Shocker: Lenders don’t like bill that allows unilateral reduction in mortgage
posted at 2:12 pm on April 28, 2009 by Ed Morrissey
The cramdown bill appears stalled in the Senate, and Dick Durbin isn’t happy about it. He complained to the Washington Post that the mortgage lenders still have an influence on legislation, but it’s not much of a surprise why. Durbin wants to give judges power to unilaterally reset the value of mortgages on loans as high as $730,000 to benefit homeowners who bit off more than they could chew:
Days before an expected vote, Senate leaders yesterday touted their version of a proposal to allow bankruptcy judges to modify mortgages, but have yet to secure the support of the financial services industry and face fierce opposition that could derail the proposal again.
Senate Majority Whip Richard J. Durbin (D-Ill.) has been negotiating with Bank of America, J.P. Morgan Chase and Wells Fargo for weeks. They are facing increasing pressure to conclude negotiations before a Senate vote later this week, but talks continue, according to Senate aides.
“I hope we can muster the courage and find the votes, although I know it will be hard,” Durbin said on the Senate floor yesterday. Durbin has been pushing the measure for more than two years. “It’s hard to imagine that today the mortgage bankers would have clout in this chamber, but they do.”
I know Durbin wants to paint himself and his party as defenders of the common man, but the common man will pay the price for all of the government intervention. Lenders will have to tighten credit as they lose money on notes already issued, and pressure will begin to force interest rates higher to recoup some of the losses. While the government attempts to create a floor value for mortgage-backed securities on these same loans, the uncertainty of the actual principal on the loans will make the value even more opaque than ever.
And who, exactly, will Durbin’s bill protect? Take a look at the astronomical cap on the program:
Despite the ongoing negotiations, Senate aides said the section covering bankruptcy modification is near completion. It would weaken the bill by requiring homeowners to be two months delinquent and have an outstanding balance of less than $729,750 to qualify. If a bankruptcy judge lowers the principal balance, the borrowers would have to split any profit with the lender if they sold the home while still in bankruptcy proceedings.
We’re intervening to save homes worth almost three-quarters of a million dollars? The rest of us have to pick up the costs because people bought expensive homes they couldn’t afford, and now can’t refinance to get smaller payments? That figure does not represent Mom and Pop America; it represents the speculators who helped drive up the market and bought irresponsibly. Bankruptcy exists to cover those situations, not government subsidies and intervention in private contracts.
And that was the compromise that Durbin offered. The original bill apparently didn’t have a cap.
Most Americans don’t live in homes that required $730K mortgages. The average value of a home in the US is less than $170,000, or about a quarter of the cap. Even at its peak, the average home value for the US was $220,000, and in the West, where prices were highest, it was just under $300,000. Durbin wants to intervene on mortgages that more than doubled the highest regional price average at the peak of the home bubble.
He’s not rescuing the common folk. He’s rescuing the speculators at the expense of everyone else.
Blowback
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When contracts stop meaning things; that’s when this is the banana republic.
And this bill makes contracts stop meaning things.
lorien1973 on April 28, 2009 at 2:15 PM
Let’s see, it is April now, so it would be exactly two years and three months as of last week. Elections have consequences.
Vashta.Nerada on April 28, 2009 at 2:17 PM
It seems to me like this is just the most recent bill that makes contracts stop meaning things. Though I will give you that it is the most overt one.
myrenovations on April 28, 2009 at 2:17 PM
Don’t play that game Ed. The Federal Government shouldn’t be doing this on any home loans, regardless of the amount.
toliver on April 28, 2009 at 2:18 PM
Honk if you are paying my $700K mortgage.
Vashta.Nerada on April 28, 2009 at 2:19 PM
This is a really, really horrific news day for tax payers and, well, America.
Actually, this is a really, really horrific four years+ for America.
Mommypundit on April 28, 2009 at 2:19 PM
$729,750
Too big to fail.
