Cramdown gets crammed down in Senate; Update: Who were the Democrats against it?
posted at 10:12 am on May 1, 2009 by Ed Morrissey
Barack Obama suffered a major setback yesterday on his economic policy, even though he had just expanded his majority in the Senate. The “cramdown” policy that would allow bankruptcy judges to force lenders to adjust the principal on mortgages only got 45 votes, with 51 against. Republicans argued that it would incentivize bankruptcy:
For the second time in two years, a provision to allow bankruptcy judges to modify mortgages died in the Senate today, handing the Obama administration a significant defeat in its plans for arresting the foreclosure crisis.
Supporters argued the measure would keep 1.7 million borrowers in their homes, but it ultimately foundered in the face of fierce financial industry and Republican opposition. The bankruptcy modification provision, which was offered an amendment to a broader housing bill, failed by a vote of 45 to 51.
“I’ll be back. I’m not going to quit on this,” said Senate Majority Whip Richard J. Durbin (D-Ill.), who sponsored the measure. He noted that estimated foreclosures during the housing crisis has ballooned from 2 million to 8 million since his campaign for the change to the bankruptcy code began. …
“Instead of encouraging homeowners who are at risk of foreclosure to file for bankruptcy, the federal government should continue to encourage lenders to work with owners to modify loans where it is economically viable for homeowners to remain in their homes,” Republican Whip Sen. Jon Kyl (R-Ariz.) said. “While it is regrettable that not all homeowners are eligible for a loan modification, Congress should not incentivize bankruptcy by making it the only means to save one’s home.”
Kyl’s point is well taken. Homeowners who have gotten underwater might decide to take their chances on what amounts to mandatory government arbitration, not unlike that proposed in Card Check. If bankruptcy judges can arbitrarily reset principal values, then it gives less incentive for people to honor the contract they willingly signed.
That is the bigger principle at stake. We are supposed to be a nation of laws, and contract law is supposed to be binding. No one signs a mortgage with a gun at their head. Durbin and his allies want to end the notion that contracts mean what they say. Instead of binding agreements on which people can rely, contracts will become much like the Constitution for the Left — meaning whatever seems expedient from moment to moment.
Suffice it to say that lenders cannot operate under those conditions in the long run. That will mean they will have to get more particular about their borrowers, as they cannot rely on the contractual agreement to guarantee repayment. They will be much less inclined to take risks, and many more people will find themselves locked out of mortgages in the future than will find themselves rescued by Durbin’s undermining of contract law.
Update: Who were the Democrats who voted against it? Mostly the red-staters:
- Max Baucus (MT)
- Michael Bennett (CO)
- Robert Byrd (WV)
- Thomas Carper (DE)
- Byron Dorgan (ND)
- Tim Johnson (SD)
- Mary Landrieu (LA)
- Blanche Lincoln (AR)
- Ben Nelson (NE)
- Mark Pryor (AR)
- Arlen Specter (PA)
- Jon Tester (MT)
No Republicans voted for it, and Ted Kennedy and Jay Rockefeller missed the vote. With only one exception, the dissenters came from states which will probably punish a yes vote on this measure. Interestingly, Thomas Carper voted against it — but Delaware has a big constituency in credit and lending markets, despite their more liberal bent.
Update II: Oops, Carper isn’t Biden’s replacement — Kaufman is. I’ve changed the update.
Blowback
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Specter hands Obama his first face plant since switching. Well there were a few other Democrats who joined in.
Like with FDR and his Fascism, it will be the Democrats who want to get re-elected that stops Obama.
tarpon on May 1, 2009 at 10:19 AM
Thank you, GOP(and a few sane Dems). For all the ragging we do on the Republicans, they have stood up to a lot of Obama’s agenda so far. We should give them props when they do so.
Doughboy on May 1, 2009 at 10:24 AM
It’s going to be interesting. Congress is going to have to weigh re-election chances with passing Obama’s Socialist agenda. Reality may prove to be a pain in the rear for Congress and the Administration. I hope.
kingsjester on May 1, 2009 at 10:25 AM
You think lending is frozen now? Pass the cramdown law and watch banks turn their backs on people seeking credit.
