Discussion Forum on Bankruptcy and Foreclosures
Good morning, and welcome to this online forum. I’m Brad Miller, and I’m here with Linda Sanchez —and when I say here, I mean Linda is sitting on the other side of my desk in front of an open laptop. Linda and I introduced legislation to allow bankruptcy courts to modify home mortgages, which will be the topic of the forum today. Also joining us are Professor Elizabeth Warrren, who is well know to readers of TPMCafe; Bob Lawless, also a law professor and a blogger, in his case at creditslips; Adam Levitan, a law professor at Georgetown; and Hale Stewart, a recently-engaged Houston lawyer well known at DailyKos and at his own blog as “Bonddad.”
The law professors are welcome to ask questions on the understanding that their questions not bring back unpleasant memories of law school for Linda, Hale or me.
The foreclosure rate is already the worst it’s been in twenty-five years, and soon will be the worst it’s been since the Great Depression. According to Lehman Brothers, about 30 percent of the subprime loans made last year will end in foreclosure. Probably more than two million American families will lose their homes to foreclosure in the next couple of years, and with their homes, they will lose their membership in the middle class, probably forever.
None of this should come as a surprise. Here’s what’s happened in mortgage lending in the last couple of years, based on a summary of industry statistics by the Center for Responsible Lending:
Approximately 28 percent of all mortgage loans made last year were subprime, compared to eight percent in 2003. About 90 percent of the subprime mortgages made in 2005 and 2006 had adjustable rates with an adjustment after just two or three years. The typical adjustment in the interest rate was from about seven percent to 12 percent, resulting in an increase in monthly mortgage payment of 30 to 50 percent. There was no reason to believe that more than a tiny fraction of those borrowers would enjoy substantially more prosperous circumstances in two or three years. About 70 percent of subprime loans have prepayment penalties, 75 percent have no escrow for taxes and insurance, and almost half (CRL estimates between 43 and 50 percent) were “without fully documented income.” The vast, vast majority of Americans can easily document their income by payroll records, employer verification, bank statements or income tax returns, and the interest rates on loans with less than full documentation are substantially higher.
The mortgages were designed to become unaffordable, so the borrower would have to refinance again, paying up front costs and fees for the next mortgage and a prepayment penalty to get out of the last mortgage. As long as the value of homes kept appreciating, it all worked exactly as intended—the various players in mortgage lending ended up with the increased equity in homes, not the middle class families who lived there. But when housing stopped appreciating, the music stopped.
No, the people with subprime mortgages aren’t people with “problem” credit. According to the Wall Street Journal, 55 percent of subprime borrowers qualified for prime loans. And no, the loans were not “innovative mortgage products” that lenders offered to encourage home ownership. Only about one subprime mortgage in ten is to purchase a first home, and 72 percent of subprime mortgages were refinances. Professor Warren has written about how the mortgage practices steer homeowners into predatory loans, and so have I.
I’ve worked in Congress for five years on legislation to reform mortgage lending, but we have a more immediate problem: what can we do to help the families now facing foreclosure?
It turns out we’ve been here before. The Great Depression began on the farm before it began in the factory. Millions of family farmers borrowed against their farms to try to ride out the depression. When farm prices didn’t improve, they had no way to pay their mortgages.
Woody Guthrie was writing about family farmers losing their homes to foreclosure in the lyrics to "Pretty Boy Floyd”:
Now as through this I ramble
I see lots of funny men
Some will rob you with a six gun
And some with a fountain pen.
But as through life you travel
As through your life you roam
You won’t never see an outlaw
Drive a family from their home.
Congress first passed bankruptcy legislation in 1934 to help family farmers avoid losing their farms and their homes to foreclosure. The legislation was temporary, and after the Democratic Congress extended the legislation a couple of times, the Republican Congress elected in 1946 let it expire. But after another epidemic of family farm foreclosures, Congress enacted legislation in 1986 that is now a permanent part of the bankruptcy law. When I asked around early this year about what Congress could do to help middle class families escape foreclosure, a couple of bankruptcy judges suggested that Congress could just let bankruptcy courts modify home mortgages the same way bankruptcy courts can modify mortgages on family farms.
So Linda and I introduced a bill that would do just that. If the mortgage exceeds the value of the home, the court can limit the debt secured by the home to the value of the home and treat the rest as unsecured. And the court can then set a term of up to thirty years and an interest rate of prime plus a couple of points for risk—still a subprime loan, but not a predatory loan.
According the CRL, the legislation would make it possible for 600,000 or so families to save their homes from foreclosure. The chief economist for Moody’s thinks that’s an exaggeration—probably only 500,000 families would save their homes under the legislation.
Okay, so let’s get started.
There was a question earlier about whether the bill could survive a Fifth Amendment challenge if it applied to mortgages already in effect. Some financial services lobbyists have puffed themselves up and said the bill would be unconstitutional for that reason, but they've never cited what lawyers call a "case." In other words, they're just pulling that out of their...uh, they've just making that up.
What they really mean is that it oughta be unconstitutional, and it just goes to show we shouldn't have let a liberal like James Madison write our Constitution, but right there in Article One, Section 8, Clause 4 is the power to adopt a national bankruptcy law.
Under Wright, 304 U.S. 502 (1940), bankruptcy laws can modify security interests beyond the value of the collateral, which is what the legislation does. So yes, it would be constitutional.
December 19, 2007 8:02 AM | Reply | Permalink
That's the most beautiful and moral legislation I've seen proposed in a while. Mortgages should be adjusted to fair value, and lenders penalized for predatory practices.
The big problem with other more cynical and cruel "reform" packages I've seen, is they're all designed to sandbag the issue and keep these people on the edge of bankruptcy indefinitely, basically as indentured slaves to the banks and mortgage industry. These poor people are sure to wind up on credit cards too, so they're being taken, coming and going.
Other legislation seems designed at the expense of owners, buyers, renters, and the building industry. It's a scam where everybody who works loses, and only the money lenders and rentiers profit.
Granted people walked into their chains, but many had no choice. As an observer it looked to me like a rigged game of rather cruel loansharking. Banks, the mortgage industry, this Admin, and the FED, all chummed the water and then rushed in to feed. They jacked up housing prices by flooding the market with loans and precipitated this crisis, then all jacked up rates to squeeze people into even more disadvantaged positions, in what must be one of the most predatory schemes since the Gilded Era, and including ENRON which looks small by comparison. It was a like the way you see killer whales hunting in packs, by forcing schools of fish into shallow water and then just devouring them.
You're right, the bank's predatory lending and gaming the system needs to be addressed. It's an issue of practical economic health. But it's also a fundamentally moral issue, and question about what kind of nation we want.
There needs to be culpability and contrition from the banking and mortgage industry, as disincentive for future predatory practices.
Mortgages should be adjusted to fair value, and lenders penalized for predatory practices.