Badger40 on April 28, 2009 at 2:19 PM
+10
Mommypundit on April 28, 2009 at 2:20 PM
Where is Durbins’ hometown? How is East St Louis, Illinois doing and how many $730,000 homes are there?
Herb on April 28, 2009 at 2:20 PM
I am not defending this bad bill, but you have no idea what houses cost in some places. We’ve moved many times over the years and some places (Boston, DC, LA, SF) are just plain expensive. In our town in LA county the average house price is close to the figure you think is so outrageous, but our neighbors are a mix of professionals and small business owners, not Hollywood elites.
Attack the bill, but leave the dollar amounts out of it. It’s too similar to the “Wall Street executives are paid too much” mentality, imho.
Y-not on April 28, 2009 at 2:20 PM
they announced today HUD will be creating a program to EXTINGUISH second liens, ie eat the home equity loans..who will pay for that….gee I wonder?
Piece here, with linky to WSJ
ginaswo on April 28, 2009 at 2:21 PM
With the exception of fanniemae and freddiemac, mortgage securitization is dead. If this bill passes, it will be forever dead.
Who would ever buy a mortgage backed security knowing that some judge can arbitrarily change the rules in the event of default?
voiceofreason on April 28, 2009 at 2:21 PM
I wonder how many real estate speculators have donated to Durbin’s campaign.
As always, the Democrats say they are for the common man, but their actions always benefit the rich and their own donors first.
MarkTheGreat on April 28, 2009 at 2:22 PM
Wouldn’t this just encourage people to stop paying their mortgages?
Funny logic these liberals have.
loudmouth883 on April 28, 2009 at 2:22 PM
You need an income of half a million or more to support a mortgage like that. That sounds pretty “elite” to me.
MarkTheGreat on April 28, 2009 at 2:25 PM
Man do I feel like a fool, taking out a mortgage that I could afford, for a house priced at $85,000. I could have gotten 8.5 times more house than I did.
rbj on April 28, 2009 at 2:27 PM
It must be nice to be able to print your own money………
Seven Percent Solution on April 28, 2009 at 2:27 PM
This is the United States Senate, home of so many criminals, liars, tax cheats and rampant Socialists all members and their staffs should be wearing ankle bracelets.
Since Lord Durbin ‘represents’ the corrupt State of Illinois Politicians, it ain’t surprising to see notes on their mansions ‘adjusted’.
SeniorD on April 28, 2009 at 2:27 PM
And that includes 100 million dollar estates propping up the average value. If you were to remove houses that cost more than 10 million from the estimates the ‘average’ home price is likely 10 or 20 grand lower.
BadgerHawk on April 28, 2009 at 2:27 PM
Some people consider cost of living expenses before moving. Just because the market is over inflated in your area, does not mean that you still deserve to have a house in that area. Do what myself and many friends did. Get an apartment, or commute from an area less affected by the inflated housing until the home prices begin to deflate.
ClassicCon on April 28, 2009 at 2:28 PM
Housing prices for a 3 bedroom bungalo in Cupertino is well above $500,000 (and that was 7 years ago).
SeniorD on April 28, 2009 at 2:29 PM
I got an offer from some firm in Missouri, in the mail, to Refinance my mortage for no closing cost. I wonder if its related to Obama’s website related to this.
jp on April 28, 2009 at 2:29 PM
Ditto.
As a child in SoCal during the ’70s-I can attest to the excess of the area like in Novato, Mountain View, etc.
And though these homes may go for that much, you still have to making a large amount of dough to keep them.
So if you don’t, then it should never have been bought in the 1st place.
A HUGE reason why I moved from the greater Seattle area. That is just what happened there as Microsoft was getting up off the ground.
A normal person couldn’t afford to buy anymore.
People need to vote with their feet on this type of inflation.
Badger40 on April 28, 2009 at 2:29 PM
+1
Badger40 on April 28, 2009 at 2:30 PM
State control over the private sector, including the re-writing of contracts between private parties, will eventually beget the wholesale destruction of the private sector. This is the beginning of the end of the free market in America.