The same principle is at work in the GM/Chrysler talks. You think strongarming hedge funds to walk away from billions of dollars is going to make them lend more money? How’s that toxic asset plan with the hedge funds working out? I know Geithner sees no correlation there. But the guys holding the cash certainly do.
hawksruleva on May 1, 2009 at 10:26 AM
You are just thinking too small. If the Banks stop offering mortgages because they are written on an etch-a-sketch, we can always FORCE them to offer mortgages. There is nothing that authoritarianism can’t fix.
tommylotto on May 1, 2009 at 10:26 AM
Perhaps this is why Geithner is quietly using TARP to nationalize the banks.
ProfessorMiao on May 1, 2009 at 10:27 AM
What’s the young Obama voter going to think in five years when they try to buy a home but can’t get anyone to even look at their application because their nothing but risk in giving that guy a loan?
Yeah, we all know. He’ll blame it on the bank instead of his own decision to elect Marky Marx.
amkun on May 1, 2009 at 10:30 AM
Hallelujah.
Vashta.Nerada on May 1, 2009 at 10:30 AM
Even though I’m one of the at-risk folks (less income, higher bills {long-term family medical issues}, house worth 60% of what it was when I bought it), I support the defeat of this measure. We are a nation of laws.
jgapinoy on May 1, 2009 at 10:31 AM
Why, in this article are the 12 Democrats not mentioned? /rhetorical
oldernwiser on May 1, 2009 at 10:37 AM
Acorn will be there to harass,embarass, and sue the banks into making the loans to them.
canditaylor68 on May 1, 2009 at 10:39 AM
“But that’s not what the contracts meant to say”, says the Government arbitrator.
forest on May 1, 2009 at 10:39 AM
With Specter becoming a DINO from a RINO and their near (or soon to be) 60 vote threshold in the Senate, it will be interesting to watch how the DEms get squimish about passing their own laws.
WashJeff on May 1, 2009 at 10:41 AM
It sure will, especially when that 60th vote will be in the form of a far-left diaper-wearing comedian. People who don’t follow politics are going to start asking themselves “What have we done to ourselves?!”
forest on May 1, 2009 at 10:45 AM
Lets not forget the power that this would give to lawyers.
Count to 10 on May 1, 2009 at 10:46 AM
And THAT is exactly what motivated every bit of “compassionate” political promising rationale from McCain during the potus campaign.
Obama’s ulterior motive remains unchanged. Align with the popular appearance of “compassion” while establishing the end result of economic capitulation to global Socialist order wherein there is no private property, whether affordable or not.
Cynicism is not necessarily paranoia.
Battling amorality with sweet mannerisms might feel good or even look good; but note the eventual effect of that affekt under the Socialist tsunami deluge of “moderate” common ground.
This IS a Constitutional Government, a nation that abides the rule of law, and contracts hold. Any equivocations are illegitimate, and to be held in public contempt.
Build the case on the evidence.
Impeach Obama on Constitutional grounds.
maverick muse on May 1, 2009 at 10:46 AM
No, Ed. The MSM will report that “President Obama was sadden that the so-called ‘cramdown policy’ did not pass. While HE did not personally get involved in pushing for the bill’s passage, he thought that it was one more ‘tool’ to get the economy moving again.”
See, The One was not involved, therefore no ‘setback’ for him. After all, The One does not fail.
GarandFan on May 1, 2009 at 10:47 AM
Like a lot of people right now, I’m reading The Forgotten Man, and seeing all the similarities between FDR and Obama. FDR held show trials of businessmen and former cabinet members to distract from the failures of his programs. He also tried to throw contracts out the window.
I’ve been saying since Nov 4 that there can’t be a strong recovery without certainty for businesses and investors, and that includes the rule of law. With these clowns in charge, stability and certainty aren’t in the cards.
juliesa on May 1, 2009 at 10:48 AM
Heh. “No true Scotsman” meets “The One”.
Obama is absolutely repeating the path of FDR. I’m hoping enough people learn from the past that we can put a stop to it before we get to repeating FDR’s results.
Count to 10 on May 1, 2009 at 10:53 AM
With all due respect, this is a double standard.
Judges are allowed to perform this very act for vacation homes and reinvestment property but can’t do it for people’s primary residence.
But you don’t mention that.
ckoeber on May 1, 2009 at 10:53 AM
It’ll just be attached to something else and get passed later. The motto for the next 4 years “Free Market. How does my ass taste?”
lorien1973 on May 1, 2009 at 10:56 AM
Why aren’t another 20 democrats also on board with putting an end to this social experiment? Think “big tent” politics. They are all in this together by their party affiliation whether they agree or not with the policy.