December 20, 2007 4:28 AM | Reply | Permalink
Hello to all. This is Hale Stewart aka Bonddad. I'll be here as well. I wrote a brief overview of the economic/financial problems associated with the housing mess here:
http://www.tpmcafe.com/blog/warrenreports/2007/dec/19/the_credit_crunch_the_mortgage_mess_and_the_threat_to_economic_growth
December 19, 2007 8:20 AM | Reply | Permalink
I just wanted to thank you for your work on this bankruptcy bill. This is really a serious mess that is going to get worse over several years (since the subprime resets are followed by the even more perilous option ARM resets in 2009/2010). I see this as one of the few options that does not create a moral hazard for the financial sector. The reaction of the Fed to Wall's Streets cries while ignoring any attempts at banking regulation has made it clear that there is no help coming from that agency.
With that said, as Krugman has pointed out, this is much different from the LCTM mess. That was a crisis of confidence, while this is a matter of bank insolvency. Last time this happened (the 30s), this led to a wave of banking regulation. What type of regulation do you see coming out of this incident?
December 19, 2007 8:29 AM | Reply | Permalink
Aw shucks.
The House has passed legislation that I introduced along with Mel Watt and Barney Frank to require reasonable underwriting to assure an ability to repay, prohibit prepayment penalties in subprime mortgages (the glue that holds a predatory mortgage together, limits the up-front costs and fees, and prohibits compensation for brokers and loan officers that increase with the interest rate.
Also, The Fed proposed rules yesterday, acting on rulemaking authority that has been gathering dust on the shelf since 1994. The proposed rules aren't perfect, but if the Fed clarifies a couple of points I think they can be helpful, so I'm not as down on the proposed rules as Chuck Schumer, Chris Dodd and Barney Frank.
December 19, 2007 8:26 AM | Reply | Permalink
The House has passed legislation that I introduced along with Mel Watt and Barney Frank to require reasonable underwriting to assure an ability to repay, prohibit prepayment penalties in subprime mortgages (the glue that holds a predatory mortgage together, limits the up-front costs and fees, and prohibits compensation for brokers and loan officers that increase with the interest rate.
One of the things that has become clear to me in reading the housing/economic blogs is that an awful lot of people did not completely understand the terms of the loans they were given. Even if they were moderately financially sophisticated, the jargon in the loans was so complex that it become difficult to understand exactly how the resets worked and how this would affect their payments over time. But buyers often signed the loans anyway (including the sheet that said they understood the loan they clearly did not understand) because they believed the mortgage brokers had a fiduciary responsibility towards them.
The law you have outlined above certainly goes a ways towards helping establish something like a fiduciary responsibility. But is there something that we can do to address the obfuscation that goes on in these loan documents? I cannot help feeling that attempts at better educating consumers on the products that they are getting would be just as helpful (if not more) than regulation whose enforcement depends on the whim of the current administration.
December 19, 2007 8:51 AM | Reply | Permalink
I'm pretty skeptical of disclosure as a remedy. The disclosures already required by law are useless--even the American Enterprise Institute says the mortgage system isn't working. That makes...let's see...one issue the AEI and I agree on.
We won't be able to get a fiduciary duty into the law--the votes just aren't there--or even something resembling the "know your customer" rule from the securities laws. But if we can end the compensation system for originators that reward them for steering borrowers into more expensive loans, will help a lot.
Why should we allow a practice that no one in their right mind would agree to so long as it's disclosed? Do we not know that there's something wrong with the disclosures that result in that agreement.
December 19, 2007 8:55 AM | Reply | Permalink
Why should we allow a practice that no one in their right mind would agree to so long as it's disclosed?
My question on disclosures was meant to "and in addition to your current measures", not "instead of". Thank you for your reply; that was most helpful in understanding the situation.
December 19, 2007 9:22 AM | Reply | Permalink
According to an article in yesterday's NYTimes, the Fed has now issued stronger lending standards. This is a good start.
I would also add that something has to be done about the ratings agencies. They really dropped the ball on this one.
December 19, 2007 8:34 AM | Reply | Permalink
It's a good start, and will help, but ONLY if there is other reform as well, like what Brad Miller suggests.
Otherwise, combined with the "freezer teaser" it's actually poised to further rape people.
It can also be used as a gambit to manufacture a "liquidity crisis" which is the big new meme.
A "liquidity crisis" manufactured by pointing out prices are too high and strangling the flow of capital, will keep turnover low, thereby keeping prices high, thereby keeping mortgage holders on the hook for astronomic rates, which will keep turnover low, and rates high... rinse and repeat. And then who holds all the levers of capital and turnover? The mortgage industry.
See? It really is devious.
It's too bad these crooks couldn't apply their creativity to something useful.
December 20, 2007 3:43 PM | Reply | Permalink
Linda is sitting here composing the perfect comment, which is why she hasn't posted anything yet. Well, that and she can't get logged on to her new account, which should be fixed shortly.
December 19, 2007 8:29 AM | Reply | Permalink
Sometimes email works faster than posting here, so I'm passing along this question from Professor Katie Porter at Iowa. She raises a really important point:
"As I understand it, HR 3609 as amended requires that bankruptcy courts find that the modification of the mortgage was made in good faith as a condition to confirming a plan with a mortgage stripdown. One aspect of these debates over using bankruptcy as a tool to help homeowners that has really surprised me is that there hasn't been much emphasis on how this bill--unlike the Paulson plan or other proposals--has an explicit, normative "fairness" requirement. If a bankruptcy court thought a debtor could pay the mortgage and was gaming the system, she would deny confirmation of the 13 plan, just as judges do now. Why isn't this aspect of the bill attracting more attention? It's been a major criticism of the Paulson plan, but I haven't seen anyone touting this as a major benefit of a bankruptcy-based approach?"
December 19, 2007 8:31 AM | Reply | Permalink
Yes, opponents have treated bankruptcy relief as a painless windfall to borrowers, as if bankruptcy wasn't a last resort for anyone. But you're right, no homeowner can seek bankruptcy relief unless they meet the means test for bankruptcy--in other words, they have to be bankrupt.
Professor Warren described the Paulson plan as no plan at all, and I agree with her. It's entirely voluntary, it really just provides for modification when it is obviously in the self-interest of the lender to modify, and homeowners have no bargaining power.
An additional benefit--in fact, probably the main benefit--of the bankruptcy bill is that it would provide an obvious template for how to modify mortgages outside of bankrupcy, and there's the obvious incentive for creditor to agree to the terms that a bankruptcy court would impose.
I suspect that the vehement opposition of the mortgage industry is because they're hoping that as things get worse next year there will be a bail out, and they'll be paid in full by tax dollars. Our bankruptcy bill obviously is not compatible with that plan.
December 19, 2007 8:44 AM | Reply | Permalink
When will the MNBA (Biden) Bankruptcy Bill be repealed and return to the old sane Law? The Credit companies send cards to anyone breathing, and some not, and expect to get paid when they are used. My grandson got credit and I won''t lend him money. These companies have people on the hook for life. They will settle for payment at a lower amount but at a larger percentage and the user goes backward and has a lien for life.