The America that I grew up in will collapse. This is just a reflection of the Socialist indoctrination that has occurred in our public schools, since the 60s.
These Socialists, instead of destroying liberty – in the name of the children – are doing so – in the name of the common man.
Workers of the world, unite. America has finally embraced Socialism. And, this includes those who call themselves “Republicans.” Bush, that imbecile, said re: TARP – “I had to chuck some of my free market principles, in order to do this.”
Yes, that’s what you do with “principles” – you “chuck them.” And, you lay the foundation for the onslaught of Socialism. You buffoon.
I fear for Conservatives. America is lost. I am sickened.
OhEssYouCowboys on April 28, 2009 at 2:32 PM
You misread. I was talking house prices, not mortgages. But all I can tell you is we have one-income families with contractors, professors, city employees, and teachers.
In any event, I still contend that your premise — and Ed’s apparently — that you can peg “elite” status to someone’s house or even their income is misguided and wrongheaded. You have to factor in the cost of living in the area as well as how that person/family lives, their obligations, how long they’ve had their income, how old they are, etc.
Y-not on April 28, 2009 at 2:32 PM
Some part of me fears that we are about to see how fragile civil society can be.
Count to 10 on April 28, 2009 at 2:34 PM
The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation. – Vladimir Ilyich Lenin
The actions of our own government are directed at our destruction. What is happening is right out of the Communist playbook.
OhEssYouCowboys on April 28, 2009 at 2:36 PM
I agree to a point. In agriculture we have lots of ‘stuff’ but are extremely cash poor.
But there is equity in the land, animals, & equipment & the bank can sell it when you can’t make the payments.
In ag, they try not to overvalue the land in the mortgage bcs you don’t want to get too bogged down in debt so that if they do sell it off, you have something left to live on-like the piece of land that your house sits on.
So these houses are not comparable bcs they’re not worth that much. So they should never have been bought by people with insufficient incomes to begin with.
You can always RENT.
Badger40 on April 28, 2009 at 2:37 PM
Hey, everyone who is chiding me for living in an expensive area: I AM NOT DEFENDING THIS BILL. I am merely pointing out the reality that some places are very expensive. Not that it’s any of your business, but I don’t want any of you to pay my mortgage so no need to give me any financial advice. I don’t need it.
But you are absolutely incorrect that only rich people can live in expensive areas. It all depends on the choices and sacrifices you make at different stages of your life.
Y-not on April 28, 2009 at 2:37 PM
Anyone know whether there will be a corresponding change to the tax code so the amount of forgiven debt isn’t taxable?
Dead Hand Control on April 28, 2009 at 2:40 PM
No offense meant. But if you have to sacrifice things like medical ins, car ins, food, etc. Then living in an expensive area may not be the best choice.
But good luck with everything! Bcs I don’t envy you for where you live!
Badger40 on April 28, 2009 at 2:40 PM
Profits mask coming storm
Wall Street financial institutions have suffered a gross loss of investor confidence in this crisis and have seen their share values ravaged as a result. Hence, there is a concerted and vigorous effort underway on their part to bolster that collapsed confidence, with the aim of driving the value of their shares back up.
Remember, these big institutions all participated in one way or another in the grossly deceptive schemes and practices that created and artificially inflated fundamentally risky investment assets, grossly overstated their creditworthiness, and sold them on to unsuspecting investors – the massive swindle that brought us into this crisis in the first place, a crisis that emerged right on Wall Street itself.
The government and the banks do not want investors at large to see hard data that only bolsters that dismal assessment. The Barack Obama administration has thus painted itself into a potentially very grim corner with the stress tests. Almost no matter what is done on May 4, the risks of a new crisis of confidence in the US financial sector are significantly rising.
MB4 on April 28, 2009 at 2:42 PM
Well, a house is an investment, not a right. I’m so sick of people thinking they have a right to a house. YOU DON’T. If you live in CA, you have an investment. In fact, you could (up to a couple of years ago) sell your house, move to Texas (or virtually any southern state) and get twice as much square feet for the money.