Rovin on May 1, 2009 at 10:57 AM
If this passes, it will be the end of seller financing.
(Or does the bill insist that bankruptcy judges treat them any differently than the “mean ol’ banks”?)
RD on May 1, 2009 at 10:58 AM
Banks have precedent on THEIR side now, proving in any contest their right to decline credit according to mathematical figures alone.
There is no rational, business OR POLITICAL reason for banks to kowtow to Obama or Acorn. That hand got played, and those chickens came home to roost with a vengeance. ALL INDUSTRIES must stand up for their rights now, banks especially. Lay federal blame on the corrupt Socialist politicians and corrupt FanFred economic incest of MacMay.
maverick muse on May 1, 2009 at 10:58 AM
I think you’re thinking too small as well. Much like this administration’s approach to private college loans, the goal here may very well to get private companies out of the home loan market entirely.
And that, of course, would leave us all to take loans with the federal government if we wanted to buy a house (well, I guess they might still let you if you had enough cash). It’d be TARP on an even grander scale. Ripe for abuse and government intrusion into personal our lives. Imagine the possibilities.
strictnein on May 1, 2009 at 10:59 AM
funny how the real bi-partisan votes are always AGAINST Obama’s agenda. While this is a victory for sanity, i’m sure he’ll find a way thru HUD to get at least part of what he wants kind of like the EPA doing what Congress should be debating on carbon emissions.
gsherin on May 1, 2009 at 11:00 AM
TARP failed the first time around too. This will pass soon enough with some bribes given out to the “NO” Dems.
angryed on May 1, 2009 at 11:07 AM
Spot on! Follow the bank accounts and the ambitions of the “NO’s”
Rovin on May 1, 2009 at 11:11 AM
doesn’t mean they SHOULD
oldernwiser on May 1, 2009 at 11:11 AM
This was a wise decision by the Senate. If a bank which made a loan to an insolvent borrower was forced to take a loss by arbitrary judges, while the borrower lost nothing, there would be no incentive by borrowers to be responsible, and no incentive for banks to lend. Even if there are 8 million foreclosures out there, that’s much less than the number of “good” borrowers who make their mortgage payments. Forgiving the irresponsible minority means punishing the responsible majority.
If Congress wants to reduce foreclosures and failures of banks holding bad loans, they should offer fixed-rate, government-backed loans at market rates to borrowers in danger of foreclosure, with a catch: the loan amount is limited so that the payment is less than 30% of the borrower’s income. This would enable a borrower trapped in an ARM to escape foreclosure if they’re in an otherwise affordable house, but would allow foreclosure on those who bought a bigger house than they could afford, which is the way the market should work. This would allow some “bad” loans to be paid off and worked out of the banking system, while banks would be allowed to buy the government-backed mortgages if they believe the borrowers are credit-worthy.
This would be much better than throwing TARP money willy-nilly at banks, some of which don’t need or want it, while others waste it, and nobody at Treasury knows where it’s going.
Steve Z on May 1, 2009 at 11:12 AM
More likely, we will just set up govt to offer mortgages.
Prefered rates for those who can’t afford the house they are trying to buy.
MarkTheGreat on May 1, 2009 at 11:12 AM
angryed on May 1, 2009 at 11:07 AM
if that’s true than they should have ads run against them mercilessly. I hope the Dems that were elected in ’06 especially have a fun time running for re-election at the same time as Obama like Sherrod Brown here in OH.
gsherin on May 1, 2009 at 11:12 AM
Does anyone else find it just stunning that none of our liberal trolls infest the threads that actually talk about what Obama is doing. The only threads they inhabit are ones about torture, the GOP or Bush.