December 19, 2007 8:46 AM | Reply | Permalink
I'm curious as to your thoughts as to what extent has the sub prime mortgage orgy been driven by demand for mortgages to securitize into CDOs?
And if demand for CDOs has been a factor, what can be done about such?
Thanks.
Strive for the ideal, but deal with what's real.
December 19, 2007 8:46 AM | Reply | Permalink
The drive for securitized product has been a big reason for this problem. Investment managers like mortgage product because it usually pays a higher interest rate and is therefore more lucrative. The fact that the ratings agencies gave AAA ratings to a lot of this debt added to the problem.
I've argued in the past -- and will continue to argue -- this whole mess could have been avoided or seriously minimized had the ratings agencies not given such good grades to this paper. If his paper had been rated appropriately fewer managers would have bought this stuff. In addition, the managers who would have bought it would be higher risk managers who are far better at valuing risky assets.
December 19, 2007 8:52 AM | Reply | Permalink
Yep. And that's why the failure of the Fed's proposed rules to prohibit prepayment penalties for subprime mortgages is so disappointing. The secondary market for the worst loans would dry up if purchasers knew borrower could refinance once they figued out how bad the loan was.
December 19, 2007 8:48 AM | Reply | Permalink
I've argued in the past -- and will continue to argue -- this whole mess could have been avoided or seriously minimized had the ratings agencies not given such good grades to this paper. If his paper had been rated appropriately fewer managers would have bought this stuff.
I think the blame is shared between the rating agencies and the Wall Street Investment Banks that repackaged the BBB and BBB- sub prime loans into AAA rated senior CDO tranches.
The Hayman Kyle Bass sub prime letter made me realize just how bad things are -- the entire global financial system is in gridlock, because Wall Street sold crap securities with AAA ratings. Now, no one trusts any CDO or SIV that Wall Street needs to peddle.
The Greatest “Bait and Switch” of ALL TIME
http://ftalphaville.ft.com/blog/2007/08/21/6727/the-full-subprime-letter-from-haymans-kyle-bass/
December 19, 2007 9:06 AM | Reply | Permalink
Wall Street, the FED, and large institutions knew they weren't really AAA, they're not complete idiots. But there was a nod and a wink that they'd be taken care of becasue it was a good scam. That includes international buyers who were all too happy to get in the game.
It's like when ENRON went to Merrill Lynch and said with a nod and a wink that they should be underwritten, becasue ENRON was so good at gaming everyone in their ponzi scheme, ML would be taken care of.
The only people I have sympathy for are the people who really didn't know any better and were victimized: the home buyers, the people who couldn't buy, and the small mom and pop investors who got suckered into this crap.
The large institutions knew it was a scam, and thought they were getting away with murder.
December 20, 2007 4:08 PM | Reply | Permalink
Another question from Katie Porter:
"The original bill did not contain the limitations on "nontraditional or subprime" mortgages that the Conyers amendment added. The Federal Reserve in its new proposals on loan origination yesterday articulated a standard for subprime--3% over the yield on comparable treasuries. How does your bill define nontraditional or subprime? If you are willing to comment, how do you feel on the nature of the amendment?"
December 19, 2007 8:54 AM | Reply | Permalink
I think we incorporated the definition from the predatory mortgage lending legislation the House passed just before Thanksgiving.
I think the amendment is largely redundant. If you already had a prime mortgage with even a little equity, you wouldn't want a bankruptcy court to touch it, because what the bankruptcy court would do to the mortgage would give you a less advantageous mortgage than what you started with.
I agreed to the amendment to pick up some votes. Politics is the art of the possible.
December 19, 2007 2:36 PM | Reply | Permalink
Perhaps one of you legal experts can explain how the proposed legislation will succeed in: (A) punishing the 'irresponsible' lenders with huge financial losses and maybe even the loss of their businesses, while at the same time (B) protecting the welfare of those 'innocent' home purchasers who were somehow snookered into an ATM loan?
If you can come up with a legislative fix that would bring down a horrible punishment on those who took risks with the welfare of millions, then I'll be impressed...
December 19, 2007 8:57 AM | Reply | Permalink
Have you conducted -- or do you plan to conduct -- any hearings on the amount of transparency that was used in the process of delivering these mortgages in the first place? Many people seem to argue (I heard this on the radio just today) that people "ought to have known" what they were getting into, but it seems like that is hardly an accurate description of things like bait and switch mortgage rates and fuzzy formulas which were used to convince homebuyers that they could afford the mortgages they were being offered.
December 19, 2007 8:57 AM | Reply | Permalink
We've had lots of hearings for five years, but many in Congress still defend the practices that have gotten us where we are.
The first defense of the lenders has been that borrowers should have known better than to trust them and borrowers were in trouble because they bought too much house or had to refinance because they were spendthrift. They haven't quoted the words of the American phiolospher, W.C. Fields, "you can't cheat an honest man," but the argument is the same.
In fact, the mortgage system really prevents borrowers from getting honest information they would need to fend for themselves.
December 19, 2007 9:15 AM | Reply | Permalink
Gotta love their rather preposterous argument:
1) "sure it's a predatory industry that has caused enormous economic woe to working people"
2) "but they should be allowed to continue business as usual and we don't have to do anything"
3) "becasue everybody should know they're predatory"
4) "therefore they shouldn't get any business becasue the market is self correcting. QED."
...
5) "oh, and they have a ginourmous lobby and contribute tremendously to the leisure of the top 0.1%. Oops, did I say that out loud?"
Ugh. It's so vulgar and shamelessly corrupt.
December 20, 2007 1:19 PM | Reply | Permalink
The first defense of the lenders has been that borrowers should have known better than to
I totally agree with this statement! And one of the reasons why I find myself leaning republican these days! Over the past two years, I've tried to be more responsbile and the awards have been significant.
Sure I've made mistakes! For example, I bought a fancy $1800 home gym that did nothing for me; so I liquidated it. I'm now using free weights and weight bars and a "Total Trainer" and my "new results" have been amazing at a fraction of the cost.
Why people let themselves become endentured servents, just to get a lousy house, is beyond me!
They haven't quoted the words of the American phiolospher, W.C. Fields, "you can't cheat an honest man," but the argument is the same.
so they're cheating crooks? a lot of americans did "under the table" cash back at close deals and I really hope the FBI is serious about going over those crooks!
To boldly go...
December 20, 2007 7:28 PM | Reply | Permalink
This is Bob Lawless from the University of Illinois College of Law. Apparently, we’re all having some difficulties posting comments. I wanted to thank Representatives Miller and Sanchez for making themselves available for questions. Their legislation should become law. As I read the comments, however, one thing should be made clear. No one measure is going to clean up this mess, and I don’t hear Representatives Miller and Sanchez saying otherwise. Empowering bankruptcy courts to deal with the home mortgage mess is an important part of the overall package that could fix this problem.
