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?"

Posted at December 19, 2007 8:54 AM in response to Discussion Forum on Bankruptcy and Foreclosures

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?"

Posted at December 19, 2007 8:31 AM in response to Discussion Forum on Bankruptcy and Foreclosures

I'm from that same patch of Oklahoma, and what you describe breaks my heart. It also describes what I'm finding in my research across the country.

It isn't just the poor or the lower middle class who are struggling. Now it is the very heart and soul of the American middle class who are fighting for survival. These are people who played by all the rules--went to college, worked hard, got decent jobs, bought homes and had kids. As they are taken out of the game, America undergoes a seismic shift. We move from a three- or four-class system (poor, working, middle, and rich) to a two-class system of those who are very-well-to-do and everyone else who is one pink slip or bad diagnosis away from complete financial collapse.

Flat incomes, rising costs AND rising risks are three powerful blows that threaten to knock out our middle class.

I believe in the middle class. They are fighters. But no one can survive these kinds of hits year after year after year.

Posted at May 13, 2006 11:21 AM in response to The Debt Threat

Yes, home mortgages, credit card debts, car loans and many other debts are included.

The data show that home values went up, but mortgage debt went up faster. This is the scary point: the home value may swing back down, but the homeowner will remain obligated to pay the entire debt, plus interest.

The real point is Americans are shouldering more debt just to buy a modest home and make it from paycheck to paycheck. The fact that they can now take on a quarter-million dollar mortgage to buy a 3-bedroom house in a not-very-fancy Boston suburb is NOT making them better off. A house is not an asset like stock. Unless the family plans to sell at the peak and move to a cave, they must pay housing costs--and that means bigger and bigger mortgages that will stay big even after the market collapses.

The fundamentals are off--flat income and higher expenses are putting the middle class on the ropes.

Posted at May 12, 2006 9:13 AM in response to The Debt Threat

Jim,

I'm not sure I completely agree with you. 

First, a wise person makes the personal policy of "I don't do inappropriate debt."  For many people, that will mean they don't take on any debt, because it's not appropriate to their income level, education level or general wealth level.  For others, debt will be a smart move.  Buying a first home, for instance - taking on an appropriately sized mortgage can be a smart financial move as compared to sinking rent into a ratty apartment for years until you've finally saved enough to pay cash for your first house.

Second, while avoiding student loans is an admirable goal, it's not always the best approach.  Students who work their way through college may graduate without debt, but it may take them twice as long because they can't carry a full course load.  They have some greater stability in the long run, because they don't have the constant burden of student loan payment obligations, but it may come at the cost of several years they could have been working at a higher wage - potentially, a much higher wage.  This will mean they'll be older before they can start saving signicant amounts of money.  Investment returns in vehicles like 401(k)s or IRAs are compounded - depositing cash earlier is beneficial, even when you're talking about the same amount of principal that's ultimately contributed. 

There are also countless studies showing that students who don't finish college within 5 or 6 years are much less likely ever to get their degree.  Every hour that a student spends working will be an hour that he isn't able to spend studying.  For some, cutting back on sleep time will be an option, in order to get everything done, or maybe they just won't need to study as much.  But the reality of our world is that some young adults are simply more adept at school than others; for the ones that struggle with it, not having the time to study and/or being exhausted when they do study, might be what makes the difference between their ultimate success or failure in college.  And as cumbersome as student loan debt can be, it's even more so when you have to pay it back without the earnings bumpt that typically accompanies the college degree.

Posted at March 15, 2006 11:51 AM in response to The Rising Cost of Young Adulthood

Fair points, but how can housing be more "affordable" if the only way the numbers work is to shift from a one-earner to a two-earner family?  You are right that the subject of the NYT article is not the shift to two-income families, but the article is about housing affordability.  The data cited are built on the size of the family's income--and that has undergone a profound change because of the addition of a second worker.  

I don't think it is possible to talk about meaningfully about affordability without acknowledging that two earners now struggle to buy what one earner bought a generation ago.  That economic fact of life is hard on couples and almost impossible for single-parent families or those couples who want to keep someone at home with the children.  For them, homes are nowhere near as affordable as they were twenty or thirty years ago.  

Posted at December 29, 2005 5:31 PM in response to Is Housing More Affordable?