SOMEONE ON CAPITOL HILL IS LISTENING AND THINKING.
REPORTED ON INMAN THIS A.M.
"Rep. Brad Miller, D-N.C., said he plans to introduce a bill today allowing bankruptcy "cramdowns" of mortgage loan principal, the Wall Street Journal reported. Sen. Richard Durbin, D-Ill., plans to sponsor similar legislation in the Senate, the paper said." Inman report.
Read the full report HERE. . . .
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CALL TO ACTION!
Send e-mailto Representative Brad Miller in support of the bill he plans to introduce to help the American home owner. Since many of us are not constituents of Rep. Miller, it would help to send a message to YOUR Congressional Representatives.
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ActiveRain posts have referenced this alternative for home owners. See EUREKA! I'VE GOT IT! WHY THE MORTGAGE COMPANIES WANT THE HOME OWNER TO BE IN ARREARS.
We've known of this type of relief for some time. Legislation has been introduced in Congress to permit bankruptcy judges to modify mortgages, but failed. Don't forget the banking lobby money.
Perhaps Congress will recognize the dire condition of the economy and realize that the American home owners need this additional tool in dealing with their personal economic disasters when faced with short sale or foreclosure.
The banks are already forcing short sale candidates to ruin their credit before even making hardship applications by not considering their application until they are 3 months or so in arrears.
FORECLOSURE OR BANKRUPTCY? Bankruptcy is no worse on a credit report than a foreclosure. If the banks are going to force home owners with no recourse into foreclosure, it seems only fair that a bankruptcy judge could force a bank, in some cases where feasibility is likely, to accept a reduction in the mortgage principle, thereby making the home truly "affordable" for the consumer.
BENEFITS OF MORTGAGE PRINCIPLE REDUCTION. By reducing the mortgage balance owed, the home owner will have a property that could be sold rather than foreclosed.
MORTGAGE MODIFICATION BY BANKS IS A MYTH if the consumer is relying on their mortgage company to "modify" their loan. About the best that most mortgage companies will offer is a refinance to lower interest rate. That does nothing to alter the fact that the mortgage balance is still more than the market, appraised or assessed value of the property. As long as the mortgage balance remains higher than the market value of the property, the "relief" offered by the mortgage company will be insignificant.
MORTGAGE MODIFICATION BY A BANKRUPTCY JUDGE isn't about the banks. It's about relief for the American home owner who is a hostage to negative equity. How this is handled by the banking committee will show the power of the banking lobby.
Barney Frank (MA), Chairman of the Financial Services Committee is one person to watch on this matter.
President-elect Barack Obama expressed support for cramdowns during his campaign. Let's see if he continues to support this relief for American home owners.
Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988
WILL CONGRESS SUPPORT THE AMERICAN HOME OWNER? OR WILL THEY FOLLOW THE BANKING LOBBY?
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Lenn,
This is an interesting piece of legislation and is something I will have to read about.
In theory it could make sense, but as you know, this legislation would barely make a dent in the overall housing crisis and volume of home owners that are under water.
Last month I emailed my local congressmen and senators about housing reform. I have also email Barney Frank and I will again about this solution. I agree the bankruptcy court should be able to do cramdowns. I too..... am hoping everyone will email their representatives. We really need effective housing reform.
Great Information Lenn, we should all keep an eye on this .. and email our Congressional Representatives. I will do that now. Thanks for the information.
Mark. Possibly. It would depend on how many would avail themselves of the bankrutpcy court for relief.
Mark. Thanks. Grassroots movements can make a difference.
Gail. I love it when a plan comes together. Every bit we can do will help.
https://writerep.house.gov/writerep/welcome.shtml
one can go there and put in their zip code and email to their own representative.
Gail. Thanks. That's a big help. My reps are bookmarked.
This is a good idea, and I support it.
But.... you know, I always think about how the money that was loaned out ... it came from somewhere ... and the end of a very long, twisted line, it was somebody's money. Maybe it was some little old lady's life savings ..... and now it is gone. Poof!!
Sigh.
Lenn, I never fully understood the rational in forcing a (great past client of a bank) consumer to miss three months payments to get the lenders attention. Their are medicines available that can be prescribed at the first sign of trouble..not after you are in the hospital..
