmblnd]

1. I still ay, just force them to cut 25% off all mtg principal and reduce interest to 4%

across the board for everyone who has a mortgage whether they are troubled or not.

[truebrit71]

2. That would be a good start..

..

[PSPS]

8. Not a good idea

I don't want to reward the liar's purchase of his $750K McMansion despite his having an income of $40K/year.

[No Elephants]

10. Lenders encouraged the lying. They knew they were not going to keep the

mortgages. They knew defaults were likely, but that the defaults would be the problem of the fifth or sixth purchaser of the mortgage, and those people would pay only a fraction of the face value of the mortgage anyway.

They made the loan origination fee, then sold the mortgage. They encouraged the lying. Besides, not all the people who bought homes beyond their means even had to lie. They encouraged people to go beyond their means. The real money was in the derivatives, not the mortgages themselves, so the game was to get people into the biggest mortgages possible.

And why do you think the banks offered "no verification loans" in the first place? they charged higher interest rates for them and therefore could sell them for more.


Now, the cry is "liar loans," but I'd go really easy on blaming borrowers on the basis of what the banks are claiming well after the fact. If people lied, it's because the banks not only allowed it, but wanted it.

[WriteDown]

12. Good points...

but takes two to tango.

[No Elephants]

18. Yes, but one was a professional and profiting. I don't think they were on

equal footing. And again, not every borrower in over his or her head lied, or had to lie, to get the loan.

[WriteDown]

19. Anytime you sign what is likely...

going to be the biggest debt in your lifetime, you should be prepared. People seem to spend more time researching their car loans then their home loans. Even if the percentage of liar loans is only 20% then they should not be bailed out. Many of us scrimped, saved, researched, went without and suffered to make home ownership a reality. We are the ones who need the bailout, but it will not be coming.

[No Elephants]

22. There is a very good reason why people don't research whether they

can really afford their mortgages.

From time immemorial, the lender did that. And the lender would not lend the money unless the lender thought the borrower could repay. It was only when repayment got totally divorced from the original lender that everything changed. And no one alerted the buyer to that.

As far as the mortgage terms, the disclosure was often faulty and/or deliberately dense.

These mortgage notes got made by financial professionals who did not care whether they ever got repaid or not to borrowers who were not even financial amateurs, just plumbers or secretaries or small business owners.

And the original lenders passed on the mortgages to others, who paid only a fraction of face value, knowing that the bundle of mortgages they were buying contained a lot of crappy paper. And so on. The least culpable party in many, many cases, IMO, was the borrower, unless the borrower was also a financial professional.

Sorry, but you and I simply disagree on this one. You take the RW position, as you usually seem to do, and I don't. I doubt that either of us is likely to change the mind of the other on this.

[WriteDown]

25. From time immemorial?

Really? Considering that homeownership has only recently greatly expanded its percentages in the US, this seems unlikely. The fist page of EVERY mortgage will have the payment and date it is due. It will also state in big bold letters at the top if it is an ARM. Its not too difficult. In fact, most rental lease agreements are far more complex than any mortgage to read through.

The progressive position is not to bail out liars who were it in to a quick buck from flipping houses. The progressive position should be to rewrite the lending laws to require at least a 10% down payment on all homes. The reason we will probably never see this though is that it prevent a good many people from ever being homeowners which has traditionally been one of the only paths to wealth in the US.

[No Elephants]

28. Yes, really. From time immemorial, lenders DID concern themselves with the ability of the

borrower to repay, to collateralize, etc. You can even see that throughout the OT. Why wouldn't lenders be concerned with repayment?

In most cases of arms' length loans, the borrower's primary concern is getting the loan; the lender's primary concern is whether it gets repaid. That's a duh from the time loans were first made, until the last maybe 25 or 30 years. Only when the lender got divorced from the consequences of borrower default did things change.

And I referenced time immemorial because loans were made for all kinds of things, not only home ownership. Land ownership was certainly one of the reasons, though.

