Warren: Without Cram-downs, ‘There’s Nothing’ In Treasury’s Plan To Address Underwater Mortgages
Warren: Without Cram-downs, ‘There’s Nothing’ In Treasury’s Plan To Address Underwater Mortgages
According to the latest data, 21.9 percent of American homeowners are underwater, “a significant jump from the 17.6% of all homeowners who sat underwater in the prior quarter.” Despite this, a measure that would have allowed bankruptcy judges to cram-down mortgage payments for underwater homeowners — who owe more for their mortgage then their home is currently worth — failed to pass in the Senate two weeks ago.
According to Professor Elizabeth Warren — a bankruptcy expert and Chair of the TARP’s Congressional Oversight Panel — that leaves the Obama administration’s housing plan without an answer for underwater homeowners. In an interview today with The Wonk Room, Warren explained that without cram-down, it’s critical that the administration find something else to “get a floor in the housing market“:
I’m very concerned because that was the last place that — in the overall structure of how to deal with failing mortgages and foreclosures — that was the last place that we had to try to deal with the underwater mortgages…There’s nothing in the current Treasury plan to deal with that problem other than “let’s count on the bankruptcy bill.” And without the bankruptcy amendment, this undercuts a big part of the thrust of trying to get a floor in the housing market…This is a problem. We can’t just help people who are facing mortgage problems in areas where there haven’t been sharp price declines. We have to find something that works across the country.
Watch it:
A housing bill that passed the Senate last week also doesn’t provide “significant help” for underwater homeowners. And while the declines in housing prices aren’t falling quite as rapidly as they once were, they are still going down at a healthy clip.
Dean Baker wrote that home prices “have been falling at a 24 percent annual rate in recent months” and “given the massive inventory of unsold homes, it is reasonable to expect that this rate of price decline could continue at least through 2009.” If that is the case — and since the banking lobby has successfully taken cram-down out of the equation — a new avenue for helping underwater homeowners will have to be found. The housing problem is not going to simply disappear, and until it’s solved the economic recovery will be that much slower.
3 Responses to “Warren: Without Cram-downs, ‘There’s Nothing’ In Treasury’s Plan To Address Underwater Mortgages”
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The financial rescue plan is blatant corporafornication. Blue dogs voted against individual mortgage cramdowns under bankruptcy. Out of $3 trillion in interventions how much went to the little guy? Little to none.
May 11th, 2009 at 6:38 pmThe financial meltdown was caused by government not by wall street. The increase of credit was a result of the creation of fannie mae in the 1970’s. It was governments attempt to create a market for credit in hope of making home ownership more affordable. However, since the late 90’s this increase was acerbated, because there were specific politicians who wanted as much free credit available in order to further their political careers. With excess credit, the government does not need to cut taxes, regulations, and could pass burdensome legislation with out much impact. It also created a revenue stream for many governments, because most of the loaned money was recaptured through taxes.
The government made it a law to provide loans to as many people as possible, including those who would not afford them. Since they were backed by fannie mae, worthless paper was turned into a rated paper, so that it could be sold to institutions around the world and the proceeds were repackaged and re-loaned. The credit crises was created by an ever growing and unlimited supply of credit which outstrip the housing supply. This is what caused the excessive leveraging on wall street.
People must put the blame where it solely lies; on the government. It was big government who distorted the financial market and caused the crises and not wall street. It is big government that want’s you dependent on loans, directly or indirectly (payroll for example) so that it can grow.
We need to stop the government from distorting the market by eliminating freddie mae and getting it out of banking period.
We also need to change the tax structure so that we can lower taxes and lower government revenue at the same time.
By doing this we won’t need the loans and those who have loans will have a more affordable option.
May 12th, 2009 at 8:49 amtk,
May 13th, 2009 at 11:18 amthat makes no sense.