Lame Duck Dems: Give bankruptcy judges power to order lenders to reduce principle homeowners owe

[flpoljunkie]

Do something to show Democrats stand with the American people and not Wall Street banks--even if some of you are, shall we say, conflicted. President Obama once supported 'cramdown,' but abandoned the idea in July, 2009.

Don't underestimate foreclosure crisis, watchdog to warn
By Brady Dennis and Ariana Eunjung Cha
Washington Post Staff Writers

Tuesday, November 16, 2010

A congressional oversight panel is set to warn on Tuesday that a widespread problem of flawed and fraudulent foreclosure paperwork could upend the housing market and undermine the nation's financial stability, just as the issue is coming under greater scrutiny this week in Washington.

The report, issued by the Congressional Oversight Panel, which monitors the government's bailout program, marks the first time a federal watchdog has weighed in on the nationwide foreclosure mess.

The panel echoed concerns raised by consumer advocates and financial analysts, who have said that although the consequences of the foreclosure debacle remain unclear, the problems could throw into doubt the ownership not only of foreclosed properties but also the millions of ordinary mortgages that were pooled and traded by investors around the world.

The report is scheduled to be released in the morning, just before the Senate Banking Committee holds a hearing on the matter and as lawmakers are considering several legislative responses.

The spotlight on the foreclosure process has anxious financial executives mobilizing on Capitol Hill. A financial lobbyist said senior executives have been meeting with lawmakers and their staffers, and industry groups are planning letter campaigns aimed at preventing any aggressive new legislation.

"Everyone's very nervous about what's going to happen this week," said another industry official, who spoke on condition of anonymity because his firm has a stake in the outcome. "We have all hands on deck."

It's unclear what new measure could pass in a politically divided Congress, but some ideas under consideration could broadly reshape the mortgage industry.

Some lawmakers want to resurrect legislation that would give bankruptcy judges the power to order lenders to reduce the principal that homeowners owe. Others are pushing for some big banks to spin off their mortgage-servicing arms to avoid conflicts of interest. There's also discussion of the federal government replacing the industry's current system for tracking mortgages with one that would be subject to federal regulation.

"The risk is small that a bill gets through," the financial lobbyist said. But, he added: "We are taking it very seriously."

more...

http://www.washingtonpost.com/wp-dyn/content/article/2010/11/16/AR2010111600022.html

[Romulox]

1. Not everyone's on board...

Does not approve.



http://en.wikipedia.org/wiki/Bankruptcy_Abuse_Prevention_and_Consumer_Protection_Act

[flpoljunkie]

3. Yes, prospects for passage are very dim.

[ProSense]

2. Excellent. There was a rumor going around that they

would pass a retroactive mortgage fraud immunity.

[flpoljunkie]

5. Now that may well get passed because it helps the banks.

[ProSense]

7. No,

it was a baseless rumor. Sometimes it's best to call BS, BS.

[flpoljunkie]

10. Let's hope it was baseless.

[jdlh8894]

4. If they reduce the principal

wouldn't that devalue the home? And possibly the neighbors that are not in foreclosure and/or bankruptcy? Shouldn't they just reduce the interest? JMO

[flpoljunkie]

6. Let everyone who qualifies refinance lower principle and reduce the rate.

It's the only way to clean up the books and move us forward economically. There will be pain for the bondholders, but they are suing the banks for bundling crap mortgages and selling them as AAA rated--good as gold. The banks must pay.

[zipplewrath]

8. No

The mortgage value has little to do with the sale value. And the properties being discussed would be lowered to reflect the reality that they aren't worth anywhere near the mortgage value.

Done properly, cram downs can "benefit" everyone. The most useful use of cramdowns is to get the principal lowered to the point where someone might actually be able to get new financing. If the cram down isn't too large, it is merely getting the bank to face the reality that there is a loss on the mortgage. A loss that will either be experienced by a cram down, or by the cost of mortgaging and reselling the home at much less than the mortgage value. The money is "already lost" in many senses, the final accounting just hasn't been done.

Cram downs can be done in many ways, and one way is that the FIRST loss is any "equity" that the home owner may have built. Then, the second is the mortgage holder. Any additional mortgages may just be canceled, as a total loss, which may be what happens anyway in a foreclosure.

These, done correctly, will actually HELP neighborhoods. People will be able to sell their homes, or begin again to build equity, so they will once again care for them, and the neighborhoods in which they reside.

[flpoljunkie]

9. Thanks for explaining how 'cramdowns' can 'benefit' everyone.

[patrice]

11. "...abandoned idea in July 2009." followed by others = a chicken or the egg question

Who abandoned whom first?

No one does anything for someone who doesn't support them and that works both ways.

[DirkGently]

12. This is one of the best homeowner relief proposals out there. Bankruptcy courts already know how.

[Romulox]

13. BK Courts are already empowered to cram down rental, vacation homes and personal property...

The argument that this is some bizarre new power for the courts is a non-starter!

[flpoljunkie]

14. The banks have kept 'cramdown' for primary mortgages from happening, and they will probably prevail

Unless Dems stands up to them, which is unlikely.

[Romulox]

15. In effect, the foreclosure process tracks the cram down process fairly closely

In other words, the present value of the home represents what the first mortgagee takes when the home is foreclosed, and the junior lien holders are wiped out. While any and all of these creditors have a right to seek a personal judgment (varies from state to state), in practical terms the debtor rarely has the ability to pay. So, it isn't a question of whether the bank will take a loss, but how the property will be disposed of after the inevitable loss is realized.

One group of "stakeholders" whose interests are rarely considered in all of this? Neighboring homeowners. I submit a cram down of the mortgage which allows the present owners to remain in place is likely to have the overall effect of protecting the value of neighboring homes (and, by implications, the crammed down home itself.) This is so because chronic vacancy and uncertainty can drag down the values of entire neighborhoods along with subject property itself--like a shot of medicine, better to take it quickly and begin recovery than allow a long malaise...

[flpoljunkie]

16. A great argument for 'cramdown.'