While we still have Representatives Miller and Sanchez, I wanted to ask a question. The “teaser freezer” announcement from the White House and Treasury last week and yesterday’s action by the Fed have been viewed by some, including myself, as half measures designed principally to take the steam out of legislative efforts to enact more serious reforms. Do you think these regulatory efforts will hurt the chances for passage of your legislation? I don’t think they should, but the question is whether they will. The White House, Treasury, and the Fed have created the appearance that someone is doing something about this mortgage mess. Will that create political cover for those who do not want to support your legislation?
For those who are interested in some of the more technical aspects of these bills, you can find some of that information at our Credit Slips blog on this page: http://www.creditslips.org/creditslips/mortgage_debt_home_equity/index.html.
December 19, 2007 9:02 AM | Reply | Permalink
The Paulson Plan isn't that hot. The best estimate I have seen of the number of people it would help is at best 600,000. The projected number of foreclosures next year is 1.2 million.
In addition, the program is voluntary for the financial services industry.
December 19, 2007 9:00 AM | Reply | Permalink
Why should be try to stop all of the foreclosures? If people bought homes at high prices that they can't afford, let them lose their homes and become renters like the rest of us.
Then when prices fall back to realistic levels, those who were smart enough to wait out the bubble will come in and buy these homes.
We should reward smart behavior, not bail-out stupid behavior. Everybody knew that the housing bubble could not last.
December 19, 2007 12:49 PM | Reply | Permalink
This is just a mischaracterization of what the bill seems to do. Those that "could not afford" their homes won't be helped by it--they still have to make payments. Say the home costs $100k. Payments were $700 as a teaser, but then became $2000. If the homeowner files for bankruptcy, her monthly payment would become, for example, $1200. (Numbers not to scale, as these are pretty big percentage swings anyway). The house will be paid off--lender gets their money back (plus profit). If the debtor can't make the new payments, then foreclosure occurs, and the court figures that out -before- knocking the rate down. In addition, they'd have to submit themselves to the new (and hideous) bankruptcy bill, which means that they may have to try to pay off their other debts and go into credit counseling--it may be a long time before they get a clean slate. That is hardly grounds for rejoicing on the debtor's part.
Saying that these people "can't afford their homes" isn't really fair, particularly when there's evidence of a malfunctioning market in the sense that the terms were not properly disclosed. Some folks did bet knowingly, and wrong. But there were a lot more that were simply hoodwinked, and it's very difficult to work out terms with the bank because of the manner in which these loans were bundled into securities and sold. In other words, the incentive for the banks and the brokers was to close it and sell it; the mass securitization of these loans ensures that these chickens would never really come home to roost. Some banks did this ethically, but a lot didn't. Even though there might be a sucker born every minute doesn't mean that abuse ought to occur that often.
December 19, 2007 1:54 PM | Reply | Permalink
No, that's not true. There was a lot of disinformation being put out by the mortgage industry. And there was a deliberate attempt by them to inflate the bubble and use predatory practices. If it wasn't for predatory practices, we wouldn't have this mess and prices would never have gotten so out of control.
Also, you're mistaken to think this is going to hurt renters or future buyers. Just the opposite. What it will do is help deflate the bubble and prices back to normal levels, less painfully for owners, and of course that will also help new buyers and renters.
December 20, 2007 4:40 AM | Reply | Permalink
While I understand existenz's point, I am always interested by the different perceptions of personal and corporate (artificial person) behavior. Corporate entities renegotiate contracts and debts all the time for various reasons, including impossibility of performance. The entire corporate Chapter 11 Bankruptcy process is one large renegotiation of debts and obligations under the theory that it is best for society if the bankrupt entity continues in business and the debtors get something (however small) rather than nothing. There is an entire lexicon of renegotiation terms of which "cramdown" gives the best picture of how these negotiations proceed.
Yet as soon as we start talking about personal debt all these moralistic judgments about personal behavior and integrity are brought to bear. When a corporation in which I have invested (say for my 401k) suffers a cramdown and I lose some of my investment money that is just too bad, but if I need assistance in renegotiating my mortgage that makes me an immoral person? I don't get it. The mortgage makers and financial firms aren't hesitating to renegotiate with everyone including Mammon (the Fed) after all.
sPh
December 20, 2007 7:56 AM | Reply | Permalink
This is going to be a dog fight no matter what. We've had a dozen years of a Congress that was as obeisant to the interest of business as any since the 1920s or the 1890s, not to mention the Bush Administration.
Business interests are out of the habit of having to argue policy, since they haven't needed to for so long.
In discussions on predatory lending legislation, industry lobbyists would say to me things like "If that language becomes law, we'd have to change our business practices." The outside me would sound sympathetic and conciliatory, but say gently that might be necessary. The inside me said "Yes! That's the whole point! We want you to change your business practices!"
December 19, 2007 9:04 AM | Reply | Permalink
Sorry I haven’t been able to participate fully due to technical difficulties. Let me leave you with a few observations.
H.R. 3609 has been described by Chief Economist Mark Zandi of Moody’s Economy.com as the single most effective thing we could do to help families caught up in the subprime mortgage crisis.
This bill is about basic fairness and good policy – two things that the mortgage industry should not oppose.
Also, it’s important to remember that this mortgage crisis has far broader negative implications. Not only does it hurt the family at risk of losing their home, but foreclosures lower the property values of neighbors who are faithfully paying their mortgages. Vacant homes in neighborhoods often attract crime, further jeopardizing communities. And interestingly, representatives from the mortgage industry admit that foreclosure is the worst possible outcome for the holder of the mortgage, given the fees, upkeep, and loss of value to the asset (home). Finally, the high rate of foreclosures also means that local communities, which rely on transfer fees and property taxes to fund police and fire departments, as well as other critical community services, now lose out on that revenue. Accordingly, I don’t think we can bury our head in the sand, believing that the “Paulson Plan” is somehow going to deliver us from this mess. It won’t. The Paulson Plan is a nice effort, but is totally voluntary (doesn’t mandate all financial players in the industry to participate). It also doesn’t help families in foreclosure, and only “freezes” rates for 5 years – potentially meaning a deferred crisis later. If this tide of foreclosures isn’t stemmed, we are very seriously looking at the “R” word, folks. As in RECESSION. If you are as concerned as we are about keeping our communities intact, let your Representative and Senators know you want to see H.R. 3609 become law.December 19, 2007 9:02 AM | Reply | Permalink
I'm sorry, but I don't buy the implicit argument that the only way we can avoid an economic contraction is by bailing out the banks that created this crisis by behaving irresponsibly.
An alternative that none of you have yet mentioned is the option of nationalizing the banking industry, a solution that is long overdue. Banks that are in trouble could be bought out by the US government at firesale prices (punishing the bad bankers while doing taxpayers a favor). If taxpayers are going to bail out the banks, then let them lose their businesses and a whole lot of money.
A government-run banking industry (re: the People's Bank of China) would be able to keep the economy humming along while the bad guys pay a steep price for their greed and irresponsibility.