I favor a nice, healthy down payment, probably more than 10% And I never claimed to espouse the "progressive position." I only said that you are following your customary course of taking the RW position as the the relative culpablity of borrower and lender. And, again, I doubt we will agree. So, let's just agree to disagree.

[WriteDown]

35. Over 95% of mortages are paid on time...

Its a small percentage which are not, but a big problem. I do not deny that lenders are culpable, but I will not let a mortgagor out of their signed obligation due to the fact that their were some nefarious lenders.

A car loses a ton of its value right as you drive off the lot. Where is my bailout for that? Shouldn't a bankruptcy judge be able to rewrite the terms of my car loan?

[No Elephants]

36. The percentage paid on time has nothing to do with the price of tea in China. Most people don't

bankrupt, either, and THAT has nothing to do with the price of tea in China, either.

Lots of contractual obligations are compromised in bankruptcy, contracts rejected, etc. Even when the bankrupt is more sophisticated than the lender. Do you object to all compromises in bankruptcy? If you do, isn't your real objection to bankruptcy relief? Or is your only objection to renegotiating residential mortgages?

[WriteDown]

38. Oookay....

Bankruptcy is a valuable tool for those with real financial problems, but there is no reason that my neighbor should have 20K reduced from his 100K mortgage while I have to pay the full-balance. If that is the case, there is real incentive to default. Heck, I would do it immediately if this becomes the policy.

The better solution is still if a mortgagor wanted to have his mortgage terms changed through bankruptcy, the govt would take over the loan, the company that owned the mortgage would then get compensated for the outstanding balances sans interest.


*edited to clarify thought

[No Elephants]

42. By your reasoning, bankruptcy relief should not exist bc your "neighbor" always

makes out better in bankruptcy than you do, be he or she or it your residential neighbor or your commercial neighbor. That is the very point of bankruptcy relief. It may damage the bankrupt's credit some in the future, although that does not seem to have been the case with Donald Trump, but the bankrupt does get a better deal than those who do not declare bankruptcy. That is the whole--and only--point of declaring bankruptcy.

As far as what would be better, you made that claim in another post downthread in your post #32 and I responded to it in my post # 39.

[WriteDown]

43. No...

But currently, my neighbor can't have 50K reduced from his mortgage debt. If he did, then he will have gotten a better deal. Why pay debts on time and struggle to keep your credit rating high if their is more benefit in declaring bankruptcy? Like I've said, their will be real incentive to default on a mortgage if it gains you access to better terms, or part of the stimulus money.

Donald Trump is a special case and Chapter 11 has always been very different from Chapter 7 or Chapter 13.

[No Elephants]

59. Yes. You claim to be objecting because your neighbor gets a better deal

than you do. Again, that is what happens in bankruptcy. You seem willing for that to happen for Donald Trump, for commercial mortgages, etc., but not for residential mortgages. So, your issue does not seem to be fairness, but rather something to do with residential mortgages in particular. I am beginning to think that your own finances are somehow tied to them. But, whatever, bankruptcy law leaves your neighbor better off than you. That's it's purpose and effect.

And, ps. yes, it does happen today that your meighbor makes out better than you do with respect to residential mortgages. As we've discussed, the values of the properties have gone down, so the lender is a secured lender as to a portion of the mortgage and an unsecured lender as to the rest.

As far as Chapter 11 and Chapter 13 are not really all that different in terms of the law. ONe is for corporations and one is for individuals, but the law and process are basically the same.

Chapter 7 is liquidation. I have not dealt with that because you do not restructure debt in Chapter 7. You liquidate the asset(s) that are not protected by bankruptcy law.

And Donald Trump is a special case only because lenders want to lend him money, even though he has just gone through bankruptcy. That is not typical. However, the law is no different for him than it is for anyone else.

[WriteDown]

60. Weird....

Bankruptcy should not lead to a better situation. If you can't afford your secured debts such as your house and car after bankruptcy then perhaps you should be renting and buying a used car. How far do you want to take this? Should people who declare bankruptcy be entitled to a 0% interest rate?

[No Elephants]

63. Again, few house loans are fully secured now. And, again, bankruptcy DOES lead to a better

situation.