One that brings up Obama’s actual policies are surprisingly vacant. The lack of defense is astounding. And probably instructive.
lorien1973 on May 1, 2009 at 11:12 AM
lorien1973 on May 1, 2009 at 11:12 AM
economics is too hard for them since they’re only angle is complaing about “tax cuts for the wealthy”
gsherin on May 1, 2009 at 11:14 AM
If you’re at 60%, walk away. No point in killing yourself financially to keep an asset that may never be worth what you paid for it again.
angryed on May 1, 2009 at 11:14 AM
I meant bribes as in commitee chairmanships and pork projects, not Swiss bank account bribes. Although given Obama’s past, I suppose that’s not out of the question either.
angryed on May 1, 2009 at 11:15 AM
That’s silly.
lorien1973 on May 1, 2009 at 11:16 AM
The New Used car salesman Obama is battling against contract law. He want contracts to be broken at will. I suspect he assumed that chrysler could from today forward, not pay suppliers and recieve supplies as if niothing happened. I suspect the suppliers will go cOD and Obama doesn’t know what that is. He still hasn’t paid ACORN workers.
If we say a mortgage contract is not enforcible, why would a bank make a home loan?
seven on May 1, 2009 at 11:18 AM
Why is that silly?
angryed on May 1, 2009 at 11:18 AM
You do realize you’re describing a new government system/bureaucracy that would pale to the cost of Social Security and Medicaid combined?
Rovin on May 1, 2009 at 11:20 AM
I’m not expecting to see similar stands against legislation (or Supreme Court appointments) that anybody has actually heard of. Hopefully I’m wrong.
Blacklake on May 1, 2009 at 11:20 AM
Cuz, first home prices will rebound eventually. They always do.
Secondly, by walking away, you destroy your credit which is going to hamper your life in every way imaginable. From getting apt to live in, to getting credit in the future, to doing anything.
Third, the cost of “walking away” isn’t free. There will be direct financial penalties for doing so – but I guess that won’t matter since your credit will be shot to hell.
Finally, by walking away, you may as well have set fire to the money you’ve already put into the house mortgage payments. You’ve gained nothing from it.
You’re advice is like saying, “well, my stock is down 40%, so I’ll just burn my shares. And I’ll make sure it’s impossible for me to trade in the future as well.”
lorien1973 on May 1, 2009 at 11:24 AM
Seriously. That’s the trajectory, anyway. Maybe two years from now, we’ll start seeing “resolutions to celebrate David Caruso” or whatever with 500 pages of pork and various overreaching and fascist laws.
amkun on May 1, 2009 at 11:26 AM
So let’s see here. You have a double-standard for the rich and poor with cramdown. What do you do?
(A) Remove the double-standard altogether
(B) Offer the same service to people with one house so they can keep their residence.
(C) Keep the double-standard in place so rich people can rewrite the terms of their loans and keep their loans but poor people can’t.
Why is “C” OK?
ckoeber on May 1, 2009 at 11:27 AM
Why liberal talk radio fails. Who can defend statists policies during a three hour show? Their policies are tailor made for sound bites.
WashJeff on May 1, 2009 at 11:29 AM
You are telling someone to walk away from a contractual responsibility they promised to uphold, and don’t know why that advice is considered silly?
Vashta.Nerada on May 1, 2009 at 11:32 AM
Where do you see this?
Bankruptcy, as far as I know, only protects your primary residence, not vacation or secondary property.
lorien1973 on May 1, 2009 at 11:34 AM
Thomas Carper is not Joe Biden’s replacement: Ted Kaufman is. Carper has been a Delaware Senator since 2001 (after 5 terms as a Representative).
Kaufman voted FOR the amendment.
I guess the two D Senators in Delaware cancelled each other out.
Shirley on May 1, 2009 at 11:36 AM
Explain to me why after the courts restructured Henrietta Hughes house payments did she still neglect to pay her mortgage? Tell me again why she says she is homeless but her son now owns the property/properties?
canditaylor68 on May 1, 2009 at 11:39 AM
The Senate GOPrs need to carefully scrutinize the votes on which liberal Dem Senators cross Obama – here lies the truth of the DNC’s progress in formerly Red states.
What are the issues on which these liberals have to hide their true selves from the voters, to the extent that they would vote against their Lord and Master? Because let’s face it – there is no issue known to politics on which Democrats will vote on principle; it’s all political calculation.
And I can’t imagine why North Dakota, Montana, and Arkansas voters are necessarily conservative on economic principles of the banking system. What’s driving this vote?
Jaibones on May 1, 2009 at 11:42 AM
Could it be that his money comes from the banks who were opposed?
