I Have Serious Doubts That Financial Industry Will Consent To Allowing BK Courts...

[Median Democrat]

To modify loan terms. I agree that such a reform is long over due. However, Republicans will be dead set against it, since they need to report to their corporate masters. It is amazing that mortgage debt cannot be modified, particularly where the bank itself cannot sell the home for the amount of the mortgage.

Also, with such a reform, perhaps the financial industry will have some incentive to ensure that loans are given to folks who can actually afford the loan, rather than encourage liar loans to folks who cannot afford the loan payments, since the bank may need to eat the difference if the person declares bankruptcy, and the mortgage is underwater. Of course, if the bank properly appraised the property, then the bank is not harmed. But, if the bank accepted an inflated appraisal, then the bank takes the hit just like the homebuyer.

Also, if predatory loans are curbed, then perhaps this will reduce the likelihood for another housing bubble fueled by such loans.

[Romulox]

1. It shouldn't be up to the banks, unless you're saying that our politicians are paid for.

Which they are....

[taught_me_patience]

2. Courts should not be allowed to do this

it will make loans riskier to originate and therefore more expensive. This would mean higher interest rates for all those looking to purchase homes in the future.

[pinto]

5. I think the point that this may help *limit* artificially inflated loans is valid, 'tho.

[Romulox]

6. Courts are already allowed to do this for virtually every type of secured debt

save primary residences (yes, you can "cram down" rental or summer homes in bankruptcy!) and so-called "910 cars".

Most every other kind of secured debt can be modified in this way in bankruptcy. So they already have the power in most cases. :hi:

[Median Democrat]

10. Gasp! Romulux Agrees With Me

Amazing.

[Romulox]

15. YOU must agree with ME!

I guess neither one of us is ALL bad, eh?

:fistbump:

[Median Democrat]

8. There Needs To Be Some Risk On The Origination. The Problem...

...before was that banks would originate the loans, then simply sell them as securities. There needs to be more incentive on banks to properly underwrite loans, and giving bankruptcy courts the ability to modify loan terms is one way:

First, the banks will have an incentive to actually police appraisals to ensure that they are not inflated, since the bank will eat the difference in the event of bankruptcy. If homeowner simply can't afford their home, they are out of luck. The proposed bankruptcy reform only affects those loans that are underwater.

Second, banks will have incentive to actually verify that borrowers can afford loans, which will cut down on predatory lending. If the borrower declares bankruptcy and the house had an inflated appraisal, then the bank should also take a hit due to its poor underwriting.

I think the mortgage crisis was caused, in part, by the removal of risk, which encouraged hazardous behavior. Liar loans should be the poster child for moral hazard.

[taught_me_patience]

13. I agree with most of this

However, I'd prefer to let the purchasers of the securities determine the risk and price accordingly.

[JDPriestly]

25. In California, we have the Depression era deficiency laws

Here is how it worked back in 1995-96 or so. If the bank forecloses, it gets the house, but the homeowner who lives in his house for the required time and whose house was foreclosed owes nothing more unless the house is more than four units or the owners had second and more mortgages. There are other exceptions.

That means that the bank gets all the money that was paid on the house before the foreclosure plus the house, but nothing more. The foreclosed homeowners walk away with no debt after they leave the house.

I don't know whether the owner has to pay any taxes on the debt forgiveness.

If the house has gained in value, the bank can sell it for a profit. But in times like this when house prices are falling, banks that foreclose face losses. Fair enough in my view.

The homeowners can rent new places provided they have some income. Of course, if a lot of homes are foreclosed, and there is a big demand for rentals, rents could go up.

[pinto]

3. You'd think lenders would want 70 - 80% of something instead of 100% of nothing.

:shrug:

I'm unsure of the mechanics, or the bankruptcy laws, but it makes sense to me.

[Median Democrat]

11. The Problem With Derivatives Is Who Is The Lender?

If a mortgage is underwater, who has the power to modify the loan terms voluntarily? The entity that services the loan may not have the authority to re-structure the loan. This is why it is important to allow a bankruptcy court to do this. Hopefully, this creates an incentive for the financial industry to ensure that servicing companies have some authority to modify loan terms to avoid having a bankruptcy court do it for them.

[pinto]

14. Ah. Makes sense.

[Vinca]

4. If they can do it for second, third and fourth homes, there's no reason

they can't do it for the 1st home.

[Romulox]

7. Precisely. Even the bankruptcy code itself favors the well-off atm. nt

[lurky]

9. Sadly, It's not just Repubs who are corporate sellouts...

Although they have certainly turned it into an art form.

[Median Democrat]

18. Still, I Can See Republicans Threatening Filibuster

The trick, of course, is to portray their efforts to serve the financial industry as protecting the American public. Of course, in 2005, Goerge Bush sold bankruptcy reform, which made it more difficult to declare bankruptcy, as good for American families, rather than a gift to the credit card industry.

Still, expect Rush Limbaugh/Karl Rove to go on a blame the consumer/protect the bank kick as they recite GOP talking points attacking the proposed bankruptcy provision.

[TahitiNut]

12. It's becoming more doubtful that the banks even KNOW who 'owns' the mortgage.

The derivative 'rights' (entitlements, actually) have been sold, repackaged, re-derived, and resold so many times that the risk has been amplified instead of 'hedged.' Between CDOs and CDSs, I doubt they know their ASSets from a hole in the ground.