December 19, 2007 9:15 AM | Reply | Permalink
I think you've misunderstood the legislation and what posters are saying. Bailing out the banks is exactly what this legislation is NOT proposing.
What H.R. 3609 legislates is that mortgages should be lowered to fair appraisals, and the mortgage industry absorb some of the losses for this catastrophe, considering they've made enormous profits over the last several years by inflating the bubble and using predatory practices.
Also, it's fair becasue it's all they'd get through a foreclosure anyways, and debt bondage is not an option.
December 20, 2007 4:22 PM | Reply | Permalink
Rep. Sanchez,
These families and homebuyers were not "caught up" in the foreclosure crisis. They made the decision to buy very expensive homes that they could not afford, using gimmicky loans to keep their mortgage payments low. You know how unaffordable homes have become in California. Last year I couldn't find a decent home in Los Angeles, even in crime-ridden areas like Inglewood, for less than $500,000.
Prices were unrealistic, and those of us who were smart enough to avoid buying should not be made into suckers. If you bail out the naive and foolish who bought homes they couldn't afford, you are sending a terrible message to the public.
If a recession is coming, you are not going to stop it by bailing out foolish homeowners. Prices have to come down, and if there have to be foreclosures as part of that cycle then so be it. Not everyone is anguished by this development. Millions of Americans who cannot afford homes at current prices will buy these foreclosed homes once the prices become realistic again. Why keep prices at unrealistically high levels, forcing Americans to pay 70-80% of their take home pay on mortgages?
Let the prices drop 20-40%. That may hurt some speculators, but they knew the risks when they signed the papers. Their pain will be outweighed greatly by the increased quality of life for those who can afford homes again.
December 19, 2007 12:56 PM | Reply | Permalink
What you're hoping for as a new buyer, won't happen. Actually, you're walking right into a trap laid by the mortgage industry.
To clarify some things:
1) HR 3609 will adjust mortgages down to fair appraisal levels, which are basically pre-bubble levels.
2) That will allow home values to deflate 20-40% in some markets to roughly pre-bubble levels, without hurting owners. Meaning, existing owners can afford to sell, to move or whatever, and new home buys will have inventory available at pre-bubble prices, which is good news for new buyers.
3) It's not a bailout of banks or lenders, at all. It requires zero tax revenue. There is no bailout. It's helping home owners, and new home buyers, at the expense of the mortgage industry as penance for predatory practices. A good thing.
!) The mortgage industry is NOT going to let there be enough foreclosures in a short period to really deflate prices to pre-bubble levels rapidly. That is totally contrary to their interest of keeping inventory low and at inflated prices, while keeping new buyers over a barrel and forced into huge loans, and keeping existing mortgages paying enormous rates.
The "freezer teaser" and other gimmicks are designed by lenders to prevent bankruptcy, but not give meaningful relief either. It just keeps borrowers in debt bondage indefinitely, on credit cards and such, and keeps prices inflated and inventory down. That's a win/win/win for lenders.
The worst part is that unless something like HR 3609 passes, nothing prevents another bubble down the line. Whenever the economy improves, another bubble can vacuum it up.
Lenders will have disproportionate control over the market due to all the debt bondage, and capital will be available for another bubble, regardless of rating or disclosures, becasue they got away with it once before.
December 20, 2007 4:36 PM | Reply | Permalink
Criminals. I frankly believe that the S&L people, morphed into the subprime people-- looted America and now want the public sector to bail them out. Unless, some of the culprits are identified and jailed we will be facing this cyclical boom and bust looting every number of years.
I have worked in affordable housing for over 30 years. Rental and homeownership. What the realtors and lenders did was criminal and now we are trying to save them. The so called counseling agencies are a complete farce, there are no options for people. Short sales lead to tax implications and bad credit, foreclosure just leads to bad credit.
Homeownership is oversold to people without all the financial implications. We need mind switch. Not to mention the millions of people that used their equity as an ATM card to buy consumer goods.
I hold realtors just as responsible for this mess. Many homeowners relied on them as professionals, but alas, they were only driven by greed. I really hope that some criminal investigations take place along with any ideas for reform.
December 19, 2007 9:03 AM | Reply | Permalink
It was terrible that banks stopped requiring 20% down payments on homes, which would have kept prices in check to a much greater degree. In addition, these interest-only loans and subprime loans and adjustable rate loans combined to make the prices skyrocket far beyond reality. The stated income fiasco is yet another part of this whole mess. Nobody wanted to put the brakes on things when prices were climbing 20% per year, but now its time to pay the piper.
Price have to come down. Period. They doubled and tripled in the past six years, to where homes aren't affordable for normal middle class folks any more. Let the prices fall, let the chips fall where they may, and make sure that banks return to traditional lending practices from now on.
That means requiring at least 10% down payments and fixed-rate, non-gimmicky loans.
December 19, 2007 12:49 PM | Reply | Permalink
Representatives Miller & Sanchez,
Thanks for your work on this. I have been thinking along these lines, but I suggest that payments on the old loan be applied to the new loan, which puts the pain where it belongs.
The old, securitized loan has to go somewhere. Treating them all as defaults probably isn't fair to the investors, but I don't know how easy it would be to transfer the loan terms into the same ownership structure.
There's two big problems with valuation. One is that you don't know what the value is without comps, and in this situation your comps aren't accurate. I suggest an auction, but this means the homeowner's out if s/he opts not to match the highest bid. Also, you have to keep finding more bidders, and I don't know where they'd come from.
The second value problem is that even with a plan like this, which will help houses find their value more quickly, the values of the houses will probably continue to decline after the first round or two. But, this is a pretty heavy-handed disruptive intervention, so it'd be best if a given homeowner only went to this well once. I don't have any great ideas regarding having the home find its proper value the first time, but it's an issue.
Thanks again!
RFM
December 19, 2007 9:09 AM | Reply | Permalink
Why should Congress allow people to absolve themselves of debt that they willfully accrued? If you bought a house at the peak, why should you be allowed to simple write-off 10-20% of your debt now that the bubble has burst?
This is completely unfair to those homeowners who don't receive a similar deduction in their mortgage debt, but especially unfair to those of us who have been waiting for prices to come back to reality.
Right now, prices in some areas are still double what they should be considering median income. By stopping foreclosures, the government is rewarding naive and foolish buyers who make bad investment decisions on these homes.
Let the economics work themselves out as they should. Foreclosures--price drops--more affordability. It may suck for the people who lose homes that they can't afford, but it will be great in the long term for millions of Americans who can now afford homes at a normal middle class salary.
December 19, 2007 12:44 PM | Reply | Permalink
"Why should Congress allow people to absolve themselves of debt that they willfully accrued?"
So that those people can cut their losses and get on with being useful members of society. Being tied up in unpayable debt prevents people from moving, from starting new projects or even doing well at their old ones. It's a life sentence of never having a chance to do well again.
Companies do this stuff all the time. Northwest Airlines recently canceled its old stock and started selling new stock, leaving shareholders to fend for themselves. Why? They didn't like their old deal.