Let the people who can’t afford it fail. Then the folks who were smart and kept their powder dry can move in and buy these properties for a more reasonable price.
Matticus Finch on April 28, 2009 at 2:42 PM
Yes.
Mr. D on April 28, 2009 at 2:43 PM
I am surprised they are not going after the original seller who reaped the benefits of selling at the top of the market.
TexAz on April 28, 2009 at 2:43 PM
Living in NJ, I can agree with Y-not that home prices/mortages vary greatly. A 500K+ home in my area is not a mansion.
However the truth is people started thinking of those homes as starter homes. First time home buyers think that they should get that 4 BR/2 1/2 bath, granite countertops & SS appliances, blah, blah, even if they need 100% financing to cover it.
katiejane on April 28, 2009 at 2:46 PM
Thanks for your concern. We have a sterling credit rating and live a very safe life. Our sacrifices were in cars, electronics, vacations, jewelry, etc… and a willingness to move away from friends and family to pursue our careers. In my case, for the first 18 years of our marriage we had to move to cities that had a very particular type of electron microscope! Imagine the fun that was! :-)
We left Lafayette, Indiana, a couple of years ago. There’s a reason our house there was 35% bigger and 60% cheaper.
I just think that because we’re all properly quite concerned about the prospect of paying for other people’s risky financial decisions there is a tendency to jump to conclusions about people and criticize them based on those assumptions.
Y-not on April 28, 2009 at 2:48 PM
Someone who bought a $1 million home in 2004 could be eligible for a cramdown if they put down 20% and got a 15-year mortgage. Insanity!
The lengths Durbin is going to get this passed is proof positive that it is nothing but an employment act for bankrpucty lawyers.
rockmom on April 28, 2009 at 2:48 PM
As a few others have pointed out, homes in some parts of the country are prohibitively expensive – even for starter homes. NYC metro area is one such location. Average prices in NYC would be several times the average price you quote, and you’d be hard pressed to explain where that money went because you are living in a glorified closet.
lawhawk on April 28, 2009 at 2:49 PM
That’s true. Our first apartment was a furnished dump next to the trash room in the South Side of Chicago. You have to be willing to sacrifice.
Y-not on April 28, 2009 at 2:50 PM
“When contracts stop meaning things; that’s when this is the banana republic.”
“And this bill makes contracts stop meaning things.”
lorien1973 on April 28, 2009 at 2:15 PM
I couldn’t agree more.
rlwo2008 on April 28, 2009 at 2:50 PM
My mortgage (house purchased in 2003) is $171,000. Is it too late for me, as George Jefferson would say, to “move on up”?
Dr.Cwac.Cwac on April 28, 2009 at 2:51 PM
And Ed was talking about mortgages, not housing prices.
MarkTheGreat on April 28, 2009 at 2:52 PM
There are counties in which $170,000 could only buy you a tiny condo in a crime-filled neighborhood. In fact, it is the home prices in such counties which contributed most to the current crisis, so ignoring them isn’t a feasible strategy (unless you think that ignoring everyone is). The question of whether we want to rescue anyone or do anything is apt — this bill certainly doesn’t look like the answer and I’d certainly favor one with a greater role for free-market forces — but don’t go pretending that only looking at the low end of this is going to make any progress in addressing the problem.
calbear on April 28, 2009 at 2:53 PM
The Democrat Party is most certainly the most bi-polar, bought by powerful Socialists to own the massive slave population.
maverick muse on April 28, 2009 at 2:53 PM
I think you misread Ed’s point, and the quote from the article:
The article clearly states that people with an outstanding mortgage up to $729,750 can qualify. This is about mortgages, not house prices. If you get in over your head with a $700k mortgage, the taxpayers shouldn’t bail you out.