Jaibones on May 1, 2009 at 11:44 AM
I have just finished reading Ayn Rand’s Atlas Shrugged. I am terrified of what I see coming. Our president has obviously never read the book, or he would stop using the phrase “for the common good” and “for the people”. Does anyone think that our country will ever be “free” again? I need all of the optimism that any of you can offer. Please help me see where we can undo all of this socialist crap that is being rammed down our throats.
hilchar on May 1, 2009 at 11:45 AM
Citibank moved its credit card operation out to SD several years ago. Not that Citi is in the best shape, but I think Tim Johnson didn’t want to tick off a local employer.
Wethal on May 1, 2009 at 11:47 AM
While I am not in favor of this bill, as someone who is current in a distressed situation with his mortgage (as a result of my businss suffering due to the economy, not my buying more house then I could afford) the idea that mortgage lenders are willing to work with you is laugable, and my last option maybe indeed be bankruptcy if I want to save my house.
lahlon on May 1, 2009 at 11:47 AM
Eventually, they’ll run out of money.
So there’s that.
lorien1973 on May 1, 2009 at 11:48 AM
See these Dems from Reddish-Purple states got me thinking if we will see a new trend in the next year and half. The Reddish-Purple state Dems vote for cloture, but vote against the bill. The Dems will get their bills, but the Reddish-Purple state Dems get their deniability for the next election.
WashJeff on May 1, 2009 at 11:49 AM
I’m so sick of this rich vs poor crap. What has happened to PERSONAL RESPONSIBILITY? How about I give you (the poor) my second home and have the government subsidise my losses? This way the government can own the po folks homes and tell them which party to vote for?
(A) Remove the double-standard altogether
(B) Offer the same service to people with one house so they can keep their residence.
(C) Keep the double-standard in place so rich people can rewrite the terms of their loans and keep their loans but poor people can’t.
How about (D) Force home buyers that purchased their homes knowing full well they were not qualified back into rentals and teach them responsible borrowing practices, instead of the government sponsored social experiment that forced lending institutions into making stupid loans and guarenteeing them with “joke institutions” like Fannie and Freddie.
Double-standard, my @ss
Rovin on May 1, 2009 at 11:55 AM
This is great news. Like someone said, though, I wouldn’t be surprised to see it go into effect regardless, signed into law in some midnight session. That’s the way this administration works.
scalleywag on May 1, 2009 at 11:58 AM
that doesn’t change my comment. Even a little.
They shouldn’t be allowed to modify existing contracts,if they indeed can. what is your source of information? Can you give us a link?
oldernwiser on May 1, 2009 at 12:06 PM
Tom Carper was always my favorite Democrat when I was a mortgage lobbyist. A very reasonable man, and his banking staff person used to work for the Mortgage Bankers Association. He has never supported draconian cramdown legislation or so-called “predatory lending” bills. He also doesn’t work with Joe Biden on much of anything.
But I am pretty surprised at this vote. I thought for sure that Democrats could get at least 51 votes for it and that Republicans would not have the stomach for a filibuster.
rockmom on May 1, 2009 at 12:06 PM
But Citi had already caved and announced its support of the cramdown bill. Johnson’s pretty conservative on banking issues in general though. A lot of the Banking Committee members are pissed at Dick Durbin for pushing this bill so hard.
rockmom on May 1, 2009 at 12:08 PM
Kaufman didn’t need any money to get his position. He was appointed. He also has said that he won’t run for another term. Basically, he’s a placeholder until 2010.
He’s simply voting how Biden would have voted.
Shirley on May 1, 2009 at 12:34 PM
Anyone have a link to the roll call?
thevastlane on May 1, 2009 at 12:37 PM
As Daschle once said, you can’t proffesionalize until you federalize.
MarkTheGreat on May 1, 2009 at 12:38 PM
Never mind, I see the update now…
thevastlane on May 1, 2009 at 12:38 PM
Why do advocate C and not A?
MarkTheGreat on May 1, 2009 at 12:39 PM
ckoeber on May 1, 2009 at 11:27 AM
Not to mention that your interpretation is completely wrong.
In a bankruptcy, the mortgage homers can seize vacation homes and investment property. There is no provision for judges to arbitrarily write down the amount of the loans.
MarkTheGreat on May 1, 2009 at 12:41 PM
Maybe the Tea Parties are starting to have an effect. There were plenty of signs saying, Pay Your Own ?!!?* Mortgage, or Honk if You’ll Pay My Mortgage, or I’m Struggling to Pay My Mortgage Why Should I Pay Yours?