The entire and sole point of declaring bankruptcy is to emerge from bankruptcy in a better position than you were right before you declared bankruptcy. That has nothing to do with how far I "want to take this." That's simply the way that bankruptcy law works.

Sorry, this discussion just keeps going in circles at this point.

[PSPS]

14. HAHA. Yeah, sure, "the bank made me lie."

The NINJA loans were specifically offered to people for the very purpose of buying beyond one's means. And that's why people used them. They knew what they were doing. Otherwise, why agree to a higher interest rate (after the teaser period?) If someone were buying within their means, they would have gone with a conventional mortgage, which always came with at least a 2-point reduction in interest. But no, the liar affirmitavely agreed to the higher interest specifically because they knew they couldn't afford the house and expected to "flip" the house or refinance it with another liar's loan before it recast.

Let these people rent like they should have all along. There's nothing wrong with renting, and there's plenty of rental units available. Owning a house, especially one beyond one's means, isn't any kind of "right."

[No Elephants]

16. Um, I posted "encouraged," not "made me."

[lark]

30. True dat

I've bought two homes and refinanced the 2nd one several times, and have always had to prove my income. If the bank did loans with no income verification, it's their fault not the buyers. I know when I bought my first home, I wanted a much nicer house that we'd already picked out, but could only afford a small townhouse.

[No Elephants]

37. Thanks. I always had to prove my income, too. Then again, last time I took out a mortgage was

1982. And, when I got notice that my mortgage had been sold, I was shocked. I had never heard of that before, and I was familiar with mortgages in my family going back to right after WWII and my own mortgages going back to the late 1960's. (I never rented after I married. We bought our very first home, also a townhouse, a little one.)

[notadmblnd]

33. Well we've all lost value and I think it would be the only fair thing to do

the banks still make money and everyone else benefits too. The rich will be paying more taxes soon, so why not let them have this? To me congress could enact an emergency law. The software programs to make the adjustments wouldn't be costly and we'd all be better off.

[PassingFair]

71. People who bought at the top of the market got screwn.

I don't have a problem with them refinancing
down to ASSESSED value, even if it won't effect
someone like me, who got a good deal on my house
in '95.....

[Downwinder]

3. Businesses can renegotiate all of their contracts in bankruptcy

why can't individuals?

[McCamy Taylor]

4. This is stoooopid. The bill can demnad that any mortgage higher than the market value of the home

be reduced the the market value. And that any interest payment higher that a certain amount over the current normal mortgage rate be reduced to x for everyone, not just people in debt.

[PSPS]

9. Would never work for a couple of reasons

First, the only way the value of a house could be reduced by fiat would be if my tax money were used to make up the difference. Why should my tax money buy a $40K/year liar's $750K McMansion for him?

Second, in most cases, the liar couldn't even afford to make the payments if the price and interest were reduced as you describe.

[No Elephants]

13. You don't reduce the value of the home. If anything, you reduce the face value of the

mortgage. That does not necessarily require tax money. Maybe the banks take a hit. They were the ones who chased these mortgages for the origination fees and resale value. Why shouldn't they take part of the hit? And, in return, a toxic asset becomes a solid asset. Maybe you also give the bank part of any uptick in the home value if the owner sells it at a profit in the future.

But, I think the real answer is that you don't reduce the face value of the mortgage by very much. If a home is worth a lot more than the mortgage, there is no guarantee that the buyer will not walk away sooner or later anyway.

[WriteDown]

15. Will you also be about to go to your county tax office...

and get your property taxes reduced? I'd say its somewhere between unlikely and never.

Also, if judges can reduce the balance of a mortgage and then the home values increase again, will the mortgage holder be able to go back to the judge to get the balance increased or will people just be able to sell then and net 50K?

If that's the case, then the real suckers who don't plan to default soon to try to get in on the action.

[No Elephants]

21. I have a city tax office, but I am not sure what your tax point is. That is based on the

actual value of the home, not the value of the mortgage, so it does go down. Mine went down automatically in January.