If no one could ever get a fresh start, no one would ever play chess. Or golf.
December 20, 2007 3:38 PM | Reply | Permalink
I've gotta go for now, but I'll check back in later. This has been great, and we're doing it again tomorrow at 11:00 at DailyKos and Open Left. Please join us again.
December 19, 2007 9:16 AM | Reply | Permalink
Here too right?
Please cross post here if you can. It's electronic, no need to limit oneself to one place!
And this issue is too important for it not to be everywhere.
December 20, 2007 2:49 PM | Reply | Permalink
In his first comment, Representative Miller said that a Fifth Amendment
issue had been raised about his proposed legislation. For the non-legal
eagles, the Fifth Amendment prohibits governmental takings of property
without just compensation, and financial industry lobbyists already have
begun to argue that any alteration of their mortgage contracts would be
a "taking" of their property rights in the contracts.
I wondered when we would see that old canard pop up. The issue came up
in the Depression and again in the farm crisis of the 1980s. The Fifth
Amendment is a favorite of entrenched financial interests. Most any
legislation affects something that might be labeled a "property
right"--a student recently tried to persuade me that smoking bans
interfered with the property rights of tavern owners. The Fifth
Amendment could be used to stop most any piece of legislation. Looking
at the bigger sweep of history, the courts have used the Fifth Amendment
rarely as a safety valve, as a check on legislation that goes too far.
In the face of economic crises especially, the courts have shown
themselves to be reluctant to interfere with measures the elected
branches have deemed necessary.
The Miller/Sanchez legislation would give bankruptcy courts the power to
put mortgage holders and their debtors in a position that mimics the
economic outcomes that would occur if the mortgage holder pursued a
state-law foreclosure action. The mortgage holder gets the value of the
property, which is all it would get in a foreclosure action. It is
difficult to see how such a result harms the mortgage holder let alone
goes "too far." In any event, I agree with Representative Miller that
the Supreme Court decided this issue in 1940 in the Wright decision and
held Congress could affect security interests that go beyond the value
of the collateral.
December 19, 2007 9:27 AM | Reply | Permalink
The Constitutional question goes back even farther than the Depression, as Charles Warren noted in his 1935 history of bankruptcy law. For most of the 19th century, unconstitutionality was the primary argument against having a bankruptcy law at all. It seems to be one of these zombie arguments that sprouts up with every attempt at bankruptcy reform, not because of any concern about Constitutional purity, but simply because it seems like an expedient way to derail legislation.
December 19, 2007 9:28 AM | Reply | Permalink
I want to thank Representatives Miller, Sanchez, Frank, and all the other Members of Congress for their diligent work on these issues.
I also urge them to ignore the Fed's recent interest in this issue -- as with everything else that comes from the Bush Administration, this is intended to short circuit real reforms with platitudes and window dressing.
As a Residential Real Estate Appraiser and homeowner that's had several sub prime mortgages, I've seen how the system works from all angles.
It was recently reported that 55% of homeowners with sub prime loans could have qualified for prime loans, but were steered into sub prime because of the financial advantages for the lenders. This is shocking, but not surprising -- and not necessarily as bad as it sounds. The best sub prime loan matrices had programs with rates and terms were only slightly worse than prime loans, although my guess would be that predatory lending was the biggest factor.
In my experience as both a sub prime and prime borrower, every loan I've had was state income or no ratio, and all but one had a fixed rate. I also never had more than a one year pre payment penalty, and most of the time had no pre pay.
My current loan is a Fannie Mae stated income verified asset, with a 6.4% interest rate. I chose the option of par pricing, but could have saved $3k on the principal balance if I'd chosen the 1% YSP and a 6.8% rate.
YSPs serve an important function in the mortgage origination business, despite the fact that they have been abused by predatory lenders. Some borrowers prefer a no cost loan, and the only way lenders can offer this is by paying the origination costs with YSP.
My previous loan was a 2/28 sub prime ARM, with a one year pre pay -- the origination fees were paid by a 1% YSP, and I was extremely grateful to get that loan. My mortgage broker had generated more than 30 hits on my credit report in a 3 month period, which sent my FICO mid score from 600 to 480 -- I was extremely fortunate that my high score was 580, and NovaStar offered a loan based on the average of the 3 scores. Without that, I'd have lost everything.
In the Fannie refi, my FICO mid score was back up around 670 -- now, it's over 750.
I offer my personal experiences here, because the issues are far more complicated than YSP and pre payment penalties.
The sub prime market offered valuable services to many borrowers -- it is unfortunate that it was abused by predatory lenders, and Wall Street fraud.
December 19, 2007 9:39 AM | Reply | Permalink
I realize that H.R. 3609 is meant not meant to address every issue in the mortgage and credit crisis. Are there any plans to investigate how the Fed and the panoply of housing regulators were so asleep at the switch? I've been spending a fair amount of my time of late digging through federal government data on housing industry and what has shocked me is that government regulators simply do not collect data on many of the key features of the mortgage industry that would have tipped them off far earlier to problems (and the same could be said about the credit card industry). For example, I know of no government data on hybrid-ARM reset dates. There is some private data out there, but its reliability is always questionable. I worry that our regulators are flying half-blind.
December 19, 2007 9:48 AM | Reply | Permalink
Congressman Miller, your "remedy":
,,,,presupposes that, after the "homeowner" (bagholder?) is put in a new loan with a high, subprime interest rate, he would somehow be better off, than if he simply walked away from the home and the existing loan, now.
You propose to put the distressed homeowner, his credit rating already ruined, in a new loan starting out with zero equity, instead of being "upside down"...negative equity vs. amount owed on the original loan.
Since it appears that we are only in the morning hours of a figurative day of declining home valuations, fueled as they were by the unprecedented flow of liquidity permitted by the distortion of risk perception that all of the mortgage backed paper instruments facilitated, and thus, valuations are still at ridiculously high levels, two things weighing on further valuation declines are your own lending standards "reform". and the fundamentals. An average home price cannot be much higher than what avergage household income can support. That fundamentally supported price is less than half, in some markets, of current asking prices.
The certainty is that your plan to replace upside down loans with zero equity loans at current market value, are beneficial to lenders.
In all likelihood, the distressed homeowner would be much better off walking away now, rebuilding credit rating while paying a much lower rent to live somewhere else, saving away some of the difference between the high interest mortgage payment to "own" a home still declining in value, and coming back, in five to seven years, to buy a comparable home property for 60 percent of current vaulations.
This is the reality, unless, of course, you can make an argument that increased lending restrictions in a declining economy with a 15 month glut of unsold homes, and stagnant income growth, with a growing public perception that it is better to wait until prices drop futher to buy a home, is a climate where homes with asking prices double what economic fundatmentals can support, will stabalize in value in a reasonable time frame, and quite near today's selling prices.
