Posted on 05/01/2009 5:59:31 AM PDT by libstripper
The power of a united minority was on beneficial display yesterday, as Senate Republicans defeated the budget bankruptcy "cramdown" bill. Credit goes to Arizona's Jon Kyl and Minority Leader Mitch McConnell, who kept their party together to beat destructive legislation that had easily passed the House and was one of President Obama's housing priorities.
The cramdown would have allowed bankruptcy judges to rewrite contracts to reduce the amount that people owe on their mortgages. But a bipartisan majority understood that relief for today's troubled borrowers would be paid with higher rates on the next generation of homeowners, as lenders priced the added risk into mortgage contracts.
(Excerpt) Read more at online.wsj.com ...
Wonder how Specter voted?
Who?
LOL. Don’t post before coffee.
A dozen Democrats joined Republicans in the 51-45 vote, and even Pennsylvania turncoat Arlen Specter gave his former GOP comrades an assist.
Maybe three words: Economic Inn Sanity.
Arlen Spector was correct when announced Tuesday that the inmates was finally wrested control of the asylum from the attendants and was siding with his fellow inmates. It's just a matter of time before this goes through under our benevolent, beloved and glorious President Mugabe.
The banks are going to have to deal with the reality of their holdings. They don’t want to accept the cramdowns but if they are insolvant how will the system ever purge itself of the junk and return to health? How can they claim market value on the assets of say, $500 million when in reality it is closer to $375 million?
OTOH, allowing homeowners to reset their mortgages while in court is a gross abuse of contract law. If they cannot afford the house then they deserve to lose it.
If cramdown goes forward, who is going to receive the Form-1099?
I would like to see a profile of these borrowers. I wonder how many are yuppies?
This may be a case of two wrongs not making a right.
To start with, government should never have gotten into the act of telling lenders who to provide loans to, unless, like with VA home loans, it was willing to underwrite those loans.
But government did, so lots of loans were given to people who didn’t deserve those loans, under the mistaken idea that “home ownership is more important than being able to afford home ownership.” A really dumb idea.
That being said, we now have a lot of people facing default on their home loans. But it gets worse. This doesn’t mean just traditional foreclosure, which it does, but in more cases, the banks are refusing to foreclose.
By doing so, the people who signed those mortgages to buy homes they could not afford, are now *also* forced to maintain those homes, along with any fines against them, *and* to pay the property tax on those homes. *And*, by law, they also have to have working utilities, water and power, *and* conform to any Homeowner’s Association rules, or face fines from them as well.
And the banks can at the same time garnish their wages to pay at least some of the mortgage they are owed.
So maybe it is not such a bad idea to allow mortgage adjustments by a bankruptcy judge.
While it would cost banks *some* money right now, in the long run, by keeping at least a partially paying, employed customer living in the house, the banks would recover *some* value, neither be stuck with a “money pit”, nor driving a family into catastrophic debt.
Granted, mortgage adjustments should have very strict rules, so that a judge can’t just give a bank’s property away, but that is the general rule of bankruptcy courts—to get as much advantage for all concerned as possible. Everybody giving something on the hopes of avoiding complete loss.
Your bias is showing.
If they filed bankruptcy, the HOA no longer has any claim over dues, and fines will be waived by the court, and most of what you say the lender can force them to do isn’t really the case.
When the lenders refuse to foreclose, it means the lenders are taking the loss, not that somehow the owners are forced to continue paying the mortgage that they already were NOT paying which is why the lender would foreclose in the first place.
The lender makes a judgement not to foreclose, and largely it is good for the owner because it means the owner gets to live rent-free in the property.
What we need to avoid is giving bankruptcy judges the power to re-write a contract. If the lender wants to re-write, fine. If the lender wants to let the owners live free of charge, fine. But the lender shouldn’t be forced to continue a relationship with a lendee at new terms dictated by the courts.
Frankly, I think this legislation hanging over their heads was one of the reasons housing hasn’t recovered yet. Why would anybody take a chance at buying a house at today’s prices, when you know that if this bill passed, it would immediately devalue houses around the country?
No, my own observations. Just wonder if they are anecdotal or real indicators. Yuppies are smart enough to exploit an opening, and unlike the feckless whom these programs are supposed to help, they would profit from any aid to the “poor.”
You are wrong on so many levels. First off there is no “Garnishing of wages to pay mortgage”. That would have to be done through the civil courts in the context of a lawsuit and it just wouldn’t happen in that venue. The judge would just instruct the lender to foreclose. Kinda been done like that for 2000 years. Lenders like mine Countrywide, just decided to modify my mortgage not because I am late or was late but they thought with a 7% 3/1 ARM resetting they could mitigate a possible problem. The PRIVATE sector was in play there, and I have no issue with it for me, my neighbors or some poor schlub in San Dimas , CA who bought a 3/2 ranch for 800k back in 2005. But if the lender won’t play ball they can and have made the dumb decision of being penny wise and pound foolish. Whalla we have the housing collapse, when you have the nexus of fast and loose lenders who lent in a rising market for no other reason than to foreclose later, government apparatchiks and the normal gang of socialists do gooders. Most of the intransigent lender are seeing Barry over their shoulder and are making deals. The market is working itself out. Obama is a total disaster, he is trying desperately to do the bread and circuses routine with his Democratic base and the other 60% of us are paying the bill. I am not as optimistic as ElRushbo about Obama is looking at a steamy crap sandwich and he has no alternative soon to eat it.
“If they filed bankruptcy, the HOA no longer has any claim over dues,
and fines will be waived by the court,”
***The person who files bankruptcy will legally owe the money that accrues from the date that person filed bankruptcy up until the time that the foreclosure sale takes place and that person is no longer the legal owner, and provided that person, (or any tenant of that person) has moved out of the unit.***
I might add that courts are also far less likely to wave city fines after the filing of bankruptcy, and property taxes are rarely waved under any circumstances.
“...and most of what you say the lender can force them to do isn’t really the case.”
***While bankruptcy courts may rewrite the terms of most consumer debt, they may not ease the terms of many home mortgages.***
That is, in current law, mortgage holders are #1 among creditors for repayment. This includes garnishment of wages, and division of any other assets owned by the bankrupt.
“When the lenders refuse to foreclose, it means the lenders are taking the loss, not that somehow the owners are forced to continue paying the mortgage that they already were NOT paying which is why the lender would foreclose in the first place.”
***But the owners continue to have and increase their mortgage debt, but their equity does not increase until if and when it reaches 100%, as it would be regarded by the court as an asset of an unpaid debt.***
“The lender makes a judgment not to foreclose, and largely it is good for the owner because it means the owner gets to live rent-free in the property.”
***They may live rent-free, but not tax free, or free from any post bankruptcy debts, and they must pay their utilities or vacate while continuing their mortgage. If they are employed, a substantial portion of their paycheck will be used to pay their mortgage debt first, while other debts accumulate.***
In other words, they are not just getting screwed over, but screwed over from multiple directions.
What you say is true in a recourse loan state.
ie, not California. In states like California, (ie, non-recourse), once the first mortgage creditor has the house, they have no further avenue to recover losses. They can’t garnish wages or attach bank accounts.
I keep forgetting that there are different laws in different states.
The reason why I keep harping on the laws in CA is that is where there is a huge amount of the housing charlie-foxtrot, from lending down to tax assessments.
The default rate in the upper midwest (WY, MT, ND, SD) is so low that we can treat the discussion of defaults and bankruptcy laws the way we used to - idle chatter for lawyers interested in the finer points of the issue.
The entire taxpaying population of the US are all getting bent over by the banks who hold paper in CA, the problem is so huge.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.