As far as going back to reduce the mortgage again, the post of mine to which you are theoretically responding says that I do NOT think reducing the face value of the mortage is a good idea.

The first part of that post was simply correcting the statement that you reduce the value of the home. Only the marketplace does that, not a bankruptcy judge or a loan re-negotiation.

[WriteDown]

23. You are lucky..

I have NEVER seen property values go down. In fact, what my house is valued at with the tax office is well above what I can sell it for. My point is that if a judge reduces the amount owed on a mortgage, what happens if property values go back up which is likely to some degree? Will the mortgage servicer or bank then be entitled to the profits if the house is sold? Will the mortgage borrower be able to keep the 10, 50, 100K in profit? This is filled with pitfalls.

[No Elephants]

27. Real estate tax is based on market value. Most tax offices have an appeal

procedure. Maybe you should look into an appeal of the amount. However, the value per the tax office usually does lag a year or two behind market value

But real estate tax is not the major portion of the owner's PIT payment anyway. And localities might give tax relief anyway. So, again, I don't know what your real estate tax point is.

As far as the rest of your post, I did mention previously--in the post that started this sub-thread-- that part of the quid pro quo of a mortgage re-write might indeed be a share for the mortgagee in the uptick, if the borrower does eventually sell the home at a profit. And again, I did say that I thought lowering the face amount of the mortgage was NOT a good idea. So, when you say "this" is full of pitfalls, I am not sure to what "this" refers, in terms of something that I posted, anyway.

[WriteDown]

32. I've appealed every year....

No luck there. It is likely that no tax office wants to do with less and are very reluctant to lower tax values.

A mortgage rewrite requiring quid-pro-quo would also present real problems. You would need to go through a whole new underwriting process since you would be entering a whole new legal contract. Since no contracts of that nature currently exist, it would require a whole new chapter of law. It would be an unmitigated mess.

A better solution would be if a mortgagor wanted to have his mortgage terms changed through bankruptcy, the govt would take over the loan, the company that owned the mortgage would then get compensated for the outstanding balances sans interest.

*edited to revise thought

[No Elephants]

39. No tax office wants to do with less, but there are laws. In my town, the real

estate tax has to match market value and there are ways of establishing market value. However, with all due respect, your personal real estate tax experience is not really relevant to this thread.

Who said you have to go through a whole new "underwriting process?" And what would this process consist of? And so what if you need one?

You are making this sound a lot more complicated and impossible than it is.

Lots of obligations, including those collateralized with real estate are changed in bankruptcy all around the nation every day. Just ask Donald Trump.

And why is the government taking over all loans that end up in bankruptcy "better?" And better for whom?

I mean, you may rather that be result, but that does not mean that your suggestion is better or easier than anything else.

The bankruptcy infrastructure already exists and judges are very used to dealing with things like this. So are lenders. The U.S. government has no infrastructure to be a mega lender, especially of only troubled loans and insolvent borrowers.

[WriteDown]

40. Please outline how real estate assets are currently...

changed in bankruptcy. I think you will find that it is not the case. Unsecured debt and secured debt are very different entities.


Better, because the government collects the interest and the current holders of the mortgages are able to recoup some of their loss. Best of both worlds.

[No Elephants]

44. These mortgages are not necessarily fully secured, though. That is the whole

point of the debate about lowering the face value of the mortgage to align with the actual value of the home. And, the borrower has no personal liability for the deficit. So, if the borrower walks away from the loan, the lender is not in great shape.

Outline? LOL, this is a message board, not a graduate course.

But I will tell you that I have seen lots of fully secured loans compromised in bankruptcy because there is often overreaching in the loan terms. For instance, the provisions of loan documents often provide for all kinds of penalties on default, including interest on overdue interest. Evem a fully secured lender often forgoes all that and makes the loan payments easier for the borrower to live with, to boot.

Why? They don't want to go through foreclose and they don't want to deal with running or disposing of the asset. They just want to do what they are equipped to do, namely, collect loan payments. Besides, they've often overvalued the asset to justify the loan in the first place and they know it.