You probably can't make that argument, so the only certainty is that your plan supports lenders to a degree. Your lending "reform" seems to ignore the conditions that formerly made subprime loans attractive. Housing valuations were rapidly rising. The only concern of marginal buyers was getting into an ownership position with the goal of "mining" rising equity. It did not matter what the terms of a loan were. This is what supplied the constant flow of liquidity to further drive up prices.
With today's expectations, there is little incentive to buy, and even less to accept the type of lending terms you are trying to raise awareness in mortgage applicants to avoid.
There is no need or benefit to consumers for anything that you are attempting to do. Stand back and allow prices to decline to where they should be. Work on repealing the 2005 bankruptcy "reform", and on bringing affordable health care to the working poor and the middle class.
December 19, 2007 10:38 AM | Reply | Permalink
I agree a lot of people would be better off, and the market corrected, if a lot of people took bankruptcies now, en masse, and then rented or refinanced new homes at corrected prices 20-30% lower.
However, i hate to burst anyone's bubble, but that's not going to happen. So forget about it.
Lenders will keep up the "freezer teasers" and credit cards and other gimmicks to keep them out of bankruptcy, but taking their whole paycheck. Home prices are somewhat "sticky" and lenders know this and will exploit it fully.
Lenders control all the levers, except legislation. (which they also control to a large extent.) Lenders control the flow of capital and rates, and by more "freezer teasers" will control the number of bankruptcies and inventory. There will always be more victims in a game so well rigged. So we're looking at a perpetually predatory market, unless lenders are defanged by some serious reform legislation.
December 20, 2007 3:15 PM | Reply | Permalink
I am STRONGLY against any bailouts for people who bought houses they couldn't afford. For those of us who have watched in horror as homes have become totally unaffordable for the middle class, it would be completely unfair to bail out those people who contributed to this bubble.
If someone was dumb or naive enough to get an interest-only loan, adjustable rate loan, or no-doc, no-money-down loan with the hope that the house would keep jumping 20% in value every year, they should not be rewarded. Period. I understand the desire to avoid a foreclosure crisis, but these housing prices NEED to come down.
I live in L.A., and last year you could not find a single family home, even in the worst crime-ridden neighborhoods, for under $450,000. Price have tripled in the last seven years, and anyone with brains sees that this is untenable in the long term. Prices need to fall by 20-40% and stay there. Only then will homes once again be affordable under normal, traditional lending practices.
Yes, there will be lots of foreclosures. I'm in favor of making it easier for people to refinance into 30-year mortgages (if they have good credit and can afford the payments, of course), but otherwise I don't think the government should get involved.
Nobody is bailing me out of my credit card debts or car payments. And nobody should ever bail out speculators and fools who bought houses at prices they couldn't afford.
December 19, 2007 12:26 PM | Reply | Permalink
You're generalizing over the problem. Did you read Miller or Warren's linked-to pieces up above? Clearly, this is not only about speculators or irresponsible borrowers.
December 19, 2007 1:30 PM | Reply | Permalink
According to CRL's statistics, speculators are maybe seven percent of foreclosures, and if they don't occupy the home, if it's an investment property, they already can get their mortgage modified in bankruptcy. It's only home mortgages that can't be modified under current law, which makes no sense to me.
Also, rather than respond to all of the comments posted without reading what I wrote above, much less what I linked to, the bankruptcy bill is not a bailout. In fact, it's the opposite of a bailout, which is one reason lenders are so strongly against it. And the bill doesn't help anyone who can't afford a reasonable mortgage on their home. If a borrower can't afford to pay a mortgage of a couple of points above prime on the full value of their home, the bill would be no help to them. There's a reason the bill would only help 600,000 or so of the 2.2 million families facing foreclosure.
December 19, 2007 2:30 PM | Reply | Permalink
the bankruptcy bill is not a bailout.
I suppose that it all depends on what bailout means. The dollar has been losing value, a trick that makes it possible for people to pay back their loans with devalued currency.
I just wish that Democrats and Republicans would stop imposing this "inflation tax" which continues to create inequality in our society.
And that's why I'm supporting Ron Paul for president; You're party's loss is that I won't be caucusing for the Democrats in 2008.
To boldly go...
December 20, 2007 9:19 AM | Reply | Permalink
.
sPh
.
Now if Venezuela and Saudi Arabia reprice their oil in euro along with Iran...
December 20, 2007 10:11 AM | Reply | Permalink
that isn't true and simply a myth put forth by Bernanke. i.e. my grandmother worries every day that she'll outlive her savings. this year, she isn't shoveling the snow off her sidewalk because the labor is too expensive.
the argument you make is only valid if you either own inflation indexed investments or have a salary which is indexed to inflation.
my grandmother is in neither category.
if the Left woke up, they'd see that "what they giveth with one hand, they taketh with the other" as the old saying goes.
the "inflation tax" is real, devestating to the middle class and partly responsible for creating inequality.
To boldly go...
December 20, 2007 10:26 AM | Reply | Permalink
Your grandmother's social security check will automatically increase with inflation. In fact, since it's based on wage inflation not prices inflation, and the latter (long term trend) has always been greater than the former, that check will go up faster than price inflation.
December 20, 2007 3:23 PM | Reply | Permalink
that check will go up faster than price inflation.
that hasn't been my grandmother's experience especially with energy costs and perscriptions. additionally, she had a tooth capped and I think it was two months SS alone.
To boldly go...
December 20, 2007 7:37 PM | Reply | Permalink
What SPhealy said is correct, with the exception that imported goods (which is most everything these days) will become more expensive with a falling dollar, while wages remain stagnant.
What mcs is claiming is just goofy.
December 20, 2007 6:13 PM | Reply | Permalink
if you're on a fixed income, it's a struggle. while it might be "theorhetically correct," I've met far too many people who are "maxed out" because of inflation. besides my elderly grandmother, I was talking to a waitress the other day and I felt really bad for her. the women who manages the apartment complex where I live is also struggling because costs keep rising and some minor health issues kept her from working-- I'm giving her $100 as a christmas present.
I'd claim that most people on this list are rich enough and thrifty enough to safely ignore inflation, for the time being, but for those in lower income brackets, it's a struggle.
i.e. the reason why the "inflation tax" is so evil to lower wage folks is because the "inflation tax" is a regressive tax. i.e. those with higher incomes make so much money that they're able to put money in the bank, or into an investment, to hedge against future price hikes whereas low income earners are living paycheck to paycheck and can't create that cushion and have to visit "payday loan" places if there's a crisis.
To boldly go...
December 20, 2007 7:48 PM | Reply | Permalink
I am curious as to what you would consider an acceptable rate of inflation. Clearly we are nowhere near the stagflation levels of the 1970s. Historic experience indicates that deflation is bad for everyone not just retirees, so the bias is going to be to keep some amount of inflation in the system. And the natural tendency of people to want to see larger paychecks every year whether or not they are actually producing more comes into play here too. Given those factors I have a hard time seeing inflation in a modern economy being much lower than it has been for the last 10-15 years (2-4% in the US). Are you arguing that inflation can somehow be balanced at exactly zero? How?
sPh
December 20, 2007 7:40 PM | Reply | Permalink
I'm not an economist so I can only talk about the hard times which the people I know are having since their incomes are falling short of their expenses.