On the topic of housing prices, why do you think they are are so high? Yes, there is some influence from normal supply/demand ratios. However, real estate prices have been greatly influenced by the ready availability of credit that people really can’t afford (check out what people qualify for and compare that to what is really affordable.. there’s a big disparity). That problem isn’t solved by forgiving debt a person never should have taken out to begin with. The people who continued to rent in order to live within their means are the ones who get screwed the most in all of this.
vermillionsky on April 28, 2009 at 2:54 PM
Translation: “You peons, er, people that have been paying your mortgages on time, please, keep paying. It’s not fair that you are so anal about paying your bills diligently so we’re going to decide how much a ‘regular American’ (in our world view) should pay for their mortgage. Besides, Barack won.”
Dr.Cwac.Cwac on April 28, 2009 at 2:54 PM
Look, I’m not going to get into a pissing match with you, but if the mean house price in our area is around $650K, I think there’s a good chance there are people in our neighborhood with mortgages at least that large.
I don’t understand the logic in finding “fault” with people who live in areas that are expensive IF YOU ARE NOT PAYING THEIR MORTGAGES.
Y-not on April 28, 2009 at 2:54 PM
calbear on April 28, 2009 at 2:53 PM
Time for Terrye to defend McCain.
maverick muse on April 28, 2009 at 2:55 PM
What is so annyoing about this is that people already do have some relief in bankruptcy, if they are delinquent in their mortgage payments. The judge can order the arrears wiped out or tacked on to the end of the loan (which effectively wipes them out since almost all homes get sold before the mortgage is paid off.) Generally, once the consumer’s other debts are restructured they can afford to resume their original mortgage payments, or at least buy time to sell the house and pay off the mortgage.
What this “cramdown” legislation does is allow judges with no expertise in real estate or finance to arbitrarily order a mortgage to be recalculated based on the current value of the house, and force the lender to eat the reduction in principal and interest. It would enable people to declare bankrupcty solely for the purpose of getting a windfall reduction in their mortgages because the value of the house has fallen. I’m sorry, but this does not make you bankrupt! It makes you stupid for not putting 20% or more down on your house!!!
rockmom on April 28, 2009 at 2:55 PM
My point is simply that the size of the mortgage should not matter. Big or small, we should not be bailing out individuals.
Y-not on April 28, 2009 at 2:56 PM
It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world. I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.
-Thomas Jefferson
The strongest reason for the people to retain the right to keep and bear arms is, as a last resort, to protect themselves against tyranny in government.
-Thomas Jefferson
MB4 on April 28, 2009 at 2:58 PM
Point is, NO BAIL-OUTS!
maverick muse on April 28, 2009 at 2:58 PM
Some questions:
(1) What’s the impact on the complexity of the MBS/CDO valuation problem if the revenue streams from each of the underlying mortgages is now subject to the dictates of thousands of individual bankruptcy court judges?
(2) What’s the capacity of the U.S. bankruptcy court system, in numbers of cases per year? How much will this increase their case flow? Can they handle it?
DrSteve on April 28, 2009 at 3:03 PM
agreed. Nobody should get a bailout on their mortgages.
The point I’m trying to make about high-priced housing areas is that if you can’t afford a $650k mortgage (i.e., if you don’t make an income large enough to actually pay the mortgage, live the lifestyle you choose, and save enough in reserves for hard times & retirement), then you shouldn’t buy the house even if the bank qualifies you for the mortgage. Qualifying for a mortgage doesn’t mean you can actually afford it. By taking out mortgages that you qualify for but actually can’t afford, you perpetuate the inflated housing cost problem, whether or not you get a bailout from the government when you default.
vermillionsky on April 28, 2009 at 3:03 PM
when the music stops, nobody knows…
gatorboy on April 28, 2009 at 3:03 PM
* are now subject *
Oops. Sorry.
DrSteve on April 28, 2009 at 3:05 PM
rockmom on April 28, 2009 at 2:55 PM
I hope the public information gets amplified to defeat Obama’s Socialist efforts and impeach him from office on Constitutional grounds, sooner than later.
