Bankers win the war, 'distressed' homeowners left on hook
Only a day after the Mortgage Bankers Association fired off a stern letter of warning to Congressional leaders about attempts to change foreclosure bankruptcy laws to ease the plight of those facing foreclosure and help end the still threatening housing crisis, the House of 'Who The Heck Are We Representatives?" shot the proposal dead.
But make no mistake about it, the House may have been holding the gun, but the mortgage bankers provided the ammunition.
It was, as is often the case, billed as a compromise -- -in order to pass so-called tougher rules governing Wall Street (though even those have been severely watered down).
The House previously had passed the measure, but the Senate -- often more impacted by lobbyists of all types -- said "no." The Obama administration once was in support of these changes but backed away from them under pressure from the banks, some critics claim.
What the now dead changes would have done:
Pure and simple, under current bankruptcy laws, judges have great flexibility to modify second mortgages (such as on the vacation homes of the now fiscally-challenged rich and questionably-famous) including, under certain condition, the actual principal of the loan.
The proposed changes would have allowed bankruptcy judges this same flexibility with primary mortgages ...YOUR mortgage, perhaps!
Now, I know there are a lot of folks out there who believe that it is unfair for a judge to be able to reduce the principal mortgage loan for one individual who, perhaps, got in way over his or her head by buying the home to begin with, while those who "played by the rules" have to continue to pay the full amount of their mortgage loan.
The problem with this thinking is, as many economists will tell you, it does no one's property value good to have neighbors on the block in foreclosure. The proof of this is the past two years or so of greatly reduced property values in most parts of the nation.
When viewed from this angle, a judge reducing someone's principal -- or setting up other binding conditions for mortgage loan modification -- is a small price to be paid.
The greater good:
But the bigger issue really is this -- by every measure available, the current mortgage modification programs are pretty much dismal failures with far, far fewer homeowners benefiting from them than what the Obama administration had promised.
Banks and other mortgage lenders have put up many roadblocks -- not the least of which has been cumbersome paperwork that is apparently often lost or mishandled by bank employees -- to permanent mortgage modification, leaving many distressed homeowners in a sort of limbo. And, even those who do manage to slip through and land a permanent mortgage modification, usually only have their interest payments reduced, but end up having to pay off the loan over a longer period of time costing them even more money in the end!
That is why what the House did Friday -- or didn't do in this case -- threatens to slow down and maybe even abort any meaningful long range recovery in the housing market.
The best chance for that would have been passing legislation allowing bankruptcy judges to do what they do best -- judge fairly! Sadly, that chance has now apparently been abandoned.
Charles Feldman is a journalist,media consultant and the co-author of the book, " No Time To Think-The Menace of Media Speed and the 24-hour News Cycle."