Again, better for whom? Taxpayers? Banks? And what about my points about no government infrastructure to administer loans and the concept that the government would get only troubled loans and insolvent borrowers? Are you SURE the government would collect interest?

Best of both worlds? LOL. Only for banks, midear. Taxpayers, who had nothing to do with making these loans and never profited from them would get stuck with the worst of the loans and only the worst of them. Why is that remotely fair? Especially when the "lender" probably paid next to nothing for this mortgage note?

Unless, of course, the government pays a half a cent on the dollar for the mortgages. But, something tells me that is not quite what you had in mind.

[WriteDown]

45. Partially agree...

They're still secured, but may only be able to get 40% of their balance in foreclosure so that is valid.

Okay, don't outline. Cite a SINGLE example. Also if you can cite an example of interest being charged on interest, I would love to see that.

Better for everyone. Create jobs with a new govt loan agency. Although mortgage services to stay in business who also employ 100's of 1000's of people. Prevent widespread foreclosures which also helps preserve property values. Many, many benefits.

Let's say the govt pays 10 cents on the dollar, but that can be worked out later.

[No Elephants]

48. A single example? In re Contintental Mortgage Investors and also its

affiliate, Continental Investment Corporation, both Massachusetts corporations that filed for Chapter X in 1978 (doincidentally, the very year Chapter X was abolished) CMI was a REIT and CIC was a holding company. And both of those entities had loans where the documents provided for interest on interest, but the bankruptcy court (United States District Court for the District of Massachusetts, the late Judge Mazzone) did not allow it, at least as to CIC. CMI was handled by a different judge and I am not sure what he did. You don't get to "see" it unless you get a copy of the loan documents, though.

[WriteDown]

50. Should have clarified...

Something in the last 8 years. I can also point to cocaine in soft drinks and its health benefits but it wouldn't really be relevant today :). I'm looking more for where a real-estate asset was revalued.

[No Elephants]

52. That's cute, but basic bankruptcy law did not change all that much between 1978 and now. Neither

for that matter, did basic law as to cocaine in soft drinks. That was, I believe, circa 1914.

As to your substantive point: Forgive me, but what you are asking makes no sense. You don't decide the value of an asset by agreement between borrower and lender. Or by fiat of a bankruptcy judge. Again, the marketplace is the only way to decide the value of a home (or a piece of commercial real estate or a bunch of recceivables or any asset). Regardless of the value of the asset, though, the lender and the borrower compromise. And the lender does so especially when the value of the asset has declined, leaving the lender unsecured.

Another difference in commercial loans. By the time the thing gets to bankruptcy, the lender usually has gotten personal signatures from the larger shareholders. (In smaller companies, they get personal guarantees from the jump; in larger ones, sometimes at first, but usually as the thing is going under.) In a residential loan, there is no personal liability, so the lender has even more incentive to compromise.

[WriteDown]

53. You said:

"Lots of obligations, including those collateralized with real estate are changed in bankruptcy all around the nation every day. Just ask Donald Trump."

I am just asking for one example where mortgage terms are altered due to bankruptcy.

[No Elephants]

54. Somehow, I am not communicating. When we are talking loan obligations.

we are talking what the loan documents say the borrower must do. As in, the borrower must pay $1000 per month for the next 30 years. Borrower and lender can agree between them to change that obligation, no matter what the value of the real estate is. As for an example where mortgage terms are altered due to bankruptcy, you quoted one. Donald Trump.

I am not understanding why you think a loan collateralized with real estate is all that much different in bankruptcy than a loan collateralized with other kinds of assets. It's the obligations of the borrower to the lender that matter in bankruptcy, not the nature of the asset that is the collateral for the loan.

[WriteDown]

55. Totally agree..

No problem with a borrower and a lender altering the original agreement.

Its a bankruptcy judge doing it by fiat which is unprecedented.

[No Elephants]

56. Again, what do you think the purpose of bankruptcy relief is? Obligations are

altered in bankruptcy. That is what happens in bankruptcy.