Protesting Barack Obama in Arnold, Missouri tomorrow at his town hall meeting, First 100 Days.
maverick muse on April 28, 2009 at 3:05 PM
Well, if they can’t pay their mortgage then they clearly took out a mortgage beyond, probably way beyond, their intelligence. If they can’t pay the mortgage that they obligated themselves to pay then they are immature spoiled brats who need to lose their expensive toys and grow up.
MB4 on April 28, 2009 at 3:05 PM
Let them all rent.
MB4 on April 28, 2009 at 3:08 PM
I understand your point.
I’m no expert in real estate prices. I have no idea why some of the places where we’ve lived were so expensive and others so cheap. (Well, honestly, I understand why Indiana was cheap. It blows. Sorry, Dr.Cwac) When we looked to relocate to SoCal we factored in the stability of the community and decided that by putting down as much as we could and budgeting we could take a gamble. We may lose some money on the house if we have to move in the next couple of years, but we gained a tremendous up side on Mr. Y-not’s career.
I guess the part that makes me sad is this trend to judge people based on where they live or what they earn. I know we’re all angry about the mess the country is in and want to blame people, but I think we need to be cautious about that.
Y-not on April 28, 2009 at 3:14 PM
I am not defending the bailout idea. And we have very few foreclosures in our community. I am merely saying that the idea that you can define “common people” (as Ed seems to be trying to do) by looking at their house (or mortgage) is a fallacy.
Y-not on April 28, 2009 at 3:16 PM
It’s a lot clearer why The One won’t let banks pay back loans. Much better to own subservient banks. The heck with the stockholders– you know, the rich people like retirees and those who have 401(k)s and college savings. Those greedy b@*rds think they have a right to save money to take care of themselves and their kids. We’ll teach them about fairness!
/sarc
obladioblada on April 28, 2009 at 3:23 PM
Like the bus driver CNN showed us, complaining she couldnt afford her 800,000 home?
Soon, I’ll be laid off too. Should I go out and buy my McMansion now? This burns me up.
dogsoldier on April 28, 2009 at 3:25 PM
Hey!
Indiana is a whole hell of a lot better than Michigan (my home state) these days. In the county where I live (Indy north side), our home prices have remained steady and actually increased at times.
Dr.Cwac.Cwac on April 28, 2009 at 3:26 PM
I’ll second that.
ProfessorMiao on April 28, 2009 at 3:29 PM
What does Durbin, or any democrat care? They don’t seem to take paying their own taxes seriously, or as a duty…but they sure are licking their chops, waiting for our money to start rolling in.
capejasmine on April 28, 2009 at 3:32 PM
Yeah, every place has it’s good points. I just personally found the midwest to be overrated… although not nearly as awful as Boston.
Y-not on April 28, 2009 at 3:33 PM
I can think of one mansion worth that amount… his?
newton on April 28, 2009 at 3:36 PM
Well the tyrant has just ordered the EPA to rescind a previously granted permit. Now mortgage contracts are no longer worth the paper they are written on. I know Obama is more stupid by the day. he wants banks to loan money and then he tells us banks can’t enforce loan contracts. the contracts are at the whim of a court.
Hussein is getting such ignorant advice. It means banks must increase their reserves for write offs because the larger mortgage loans are now negitiable after the fact.
seven on April 28, 2009 at 3:40 PM
Tru dat.
I lived in New “What’s that smell?” Jersey for 5 years. It’s the only state I know of where almost every major road out of the state has a toll.
Dr.Cwac.Cwac on April 28, 2009 at 3:42 PM
BTW….what is Chris Dodd’s mortgage?
Dr.Cwac.Cwac on April 28, 2009 at 3:42 PM
When home prices are way above the national average, it’s because there is something in the area that people want to be close to. In essence, you are paying for the priviledge of living in a highly desireable area. So those who live in high price regions shouldn’t go about whining about how it isn’t fair to compare housing prices. You are getting something out of your house, even if it can’t be found in the square footage, or acreage of your property.