I say, keep up the pressure. Join the Tea Party on July 4.
Christian Conservative on May 1, 2009 at 12:47 PM
Two options:
You buy a house for $500K, it is now worth $300K. You keep paying on a $500K loan with the hope that maybe some day in the future the house may or many not be worth $500K. And if you think r/e always rebounds, ask people who bought a house in Texas in the early 1980s how that works out. It is only today that the prices are back to where they were then. Or better yet ask people who bought plots of land in Florida in the 1920s who only broke even in the 1970s after the great Florida land bubble crashed in the late 20s. Or ask people who bought pets.com at $100 and didn’t sell at $80, $60, $40 or $0.40 because stocks always rebound back, just like real estate always rebounds back.
Or you can walk away, rent the same house you “bought” for less than the cost of PITI. Your credit takes a hit sure. But your credit score will be built up a lot faster than waiting for your house to be worth what you paid. And while you’re building up credit again, the money you save by not having a mortgage albatross around your neck, gets stuffed into a savings account that will be a sizable down payment on a $300K house in 2-3 years.
The media and the housing business has instilled this fantasy in Americans about housing. Housing always goes up. Renting is a waste of money. Home ownership is the American Dream. Marketing bullshit.
There are millions of people who will be upside down in their houses for years if not decades. And for what?
angryed on May 1, 2009 at 12:48 PM
Oh yippee! One of my senators voted against it and the other for it. I wish I could believe the one who voted against it actually did it out of principle.
thevastlane on May 1, 2009 at 12:48 PM
It’s a fun game. Don’t ya think? Try “credit cards” or “student loans” – why stop at homes?
First off. You being upside in your home does not affect your ability to pay. The mortgage payment stays the same. It only affects you if you want to sell it.
There is no implicit guarantee that home prices will rise forever and ever; and always up and up. There are ups and downs.
Secondly, I think your comparison to swamp land in Florida is specious, at best. People bought without seeing for the most part. And were lied to. They never really lived on the land they were buying.
You’re credit score might start to improve after 7 years but would still take years after that to recover. Do you not know how credit scoring works?
Too bad no one will give you a loan in 2-3 years.
lorien1973 on May 1, 2009 at 12:56 PM
This also presumes that there are no payments for a dwelling in the mean time. And that someone would put their “savings” (if there were any) into an account for future purchase of a home.
lorien1973 on May 1, 2009 at 12:59 PM
Not to mention the windfall profits for judges:
Pa. judges accused of jailing kids for cash
curved space on May 1, 2009 at 1:19 PM
Excellent news. Our courts are so crammed that it takes months to get on most calendars.
This solution was worse than the problem.
AnninCA on May 1, 2009 at 1:26 PM
Something left out of this argument: income taxes. Mortgage interest and property taxes are both tax deductible. A person paying on a $500K mortgage at, say, 6% per year is paying $30,000 per year in interest. To afford a $500K house, a person should be in the 35% bracket, meaning he/she gets back $10,500 per year in tax write-offs. If they walk away, they’ll have to be able to rent for less than $19,500 per year–not likely for a house that big–because there are no tax write-offs for renters.
The people that got hurt are those with ARM’s, who could afford the low “teaser” rates on an overpriced house for the first few years, then could not afford higher rates later, and could end up in foreclosure.
Those who took out fixed-rate mortgages are not hurt as badly–as long as they keep their jobs, they can live in the house, make the fixed payments, and wait for better prices. Besides, most people’s salaries tend to increase with experience, so the payments become less painful over time.
Even though I generally believe in free enterprise and as little government regulation as possible, I believe ARMs should be outlawed–too many people with “stars in their eyes” get suckered into buying more house than they can afford with low “teaser” rates, then lose everything when the rates go up. With a fixed-rate mortgage, the first year is usually the worst, and as long as the borrower keeps his/her job, with inflation and job experience, things get easier with time. Even if housing prices go down, you don’t lose if you don’t sell.
If ARM’s were banned, there would be far fewer foreclosures, meaning fewer houses on the market at bargain-basement prices, and other houses owned by responsible borrowers would sell at higher prices.
Steve Z on May 1, 2009 at 1:35 PM
I’d add no interest mortgages to that too. I don’t get how ARMs or no-int mortgages are possibly legal.
lorien1973 on May 1, 2009 at 1:37 PM
Not no interest. Interest only payments on mortgages.