Again, I am talking about repayment terms now, not the face value of the mortgage. However, to depart from that, if the value of the property has declined, as a practical matter, the lender may as well agree to lower amount because there is no recourse to any other asset of the borrower.

Let's say, the lender lent the borrower $200K and the house is worth $100K now. If the lender forecloses--which is the lender's ONLY remedy with a residential mortgage, it will realize much less than $100K in net proceeds. Wouldn't it make financial sense to re-write to, say, $115K and take a share of the profit, if the borrower realizes one in a future sale?

[WriteDown]

61. Sometimes obligations are even removed in bankruptcy...

but here is my problem. There are two types of mortgages, risk-based and non-risk based. The majority of mortgages are non-risk based, sometimes called fee-based. These are where an investor pays a mortgage servicer to collect payments, maintain the mortgage, etc. It usually involves a pass through rate so if you have a 6% mortgage, the pass-through rate may be 4%. That 4 out of 6 is passed on to the investor while the other 2 of 6 is kept by the servicer. Its usually a pretty narrow margin. I can't for the life of me see how a bankruptcy judge will alter interest rates by fiat. It is likely that you will end up with mortgages that have interest rates that are below the pass-through rate so that companies will actually have to pay to service the mortgage. Incidentally, if the terms are altered by the servicer outside what the investor stipulated in the servicing agreement, there is generally a buy-out clause where the servicer is then required to buy the risk which would be another disaster. The issue is a lot more complex than most can imagine which is why you have never had bankruptcy judges altering mortgage terms by fiat.

[Romulox]

66. Just FYI: Bankruptcy courts ALREADY have the power to alter secured obligations

Including lowering interest rates and "cram down" of the principal amount due to the present value of the collateral.

There is specifically an exception carved out that limits Bankruptcy court's ability to do this with a primary residence; however, cram down is currently available for rental and summer homes.

"The issue is a lot more complex than most can imagine which is why you have never had bankruptcy judges altering mortgage terms by fiat."

Unless you're hanging your argument on the word "fiat" (what the present value of a piece of collateral is determined by examining the market price, not by "fiat",) you couldn't be farther from the truth. Bankruptcy courts cram down secured obligations every day. Just not principal residences or cars purchased in the last 910 days--the Code carves out an exception to the general rule for these types of secured debts.

[WriteDown]

67. Interesting...

That makes sense. I am speaking of primary residences of course. Rental properties or secondary residences are a whole new can of worms.

[No Elephants]

58. On the issue of voluntariness, in my example, the lender is secured (at least in theory)

to the extent of $100K and unsecured to the extent of $100K. So, as to the unsecured portion, a "cram down" is possible. It is not by fiat of the judge, but by a plan the bankrupt submits and the judge approves. Usually, at least some of the creditors approve too. See http://www.answers.com/topic/cram-down

And I am talking about a bankruptcy reorganization, not a liquidation. In liquidation, the lender's only recourse is to take the asset, like it or not. (Unless the state's homestead laws protect the homeowner against the particular lender, but let's not get into that.)

[WriteDown]

62. See post 61.

you still run into the same problems.

[No Elephants]

64. So? My example above was based solely on existing bankruptcy law.

BTW, your post 61 stated there are two kinds of mortages, but you did not describe two kinds of mortgages, only two parties who hoped to make money from a single mortgage, the servicer and lender
If I understood your post 61, the loan servicer entered into an agreement with the lender and only the lender to provide loan collection services. That is a services contract and really has no place in this discussion.

However, if your description is correct (something I cannot gauge without seeing a copy of a typical contract), then the loan servicer totally failed to protect itself when entering into a services contract with the lender.

BTW, I don't care what you call a mortgage loan, there is no such thing as a "no risk" loan of ANY kind. And, as real estate mortgages go, residential mortgages are more risky than commercial mortages, because of the absence in residential mortgages of the personal guaranty of the borrower.


But, again, the bottom line of this discussion is that you and I simply view the situation differently. And I am going to leave it at that because we have gone over everything else at least twice.