Cheryl. Or, perhaps it's the little old lady with her life savings invested in a property that is now in a house with negative equity through no fault of their own caused by the perfidy of the financial industry.
Steve. I've never understood that either.
I think that putting some of this back on the bank that made the loan is a good idea but of course everything that is done has some particular angle in it. So what stops someone from doing this type of cramdown, like on a home worth $300,000 and they owe $350,000 and so the home can now be sold for $300,000. Three years from now, what if that house is now worth $330,000...who gets the extra revenue? The seller or the bank that wrote it off? It's still $20,000 under what was owed but yet worth $30,000 more than the judges decree.
Ron. Fair enough.
But, but, but. . . .
If we had a crystal ball, the consumer wouldn't be in the house anyway. How many consumers would have purchased knowing the market was going to crash and that they would be faced with foreclosure or bankruptcy?????
Thanks for the info maybe there is someone listening but most of all is there someong that will do something about it
Shelton
Allen.
Thanks. At least there is someone trying to do something.
Lenn
Lenn - Rep Miller is my rep. And I will NOT be contacting him about this! (At least not to endorse) - the problem is that it will errode the MBS sales more, and cause higher rates. We already have a problem with no one (besides the Government) purchasing MBS - why would you buy them if a judge could take away more of your collateral??? I don't think this is the answer - JMHO.
I'm really torn on this one. I agree with Ron mostly. Buying a home when you cannot afford the payments in the near future or just plain old buying a home is a gamble. People get sick, lose their jobs...whatever. I'm more worried about the fact that if we just wave the magic wand and make some of the principle go away what is that saying to investors (money's not safe here!) and homeowners (don't worry about the risk, we'll take care of you)?
I'm in the mixed feelings camp myself. What about areas like BB's that continue to decline in value. People could have written down their mortgage in Sept and would be negative again in December.
I agree that it is insane that people have to be 3 months behind to qualify for a short sale when the sellers are trying to go the right thing and get it sold. Never understood that logic, but I think it comes from just having to have some rules and boundaries around it.
This would be no different. The question would be what are the boundaries and how are they applied. There has to be some middle ground in there somewhere.
Melina. Middle ground??? Unfortunately, the banks have all the cards. There is no middle ground.
Krista. Do you mean something like the approximately $1,000,000,000,000 handed to Paulson to hand out to financial institutions to make their bad mortgage backed securities go away?????
Eleanor. I understand your perspective. However, the alternative is just more short sales, more foreclosures and more ruined American consumers.
None of these folks going to foreclosure are going to be buying homes or making mortgage loan applications for a lonnnnnnng time.
I'm glad to see Eleanor's response feel obligated to expound on her argument. If we let any court rewrite mortgages it will increase the risk associated with making them. If we increase the risk there will have to be greater returns (higher rates) and/or less supply (same thing in a different way). What makes any of you think that will help any of us?
The reason so much of our tax money has been spent to save the banks is because without them our financial system crumbles (see "Great Depression"). I'd love to expound on this more now but thankfully I have good loans that need my immediate attention. I'll park here and return with more comments. I will say this, be careful what you wish for. Government can not and will not save us from this mess we are in.
Gerry Suarez, Jr.
Your FHA Loan Pro!
Lenn, I'm just wondering if this will get out of committee. I see these great ideas crushed by special interest groups (Banks)all the time...
Hi Len, Thanks for the post. I'm reblogging it and hopefully we'll get the word out!
Paul. So do I.
Gabe. Thanks for spreading the word.
Lenn - putting our future in the hands of Barnie Franks is a bad situation. He hasn't shown that he has a handle on any of the financial problems so far. He has so far been able to escape with his job, but his hands were all over the Fannie May and Freddie Mac problems.
Lenn, thank you for the information. I will have to read the full report. I am still skeptical that any of our leaders can handle this issue. Barnie Franks should be in front of a panel with a few others in my opinion
Good idea now how to implement? If the government gets involved it will be too complicated and if left to the banks they won't get arround to it.
Lenn, TARP swung one way...to the banks. Extremes on either end aren't good in my opinion. We need some middle ground. Banks have to give, consumers have to give. There is to be pain felt by all. We need shared pain. I don't disagree that homeowners have all the pain now. I'm with you on that one. All I'm saying is let's make sure what we do next doesn't swing us to the other extreme.