Of course.
lorien1973 on May 1, 2009 at 1:38 PM
And the so-called “option ARM” loans, which set a minimum monthly payment that can be below the actual monthly interest due. Negative amortization.
Now illegal in Illinois.
Jaibones on May 1, 2009 at 1:44 PM
lorien1973, I’ll have to disagree with you about interest only loans. I had one, but before I opted for it I made sure that the Principle and Interest payments that would start in year 6 would be so higher that 33% of my current NET income not gross income. Most months in the interest only time frame that I had the loan I paid the principle also.
chemman on May 1, 2009 at 2:37 PM
Don’t like government getting in the way of me and another party voluntary getting into a contract. ARMs can be very useful in many cases. For example:
- Don’t plan on being in the house longer than the fixed interest period (I did this on my first house).
- You think interest rates will go down and your home value will be steady at the end of the ARM term.
Choose Liberty.
WashJeff on May 1, 2009 at 2:41 PM
Good news for homebuyers. They will need bigger down payments or more assets and less debt but the overall price of homes should continue to fall.
Theworldisnotenough on May 1, 2009 at 3:22 PM
Those democrats got the message. America is NOT happy with their new overlords.
DannoJyd on May 1, 2009 at 3:36 PM
Delaware actually has quite a number of Conservatives.
I just hope the rest of the country can forgive us for producing Blowhard Joe.
UltimateBob on May 1, 2009 at 4:33 PM
It used to be that one had to put at least 20% down and showed an ability to make payments.
burt on May 1, 2009 at 4:39 PM
Michael Bennett (CO) – cool, the replacement for Ken Salazar. He’s maybe realizing if he wants to stay, he will have to have some fiscal restraint.
kirkill on May 1, 2009 at 4:52 PM
noticed that, they just pop on with a “It’s Bush’s fault” and leave, same as their Dear Leader, no real ideas.
kirkill on May 1, 2009 at 5:02 PM
Arkansas has a long history of restricting interest rates on all kinds of consumer credit, including car loans. They also have all kinds of laws with funny little loopholes.
Like “If you live in Texarkana, you pay no state income tax.” Why? Texarkana, TX has no state income tax anyway. Texarkana, AR would dry up and blow away across the border to Texas.
David Block on May 1, 2009 at 11:32 PM
FHA loans are available even to those with bankruptcies 2 years ago.
Fact is paying a mortgage on a house that is worth 40% less than the underlying loan is financially unsound. It’s downright insane actually given that the same house can be rented for 1/2 price.
angryed on May 1, 2009 at 11:58 PM
You are missing an important part too. The standard deduction for a married couple is $11,000. So only the deduction above $11,000 is deductible or $19,000. You don’t have to be in the 35% bracket to afford a $500K house, but OK I’ll play along. So 35% of 19,000 is $554 a month.
But also on that $500K house, the property tax is at least $400 a month. And insurance is at least $200 a month. And HOA fees another $100 a month. There goes the tax deduction and then some. Ooops, forgot all about those pesky carrying costs did we? And that’s before the roof needs to be repaired or the fridge breaks or the water heater breaks or any of the other costs of “owning” a house are factored in.
And finally let’s say the $500K house has a 5% 30 year fixed mortgage. That works to $2684. Add the $700 carrying costs, subtract the $554 tax deduction and you’re somewhere around $2800 a month. Now go to Craigslist and see what you can buy for $500K vs. what you can rent for $2800. And you will be quite surprised that for $2800 you get a hell of a lot more house than you get for $500K.
I know because I pay $1700 a month in rent for a house that my landlord bought for 418K 2 years ago. And on top of his mortgage, tax (one to the city and one to the county), insurance, hoa fees, alarm monitoring, he also pays for pool maintenance, pest control, termite protection, twice a year he pays a gardener to come buy and clean up the entire property. He also pays to inspect the A/C in the spring and heater in the fall. So far in the two years I’ve lived here, he’s paid $1200 to replace a pool leak, $700 to fix a leak in the roof, $300 to remove tree debris after a nasty storm and bought a new fridge (I’d estimate $1000) when the old one died.
But yeah, I don’t get to deduct the mortgage interest. Aw shucks.
angryed on May 2, 2009 at 12:13 AM