[WriteDown]

68. Thought it was self explanatory...

The other side of the coin are risk based mortgages where the servicer owns the risk or at least the majority. The advantage is that although there is greater risk, there is much greater reward for that type of mortgage. They are less common though and I suspect you'll see most servicers move to almost 100% non risk based. Wells Fargo did this early on and did not suffer the losses that their competitors did.

How did the loan servicer fail to protest itself. If its non-risk based, they are almost completely protected. Risk based can be toxic though.

If you don't want to use the terms risk-based and non-risk based, you can use non fee-based and fee based. They are called this due to the servicer collecting a fee(usually monthly) for their non-risk based assets.

The bottom line is that I have a fairly good grasp of the situation. You're argument is similar to how some people call for a minimum wage of 100$/hour so everyone can be rich. Looks good on paper initially, but there are a whole host of consequences that the average person does not take into account.

[No Elephants]

51. P.S. I don't agree it's better for everyone. A new government loan agency would

be the least efficient, least cost effective way to do it. And any jobs thus created would only be temporary. Isn't that the Republican complaint with the jobs created by the stimulus package? That the jobs last only so long as the government spending does.

The bankruptcy court is there. The judge is there. The bankrupt is there. The lender is there. The lender has the expertise and infrastructure to collect the loans. If ANYthing is going to prevent widespread foreclosures, it is restructuring the loans to where the borrowers can afford to pay them. To whom they pay them does not prevent foreclosures.

So, all I see in your plan is many, many costs and disadvantages. It is your preference, yes. But nothing about it is better than using the existing infrastructure to deal with bankrupts.

[Romulox]

24. Outside of the Bankruptcy Process, this would pose a Constitutional problem...

5th Amendment "takings" clause, specifically.

[No Elephants]

29. Someone might raise the issue, but I think it can be resolved, especially in the context of

the bailouts.

[Romulox]

31. No, the case law is very clear on this matter. The government can't unilaterally revalue loans

without compensating the parties involved.

This analysis does not apply in bankruptcy...

[No Elephants]

34. My post said nothing about unilateral action, though.

[Romulox]

65. "Unilateral" means without the lender's consent in this case. nt

[Still Sensible]

5. God Damn It. The correct answer to those fucking people is

simple. If you don't do this then the housing market will continue to slide and all those folks these idiots are concerned about protecting will see their home values fall--some will join the class that's being directly helped in this bill and others will simply lose their nest egg.

The answer to this bull shit is dirt simple:

THIS BILL HELPS THOSE WHO'VE BEEN BANKRUPTED AND PROTECTS THE INVESTMENTS OF EVERYBODY ELSE.

[PSPS]

11. Why do anything to stop the sluide in housing prices?

If anything, continuing to prop up prices artificially will make matters worse. Prices still need to decline substantially before they become affordable again. The traditional rule is that the median price of a house in a given area should be between 2 and 3 times the median household income in the same area. In many markets, this factor is still way too high -- 4 and above.

Once prices return to earth, sales will increase. There is plenty of mortgage money available today for QUALIFIED buyers. The days of liar's loans (NINJA option ARM) are over, so those of you who are stuck with that $750K McMansion with your $40K/year income are just out of luck. You should have been renting all along and you should lose the house. Too bad the market crashed before you could refinance with another liar's loan or "flip" the house.

The argument that my tax money has to buy the liar's house for him because otherwise the value of my house will decline is ridiculous and won't fly. If someone bought a house within their means, they're doing just fine.

[Still Sensible]

17. So just let everybody's nest egg disappear?

The problem WAS that the housing prices skyrocketed on false value. Now those housing prices are dropping BELOW what rational fair market would be in many areas. As you point out, some markets are still horribly overpriced.

But what you propose is to basically correct the market on the backs of hard working families that, in many cases, have what amounts to their only life equity in their homes. Another case of making the poorer of us bear the load. I can't support that.