[flvegan]

16. You know, technically, in any judicial state, a mortgage/note IS a contract

and a foreclosure IS a civil action. The foreclosure judges could, I think, order the parties to mediation before he hears on a Motion for Judgment. I think there should be some incentive there.

[Romulox]

17. I don't know about your state, but in mine, mortagees have the "power of sale"

This is a non-judicial foreclosure action, with no trial involved.

[TexasObserver]

21. Unfortunately, most foreclosures are non judicial.

The note signed by the debtor is secured by a deed of trust, and a trustee is appointed to protect the noteholder/deed of trust beneficiary's interests. The trustee posts the property for non judicial foreclosure, and proceeds to "sell" the property at foreclosure on the courthouse steps, on an appointed date.

Typically, it is incumbent upon the debtor to initiate some form of judicial proceeding to stop the non judicial foreclosure. This is usually done by either (1) a bankruptcy filing, which invokes immediately an automatic stay to all foreclosures, repossessions, and such, or (2) files in state court for a TRO/Injunction to stop the non judicial foreclosure.

In the first such circumstance, there are weeks following the filing of the bankruptcy which allow time for negotiation on real estate and its debt. Lenders want to know they will either be paid by a date certain, or will get the property. Eventually, they will get one or the other, and in the interim is when a deal can be made.

In the second such circumstance, judges always push the litigants to make a deal, and those that make deals get handled first, and those that don't make deals get told to wait in the hall until they can be heard. The whole process is designed to make people grow weary of the hassle and make a sane deal on their own, which they can then announce to the court and get the hell outta there.

I agree with your statement. Mediation should always be used to try to resolve issues early in a conflict, when one sane outside voice may be all it takes to find a sane resolution.

[TexasObserver]

19. To do so would turn 500 years of law regarding commercial paper on its head

Somewhere, someone buys a mortgage. Your mortgage. They may be a retiree, living off the income their mortgages generate. The owner of your mortgage doesn't know you. They know your account. They know your deed of trust. They know who handles your mortgage accounting and escrow, and they get a check for their ownership.

This person or entity is a good faith purchaser for value, taking their commercial paper without actual or constructive knowledge of any fraud or consumer scam foisted upon you by some home builder somewhere. The reliance of the buyer of such paper upon the status of good faith purchaser for value is essential to mortgages being sold on the secondary market.

Any attempt to alter the principal of mortgages by bankruptcy courts will inundate such courts with new bankruptcy filings, where the mere act of filing might force a lender to cut their mortgage principal by 5% or more. The scales will tip in favor of debtors, all debtors, and chaos will reign among mortgage holders.

If you want to kill mortgage lending, allow bankruptcy courts to rewrite the principal on mortgages by fiat.

[Median Democrat]

22. Your Assumptions Are Not Accurate

The current mortgage crisis illustrates how opaque securities currently are. Indeed, there is such a disconnect between originators, purchasers of such securities, and homeowners, that homeowners have no idea who to contact about trying to restructure their loans due to the layers upon layers of middle men, as mortgages are bundled and securitized.

You also assume that people will declare bankruptcy lightly. This is not the case. It ruins credit, and it carries a social stigma. Yes, Republicans like to create a myth of free spending consumers who easily declare bankruptcy, but as Elizabeth Warren's studies show, this is not the case. Many bankruptcies are motivated by personal crisis.

Allowing courts to revise mortgages will help avoid needless foreclosures where the homeowner is unable to contact those parties with authority to modify their mortgages.

* * *
Somewhere, someone buys a mortgage. Your mortgage. They may be a retiree, living off the income their mortgages generate. The owner of your mortgage doesn't know you. They know your account. They know your deed of trust. They know who handles your mortgage accounting and escrow, and they get a check for their ownership.

This person or entity is a good faith purchaser for value, taking their commercial paper without actual or constructive knowledge of any fraud or consumer scam foisted upon you by some home builder somewhere. The reliance of the buyer of such paper upon the status of good faith purchaser for value is essential to mortgages being sold on the secondary market.

Any attempt to alter the principal of mortgages by bankruptcy courts will inundate such courts with new bankruptcy filings, where the mere act of filing might force a lender to cut their mortgage principal by 5% or more. The scales will tip in favor of debtors, all debtors, and chaos will reign among mortgage holders.

If you want to kill mortgage lending, allow bankruptcy courts to rewrite the principal on mortgages by fiat.
***

[TexasObserver]

26. It ain't gonna happen.

Someone advances that notion every major recession. Let's just wave the magic wand and make debt get smaller!

Like I said, you'll kill mortgage lending if you attempt to alter the value of commercial paper.

[Mike 03]

20. I'm confused. I thought Obama said that his program incentivized creditors to renegotiate

mortgages, the implication being that it is better to get less per month over a long period of time than nothing. And is it up to the courts? Or is this just the price of accepting monies from the government to stabilize loan-losses?

Maybe I misinterpreted his presentation.

[Median Democrat]

23. It Does, I Am Only Addressing The Proposal To Allow BK Courts To Modify Mortgages

You are correct about his program. It mostly creates carrots. However, bankruptcy is the stick, and I understand to be contingent on lenders efforts to renegotiate loans. Currently, lenders have been unable or unwilling to do so. So, Obama creates both a carrot and a stick.

[Mike 03]

24. Oh, I gotcha. Thanks for the clarification. One of the things

on my List of Things to Do is attempt to obtain the transcript of Obama's speech today and go through it closely. There was a lot of information compressed into a relatively brief presentation.

Thanks again.