Republicans Claim Cram-Downs Will Make Homeowners ‘Game The System,’ ‘Go Straight To Bankruptcy’
Republicans Claim Cram-Downs Will Make Homeowners ‘Game The System,’ ‘Go Straight To Bankruptcy’
New data released today shows that “a stunning 48 percent” of homeowners with a subprime mortgage “are behind on their payments or in foreclosure,” and that a record 5.4 million homeowners were at least one month late or in foreclosure at the end of last year. The House is currently debating a measure that could address these terrible numbers by allowing judges to “cram-down” mortgage payments for homeowners who have filed for Chapter 13 bankruptcy.
Republicans, however, are “on the warpath” against cram-downs, claiming that they will allow homeowners to “game the system” by going “straight to bankruptcy.” Watch a compilation:
So are these representatives saying that they would “go straight to bankruptcy” to lower their own mortgage payments? Before they make such a rash decision, here’s a brief description of the Chapter 13 process:
Under Chapter 13, debtors can be grilled under oath by the judge, the bankruptcy trustee and their creditors, who have every right to see the color of their insides. With bankruptcy filers’ income and outflow subject to rigorous monitoring, they give up every ounce of their financial freedom for three to five years. Once they’re out of bankruptcy they may still owe most of their secured debts, although the payments may be more bearable.
Plus, a bankruptcy can remain on your credit report for up to 10 years. Doesn’t seem so enticing any more, does it?
Far from being used to “game the system,” cram-downs will likely be a last resort for homeowners who can’t find a way to make any other option work. Under the Obama administration’s housing plan, lenders will receive $1,000 for every mortgage modification and $1,000 each year for three years if the borrower does not re-default, giving them every incentive to keep a homeowner out of bankruptcy. The housing plan also offers ample opportunity for refinancing, making bankruptcy the least appealing option for everyone involved.
As Professor Adam Levitin of Georgetown Law School wrote, cram-downs are a “form of foreclosure relief that has no cost to taxpayers, does not create moral hazard…and provides an important future defense against systemic financial system risk.” Indeed, by standing in the way of a housing fix, these Republicans are turning their backs on millions of Americans and preventing a key step toward economic recovery.
4 Responses to “Republicans Claim Cram-Downs Will Make Homeowners ‘Game The System,’ ‘Go Straight To Bankruptcy’”
Register
RSSLogin
Topic Cloud
ArchivesBlog RollAbout Wonk RoomContact Us
Donate
Great post!
My only concern is that this plan does not, in the end, help many homeowners. The plan says 7-9 million, but when they run their “stress tests” on the homeowner’s finances it will be far less.
Not to worry though, there is another plan coming in a couple weeks.
I look forward to visiting “Wonk Room” again!
Matt
March 5th, 2009 at 3:46 pmYour Credit Company
Your Credit Company Blog
We had this conversation in the Sauna at the YMCA at lunch today. So this is a popular topic of conversation, not only in blogs on the internet. Real people are discussing this face to face. We all agreed there is plenty of blame to go around, but the Republicans are not looking or refusing to look at the blame that the people who made the bad loans. The banks and lending institutions are more to blame than the borrowers, because all they had to do was say “no” and reject the mortgage application.
That they didn’t should put them at more risk and accountability than the borrower. That is why it is termed a mortgage application – not a mortgage. The banks and lenders knew better and were too greedy.
This does not absolve many borrowers were hoping for a quick turnaround and be able to cash in on the housing boom. Then got caught. I can’t imagine having a mortgage of $2,000.00 or more a month, but these were a dime a dozen. I don’t have any sympathy for the speculators, but I do have for those who really were trying to simply buy a home to be a home. Those are the ones we need to help most.
We are already helping the banking industry and now it is the little guy’s turn. I say that the Cram Down is a good law and will make the banks and other lending institutions be more careful about who they loan money (if they ever start loaning it out again). Also the threat of a “Cram Down” in bankruptcy will force more mortgage holders to work with the the consumer – we will all win.
But all the republicans are seeing is the potential loss of income for their supporters and their own “interests” that are or may be in a “holding” while they are in office???
Will some game the system – absolutely, but not for the kind of money and bonuses that the too big to fail industry has gamed the system.
I hope that the Cram Downs become part of the bankruptcy judges toolbelt for aiding consumers who are in over their head and are looking at the last resort of bankruptcy.
Harold Shaw
March 5th, 2009 at 8:04 pmI wish someone had paid me $1,000 for making my mortgage payments. What a bunch of crap! If you can’t afford to make your payment, don’t take on owning a house. I don’t want a single cent of my taxes going for this type of nonsense! Talk about moronic, stupid legislators.
March 5th, 2009 at 10:19 pmI have to say that I am really tired of the “folks who couldn’t afford their houses” garbage – the truth is that many if not most of the folks in mortgage trouble COULD afford their houses, but lost their jobs, or were mislead about the interest rate hikes, etc. While some of them may have been naive or just plain stupid about the terms of the loans, the fact is that many are just victims of the economic meltdown and the massive layoffs – but now they are all being called deadbeats even if they always paid all their bills on time until they lost their jobs – totally unfair, but it is so much more energizing to trash talk them, until you become one of them. As for the folks who really could not afford the houses they bought, try to remember that these mortgage brokers and companies paid their workers big bucks to pull marginally appropriate people into houses they could only afford until the teaser rates ended, and they are very skilled at convincing people they qualify in order to rack up the bonuses and the finder’s fees they received for placing loans – usually 1% to 2% of the loan value, so there was a lot of financial incentive to put people in expensive houses, and not everyone really understands how mortgages work, even if they should. Anyhow, the reality is that pretty much anyone could end up in that situation with the current economy, so… Also, remember that the same folks who are whining about “cram down” for residential mortgages made sure that the current bankruptcy laws make it possible for a bankruptcy judge to “cram down” second home or investment property loans already – so the rich folks can already do what lowly one-house folks cannot!
March 6th, 2009 at 2:02 pm