MarkTheGreat on April 28, 2009 at 3:47 PM
Ynot has inadventantly hit on one of the nastiest elements of collectivism. When the collective is in charge, everything is subject to public comment and criticism. That’s why I prefer a free country.
jimboslice on April 28, 2009 at 3:55 PM
Massive. This is the main reason the mortgage bankers are fighting the bill so hard. It will instantly devalue every MBS and CDO out there. It may well dry up the already pitifully small private secondary mortgage market. This will re-conentrate the risks back with Fannie Mae and Freddie Mac, and substantially increase the rate spreads between loans they can buy and “jumbo” loans.
It’s high, though I don’t have the numbers at my fingertips. Some advocates claim the cramdown will speed up many cases because it is easier to arbitrarily strip the principal than to negotiate a settlement with the lender. But most people in the industry expect a significant spike in bankruptcy filings if the cramdown passes.
rockmom on April 28, 2009 at 3:57 PM
And a .35 cent toll every 10 miles on teh Parkway to boot… never had so many dimes in my life… the money I mean.
Odie1941 on April 28, 2009 at 4:01 PM
Ya’ll should all move to East Texas. House and 24 acres, $100,000.
TXMomof3 on April 28, 2009 at 4:02 PM
Home prices are high in Southern California and places like Portland and Eugene, Oregon and the Washington, DC suburbs because of longstanding building restrictions and impact fees on new development.
rockmom on April 28, 2009 at 4:02 PM
MB4,
Thanks for your link to the Asia times article- it is such a sobering read and yet seems to resonate. It actually proves that the market will ultimately sort things out.
This is exactly why some people are afraid of free markets – it punishes you if you make stupid investments or decisions without having adequate knowledge of the risks involved. There isnt a better judge than the market.
People ONLY want the rewards of a free market and refuse to deal with the realities of losses and risks that are involved. Once markets get into a vicious negative feedback cycle, there is no knowing where the bottom is.
These “stress” tests are a JOKE and meant to fool investors into thinking that everything is fine. No wonder, it seems like NO bank is going to fail it.
nagee76 on April 28, 2009 at 4:22 PM
Talk about silly. WHY would it be fair to split the profit with the lender? You $600K, the judge drops that to $500K, you sell for $525K and use $12,500 for other debt or pocket it while the bank loses $87,500 instead of the $75,000 it would have under the present rules?
No surprise that the Congress that would void contracts retroactively for AIG workers would screw banks the same way.
Mortgage insurance will soon be required for loans with less than 40% down payments.
OBQuiet on April 28, 2009 at 4:25 PM
And that’s the point that we have to press and press home: it isn’t “The Bank”, it’s the people who invested their hard-earned money, or deposited it in a bank. The bank or mortgage broker is just a middleman. If he’s defrauded someone, then charge him with a crime. But if he’s acted as a broker, then don’t go after him, and don’t hurt the people on the other side of him.
njcommuter on April 28, 2009 at 5:14 PM
I live in a home bought for $135,000 back in 1990. It was valued at $275,000 last year but now, $238,000…. we still pay our mortgage although I have been unemployed… but guess what?…… I don’t qualify for help…. Why?… because I’m responsible… FU Obama.
MNDavenotPC on April 28, 2009 at 5:24 PM
Exactly. Not coincidenatally those places (Boston, DC, LA, SF) are the power base of the Democratic Party. A mostly unspoken policy of the Democratic Party right now: transfer wealth from red areas to blue areas through the stimulus, mortgage bailout, CO2 regulations, etc. meanwhile, cut military spending and kiss off manufacturing, which mostly benefits red areas.
Dreadnought on April 28, 2009 at 5:46 PM
Yep. That’s all I’m saying.
I don’t think I’ve seen any whining about the high costs of homes in some areas, just a request that those folks who try to draw conclusions about someone’s classification as “common folk” based on the size of their mortgage should take a moment to consider all of the factors.