Melina. I understand your position. However, TARP is taxpayers' money. Any help for homeowners will be paid for by taxpayers' money.
I just want to redirect some of the money confiscated from the taxpayer back to the taxpayer.
Larry. Barney Frank operates under the guise of "home affordability". His sanctimony is palpable.
Thomas Mortgage. This proposed change in the bankruptcy law would affect a very small percentage of consumers. The individual relief would be miniscule compared to the $Trillions doled out to the banks.
Terry. Indeed. We'll see if Congress "gets around to" bringing this bill to the floor.
Lenn - I just wish somebody would hit the fast-forward button - it's all getting old. Hopefully, Obama and his administration will be the change we need.
Lenn- I have mixed feelings about the cramdowns. Allowing judges this kind of power is scary to me in some ways, what is next? If I were a lender, I would stop lending on home loans, I would think it is just too risky that some judge somewhere can mess with principle owed when that is like interferance in a contract. This may just make credit tighter. It may do more damage than good.
Lenn- Also, don't hold your breathe about Obama changing much of anything. He just stated that it is going to be at least til February before he can do anything about the economy when just before election time he said it would be the first thing he does. I think what happens, is he had great ideas, but found out, not so easy to implement. It is much more complicated than on the cover.
Carol- I love you and hate to differ with you but it is going to be more of the same. That is politics.
Carol. Things always move slowly to help the consumer. They moved rapidly to put 350,000,000,000 in the hands of the banks.
Katerina. The status quo is untenable.
Katerina. I was citing Obama, not saying I believe him. Which is why I trust the bankruptcy judge to provide relief to a consumer debtor than a politician. On a case by case basis, an upside consumer would have a better chance with a bankrutpcy judge than a bank. The consumer hasn't fared well relying on the legislative process. They've been ignored completely. In fact, the consumer has been sold out.
Bankruptcy judges have been approving debt modification for a long time. They have permitted corporations in chapter 11 to cancel executory contracts, pay creditors pennies on the dollar and wipe out equity owners.
A consumer in chapter 7 or 13 bankruptcy should have the same benefits as a corporation in chapter 11. I don't believe that a judge modifying a note is going to cause more harm to the economy than the massive foreclosures are doing.
Consumer filings are voluntry and individual. When Congress gives tax relief to corporations, they affect the entire economy and usually to the detriment of the consumer and often the economy. It was Congress under the hand of Senator Gramm and the Gramm-Leach-Bliley Act the permitted the Wall Street gangs to cause the fall of the American housing industry and precipitate a worldwide recession.
In my opinion, permitting judges to modify a real estate note is about 2 years overdue.
Lenn, I love your posts! I learn so much and even more following the comments! It's very interesting that bankruptcy judges have been approving debt modification for corporations for years. I can't imagine how backed up they'd be with cases if individuals were filing for modification. I would think that major change would still be asked for to rid of that bottleneck too.
Krista. Thanks. They could broaden the bankruptcy venues to include all federal judges.
I was thinking of you and cramdowns, and on OPB they were talking about that and one of the panelist agreed that cramdowns with loan modifications such as recourse loans would be a viable option. Lessen the risk for banks and help homeowners at the same time. So essentially write down the mortgages outside of bk court, then make the mortgages recourse loans. I thought that was a "middle ground" solution.
They thought that the BK courts wouldn't be able to handle to volume and thought it was better to try and come up with a solution without having to go that route.
Anyway...I thought of this post as I was watching it yesterday.
The bankruptcy courts can handle whatever they need to handle. They could apply for some TARP funds.
Good persepctive. We dead with Short Sales on both sides of the transaction, I have become so angry at the Asset Managers of these lenders. They don't seem to want to budge an inch before the current owner is at leat 3-5 months in arrears. They are shooting themselves in the foot most time, as the economy gets worse and the prices continue to go down. ARE THEY JUST STUPID OR WHAT?
Your Queen Creek Real Estate Specialist
http://www.QueenCreekRealEstateSolution.com
Edward and Cecilia.
I plan to write about a short sale we're in now. It's a pickle.
Lenn, A better solution would be to kill the law provision in Sarbains/Oaxly, Mark to Market. These same write downs in the Mark to Market have allowed the banks to profit and are they perhaps manipulating the Fed , lowering their own stock values, all the while, awash in cash. Perhaps the ledger sheets are not balancing intentionally?