And it's only recently that I've heard these complaints and I've noticed the leap in certain prices.
The rumored "next bubble" will be commodities so more people will feel poorer.
experience indicates that deflation is bad for everyone not just retirees
yes, that's why people call Bernake "helicopter ben." the word "stagflation" is being kicked around by people with pretty important names along with the suggestion that the federal government will have a hard time achieving economic growth via borrow and spend.
Are you arguing that inflation can somehow be balanced at exactly zero?
Obviously, "zero inflation" is a statistical measurement with no connection to individual outcomes.
my grandmother started feeling the strain when interest rates fell since her "interest income" went down; thus, she not only lost income but her purchasing power went down too because of the Fed's inflationary policies.
of course, those with "inflation indexed investments" saw huge returns over the past few years but she left her funds in the bank for safety.
To boldly go...
December 21, 2007 7:02 AM | Reply | Permalink
It makes perfect sense to predatory crooks. But yeah, it should be just the opposite. A speculator should be a more responsible buyer, not less.
December 20, 2007 3:19 PM | Reply | Permalink
consumers like certainty; shouldn't the banks expect certainty too? historically, people used to respect the contracts they signed.
for example, many states are looking into changing their pension promises.
i.e. if enough citizens decide that the tax burden of pensions is unfair, they too should have the right to change them?
i.e. a big can of worms is being opened here!
To boldly go...
December 21, 2007 8:40 AM | Reply | Permalink
Re: They made the decision to buy very expensive homes that they could not afford, using gimmicky loans to keep their mortgage payments low.
The bankruptcy measures Prof Warren touts would be a step in that direction. One thing locking in excessively high house prices is the fact that so many many houses are covered by mortgages for those high values. If those mortgages could equilibrate to market levels, housing prices would be much freer to sink back to their natural levels.
Re: It was terrible that banks stopped requiring 20% down payments on homes
Yes, but look at the reality here: who can come up with a 20% downpayment given today's housing prices? Rich people and people who already own houses (with substantial equity) they can sell. Are those the only people we should allow to be homeowners?
Re: but especially unfair to those of us who have been waiting for prices to come back to reality.
How? This sort of plan as I just said above would help housing prices come down.
Re: For most of the 19th century, unconstitutionality was the primary argument against having a bankruptcy law at all.
Even though the Constitution specifically enumerates bankruptcy law among Congress' powers? Weird!
December 19, 2007 3:40 PM | Reply | Permalink
Right, the bubble requires dropping down-payments to get borrowers into the game, and dropping down-payments fueled the bubble, which scares the bejezzus out of many people making them think they'll never afford a home the way rates are going up, so they get in too... a vicious cycle.
All of which the predatory lenders knew, and exploited to create the bubble. And of course they knew they'd create a vast number of debt slaves, who are hugely profitable to them. and to top it off, they passed the Bankruptcy Bill in advance, to make sure they could further work people over with credit cards and close off any exits from perpetual debt.
Which is, so morally and economically repugnant, it boggles the mind and turns the stomach. I don't know how these people can be so smart, and yet so driven by greed, and utterly devoid of principles. I think many of them have bought into the self serving sophistry of Social Darwinism, along with Greenspan and his ilk. That it's their entitlement to prey on others.
This is ENRON, Merrill Lynch, and Arthur Anderson, to the nth degree. It's truly sickening.
December 20, 2007 3:27 PM | Reply | Permalink
"Are those the only people we should allow to be homeowners?"
people should live within their means. when enough people can't come up with the downpayment, then home prices will drop and become more affordable.
with substantial equity
if the market can't buy the "rich person's home," the rich person has no equity.
i.e. equity is an economic fantasy. "mark to market" is the reality.
To boldly go...
December 21, 2007 8:46 AM | Reply | Permalink
Re: people should live within their means. when enough people can't come up with the downpayment, then home prices will drop and become more affordable.
I agree people should live within their means. But that goes to the question of the monthly house payment, and there we should return to the old 30% rule (your housing costs should not exceed 30% of your gross monthly income; and also your total debt service should not exceed 40%). I don't see anything sacred about downpayments. As long as the monthly payment is within your means (conservatively and with verified income) it shouldn't matter what you have put down. And along those lines except in very unusual cases we need to go back to fixed rate mortgages and get rid of ARMs. To be sure with escrows in place, even fixed rate mortgage payments can vary a bit each year, but by minor percentages; there will be no payment shocks.
December 21, 2007 7:32 PM | Reply | Permalink
I don't see anything sacred about downpayments.
well, in the past, people actually wanted to own their own homes. today's generation, however, loves making payments craddle to grave.
As long as the monthly payment is within your means
incomes and home prices haven't been compatible lately.
To boldly go...
December 22, 2007 8:01 AM | Reply | Permalink
Re: well, in the past, people actually wanted to own their own homes. today's generation, however, loves making payments craddle to grave.
The only alternative to a mortgage is a rental lease-- and the latter is most certainly a path for making payments lifelong. Moreover renting comes with a landlord. While some neighborhoods do have fascistic homeowners' associations, at least the mortgage company doesn't care how many pets you have, or if you paint your bedroom walls neon pink with bile green trim.
Re: incomes and home prices haven't been compatible lately.
In general that's true, no argument. However that's a blanket statement and there are still areas of the country and middle class people with incomes perfectly adequete to the normal monthly house payment. I am moving to Dallas next year and my income (plus my partner's) will be quite well in tune with the price of housing there. So yes, after establishing ourselves there for a year or so we do plan to buy.
December 22, 2007 11:22 AM | Reply | Permalink
"the latter is most certainly a path for making payments lifelong."
right. at least my "rental lease payments" are well below "ownership payments."
doesn't care how many pets you have
yeah, that's my biggest beef.
However that's a blanket statement and there are still areas of the country and middle class people with incomes perfectly adequete to the normal monthly house payment.
it's certainly a "blanket statement" but the numbers I've seen suggest that "slowly but surely" more folks are feeling the strain. the majority of folks I blog with are fairly rich and have time to waste, like myself, pontificating online instead of having to work.
To boldly go...
December 29, 2007 8:26 PM | Reply | Permalink
here i came across some interesting figures. Last year approximately 446,726 homes nationwide were targeted by some or the other foreclosure activity in the third quarter. this was 33.9 percent more than the foreclosures in 2nd quarter. most of the states except 5 showed huge increase in the filling for foreclosures (that included notices, auction sale, bank repossession etc). this year thge figure has increased to 635,159 filings
house flippers activity will increase with increase in foreclosure filings, thus most of the houses are going to banks for repossession.
and to top it all Nevada continued to register the nation’s highest state foreclosure rate, one foreclosure filing for every 165 households–more than three times the national average.
Vik
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wealth building
August 26, 2008 3:57 AM | Reply | Permalink