I appreciate that my life has not necessarily fit into the typical pattern in terms of the education I’ve pursued or the number of times hubby and I have moved, but we are both from “common folk” stock and consider ourselves to be regular folks as well. That’s all I’m saying.
Y-not on April 28, 2009 at 5:47 PM
Ed,
First, you don’t understand what housing costs – still costs – on the coasts. in 2005 before everyone ran for cover, *median* cost of all housing in San Diego was $558,000. Even now, we’re around $380-400k, and it has started back up.
Second, the cramdown is a severely bad idea – it doesn’t matter what the cap is. It will raise the cost of borrowing for everyone. Let’s consider it from an individual opportunity/decision viewpoint
1> People can get their mortgage balance reduced if if they’re delinquent. People can keep their home if they declare bankruptcy.
2> It doesn’t take much intelligence to see that a large percentage of people will see this opportunity and take advantage of it.
3> By the terms of the laws, judges will write down mortgages. After all, they don’t want to be seen as “heartless”
4> Mortgages have, until now, been a secured loan. If lenders cannot collect upon the full value of the secured amount, this will change in two ways:
a: They will raise interest rates to something more compatible with general unsecured credit (i.e. credit cards)
b. They will aggessively move to stop lending such high percentages of the value of the property. Eighty percent? More like fifty to sixty – and require significant reserves as well
5> Since The Mortgage Loan Market Controls the Real Estate Market (I explain why here ), , this causes another major wave of price deflation, further harming the ability of current homeowners to maintain their payments, sell for a reasonable profit, etcetera. This causes another flurry of defaults, walk aways, “buy and bail” etcetera.
The market here locally has lost about thirty percent from peak. I’d say that’s a conservative estimate as to what would happen to every market if this bill became law.
The consequences for household wealth are enormous. Then because people aren’t buying anything, more people lose jobs and get their wages reduced.
This sets us right back at step one and two for another round of this. This bill is attempting to kill our national economy. It isn’t evil because of the $729,750 cap. It’s an economy killer, period – doesn’t matter what the cap is or even if there’s no cap.
In the “can’t keep a bad idea down” department, I just *republished* this article Good Intentions and Over-Extended Homeowners from almost two years ago. It was a bad idea when proposed two years ago. It’s just as bad an idea today.
Take just a minute and ask yourself what this makes people more likely to do, and follow through on your reasoning. Macroeconomics is that statistical aggregation of millions of individual decisions. What happens when the government gives individuals huge incentives to do things that may not be ethical or moral, but will save them money? A lot of people will do those things. What will be the consequences? Economic Disaster.
There’s also the constitutional argument (takings clause of the Fifth Amendment) against this bill. That case has been argued before, and the lenders won the last time that bankruptcy judges started doing involuntary balance reductions. Of course, Obama might very well stack the courts, but there’s no other reason to suspect the decision would be any different this time.
SearchlightCrusade on April 28, 2009 at 5:52 PM
Y-not,
I am disappointed in some of my fellow commenters. You seem to have led a very interesting life that has taken you to many places. How we live is our choice. As long as you aren’t asking me for something and you don’t brag to much about your own exploits you’re all right with me. This is America. Be whomever you want to be!
jimboslice on April 28, 2009 at 6:52 PM
Thanks.
Y-not on April 28, 2009 at 6:57 PM
Just another dumb frakkin idea. Why on God’s green earth would a bank lend money? There would be no profit in it since everyone would be a job loss away from being able to “cram” down their mortgage balance as part of a BK. The flip side is the Gov’t would lend the money and enforce their contract with the power of the state. See IRS for the “How to playbook” on that subject.
VikingGoneWild on April 28, 2009 at 8:21 PM
This bill is ridiculous. The notion that our court system can handle this is absurd.
AnninCA on April 29, 2009 at 8:22 AM
Easy question to answer. Because the bankers know, that the bill was authored by congressional Chicago thugs, Ala the likes of Dick-less (our military are Nazis) Durbin.
byteshredder on April 29, 2009 at 11:34 AM