The other thing that is left out of the outrage over "irresponsible" people that should never have been qualified is that they were preyed upon by predatory lenders who "qualified" them for these loans. The bankers wanted the rules looser because they needed new revenue streams to maintain their growth and make their stock prices rise. They came up with the ARM idea and viola... then they aggressively prey on people who were below qualification and a big part of their sales pitch was CONVINCING PEOPLE THEY COULD AFFORD IT.

And your last statement is a republican talking point joke. There are countless, perfectly responsible, people whose home values have declined and left them underwater due to this economy. This varies greatly from market to market. I'm glad you're just fine, but I believe your anger is misdirected.

[Romulox]

6. The Dems need to have the courage to pass this bill! nt

[nebenaube]

7. Then they should repeal the changes they made to the bankruptcy law n/t

[Joanne98]

20. ^&%$#

[depakid]

26. Impressive how Democrats always manage to be their own worst enemies

This is a very simple straightforward and rational change in the law- and yet the so called "moderates" (who ought simply to be called what they are- corrupt) can't seem to put the nation's economic interests above their own need to fill their coffers with dirty money.

Even in these dire times.

[kiranon]

41. Because the banks are not helping those in trouble just foreclosing

on properties to the banks and the homeowners detriment (property values fall for everyone), the bankruptcy law needs to be changed to give the court "cram down" power to change the loans. Also, only the Bankruptcy Court has the power to make all parties come before it or suffer the consequences if they do not. With all the slicing and dicing of mortgages, there is no other forum for all the owners of the pieces of the mortgages to be brought in. If it is good enough for businesses, it should be good enough for homeowners too. We are trying to refi (our loan is current) and we have found it impossible to get the bank to talk with us at all. Our mortgage is with WAMU and we were referred to Chase which was not helpful at all. We never missed a payment. Our loan is well below the equity amount. We do not want to pull any money out only take advantage of falling interest rates. The bank is not interested in our refi. Perhaps with the cram down provision in place, banks will bend a little and actually help a little. Still believe it is all the credit default swaps and insurance contracts based on the mortgages not failing floating out there ready to fall that causes the banks to hoard money in case the mess lands at their doorstep.

[WriteDown]

46. "we do not want to pull any money out only take advantage of falling interest rates."

I'm in the same boat, but I'm resigned that my interest rate isn't going to be able to be refi'd any time soon.


edited for spelling to revise thought.

[Mr. Sparkle]

47. So the lobbyists have delayed the bill and are trying to water it down.

Congratulations moderate's , or as we know them in the real world, lobbyists stooges.

[iamthebandfanman]

49. Exactly.

thats all i got from this too...


sounds like lobbyists are stomping their feet and threatening to take money away from the corporate democrats...boohoo.

[GinaMaria]

57. Was the bankers' bailout watered down?

We bailed out the banks but ignore the other half of the equation? Seems wrong. we need to help both or none at this point.

[elifino]

69. Constitutional Problems: the Contract Clause

http://www.reasontofreedom.com/constitutional_problems_the_contract_clause.html

Article 1, section 10, clause 1 of the U.S. Constitution says: “No State shall . . . pass any . . . ex post facto Law or Law impairing the Obligation of Contracts.”

This was not meant to regulate all contracts, but to still allow laws which regulate how contracts are created, which improve or impair what a party to a contract could expect, as long as such regulation is prospective (applying to the future). This clause does not prohibit many laws and regulations which might restrict new contracts, but laws with a retroactive effect.

While the focus is on prohibiting impairment of the obligations of contracts, it will soon become apparent that the preceding words are also important. While ex post facto laws are often seen as attempts to suddenly prohibit past actions that were regarded as legal at the time they were done, the implications of such other law-making is tightly intertwined with government impairments of contracts.

Many impairments of the right of contracts have a retroactive characteristic, i.e., they harm part of your property in a promissory agreement made in the past. Benefits you may be receiving or have received, justly, in return for promising to perform some act or having already performed some acts, may be revoked. In the case of mortgage contracts, this often affects both borrowers and lenders. This is once again in 2007 a hot issue.

[Romulox]

70. The rejoinder is that a Bankrupt does not the ability to pay the contract

and thus modifying the obligation does not "impair" any legitimate expectancy.