Cram down to help struggling homeowners
Sen. Dick Durbin’s much-discussed (and much-cussed) mortgage “cram down” legislation may come to a vote in the U.S. Senate this week, possibly as early as tomorrow. It deserves to pass. Thanks to the stranglehold that the banking industry has on Republican lawmakers, it probably won’t.
As of Friday, the Illinois Democrat’s “Helping Families Save Their Home in Bankruptcy Act,” was a vote or two short of the 60 it needs to close off Senate debate. Negotiations were scheduled over the weekend with some smaller banks and credit unions whose support could sway some senators.
The bill would allow federal bankruptcy judges to reduce — or “cram down” as it’s called in bankruptcy court — mortgage principle and interest rates for homeowners in Chapter 13 bankruptcy negotiations. Judges already cram down most other types of debt, but banks long ago carved out an exemption for mortgage loans.
Under Mr. Durbin’s proposal, homeowners in bankruptcy could remain in their homes as long as they continued making the lower payments. In most cases, the mortgage holders also would come out ahead. They wouldn’t have to maintain the properties and try to re-sell them in today’s glutted market.
But the financial industry wants federal assistance to flow only one way. It’s one thing for banks to get hundreds of billions in taxpayer money, but it’s quite another for banks to cut their customers any slack.
The financial industry says Mr. Durbin’s legislation would only encourage more Americans to file for bankruptcy and add to mortgage costs for customers who pay their mortgages on time.
But nobody files for bankruptcy if he doesn’t have to; the costs to one’s credit rating are too high. And banks already are passing the costs of foreclosure onto their other customers. It may well turn out they save money by allowing people to remain in their homes. In that case, will they pass the savings onto other homeowners? Somehow we doubt it.
Meanwhile, the banking industry also is waging a battle to preserve its hegemony over consumers on another front: credit cards.
A House committee last week advanced legislation that would prohibit banks and credit card companies from imposing “arbitrary” interest rate increases, prohibit excessive fees and order more disclosure. The Federal Reserve has tightened rules on credit card companies, but the proposed legislation has far tougher requirements and deadlines. It could go to the full House for a vote as soon as this week.
President Barack Obama summoned leaders of the credit card industry to the White House for a jawboning session. Why not issue a “plain-vanilla, easy-to-understand, simplest-terms-possible credit card?” the president asked.
Mr. Obama should do the same sort of jawboning on the bankruptcy cram-down measure. So far, the Obama administration, in the person of Treasury Secretary Tim Geithner, has expressed only cautious support for “carefully designed changes.”
“It’s difficult to get the balance right,” Mr. Geithner said last week.
Right now the balance between banks and consumers is so far out of whack that it would be hard to make it any worse. Mr. Durbin should ask his old Senate colleague from Illinois to jump in with both feet.
Ah, yes. Advocating for two policies that will restrict credit to only those who don’t really need it. Great politics but poor policy.
This is a great article, thank you for writing it, Editor. I am so sick of hearing about “Socialism” from the right wing of this country as a critique of President Obama. Socialist? Hardly, unless of course you are Wall Street and the banking Industry, Credit Card industry-let’s just call you Wall Street, uh, not Main Street.
The banks made lousy investments and we have to pay for it? How many times? How many bailouts? Can’t pass the stress test- “don’t worry, we won’t let you fail.” Mr. Obama has no sack in not standing up to these goons. Well, of course, we don’t bite the hand that feeds us, do we?….
Passing the Bankruptcy Cram Down would be the only just solution for millions of us homeowners. It could be regulated for people with a real need. It would keep people in their homes and the banks would not lose as much as in a foreclosure, and over the life of the loan, still come out on top. LOAN MODIFICATIONS ARE NOT WORKING VERY WELL. MR. OBAMA’S LOAN MOD. PLAN IS NOT EFFECTIVE. ALL CARROT AND NO STICK. THE BANKS ARE SITTING ON THEIR THUMBS JUST WAITING….NO RECOURSE IS APPARENTLY COMING TO THESE NEARLY INSOLVENT INSTITUTIONS OF FRAUD…. Ah, I feel better now…. I wish to stay in my home for many years, not flip it.
But the banks will not share any burden of responsibility for their actions/schemes/frauds…It disgusts me. We got a lousy deal and the burden is on us? I have never felt this much lack of power for my financial future. 813 FICO (my wife’s is 765) very responsible consumers- paying our mortgage, student loan so close to being paid off, CC debt pretty modest, and now this paradigm.
This editorial really speaks for us homeowners in trouble. I did not create the environment that has made my house become OVER 50% upside down in the 3 years that we have lived here.My wife and I, (we have a 4 year old) took out a fairly conservative, yet interest only loan, fixed for 10 yrs on the first and second, and have made our payments no problem until recently, where both of our businesses have been feeling the pinch. Our $536K home is now worth about $260K according to comps from relators. And what did we do? Paid on time, worked hard in our community, paid our taxes, both property and fed…..
I feel shame for our country that is no longer manufactures goods here, and that has sold out to global financial institutions, letting them lead us around by the nose.
I was thinking about chapter 13. Not subprime loan just bad luck with my health. Then I find the stucco on my house is actually rotting masonite along with the loss of market value. I am going chapter 7 and the house is going with it. Nothing is fair when it comes to banks. The VA is no help at all to me either. So much for serving my country.
John in CA,
Your situation is an example of what got us into this. So what if your house is worth half of what is was. Are you planning to sell? If not, stop worrying about it. Everything is NOT supposed to increase in value. People buy cars everyday and they lose their value driving off the lot. No one is calling for a cram down on their auto loans. You’re willing to file bankruptcy just to get a loan that represents positive equity in your house? That’s stupid.
Your house is not an ATM so stop thinking it is. If you have a loan and payments you can afford then what’s the reason for worrying about if it’s worth more or less. Over time, it will be worth more. Now on the other hand if it’s a loan you can’t afford then it should not have been purchased with the notion it will suddenly double in value. Your description of your interest only mortgage, which BTW is NOT a conservative loan, tells me you should have bought something you could afford.
Yea, banks make money. That’s what they do. Where else you gonna get a loan? The govt? hahahahhahahaha.
It seems like we’d all be wise to stop paying our mortagages and file for bankrupcy - ASAP. What a great idea Honerable Durbin, I wasn’t happy to only get rebates and trillions dumped into the system. Now my house load will go down too.
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I just love the C/C “plain-vanilla, easy-to-understand…” proposals, from the guys that gin up the 1000pg stimulus bill that they didn’t read, but signed into law.
We are so stupid to fall for this.
This is an outrageous example of an attempt to remove another Constitutionally protected right to property. Modifications should be at the discretion of the lender UNLESS there is proof of fraud. There are already laws to allow judges to modify in these cases. While the “pitchfork mentality” of the Obama White House finds it convienient to blame banks, not all mortgages are held by banks. There are many homeowners who could not sell who had taken back mortgages or engaged in other types of creative financing. Loans are also packaged and owned by all types of other investment vehicles, some of which may be in your 401k. Lenders will always make the best decision for their interests. This law is not designed for that purpose as the editorial claims, it is designed to take from one party and give to another without compensation. That is unconstitutional.
Why not do what you can to keep these people in “their” homes? I think it is better than building those expensive public housing complexes, of which St. Louis has had its share. Then letting the druggie, criminals and useless people tear them up floor by floor.
> In most cases, the mortgage holders also would come out ahead.
So now, the Post-Dispatch editorial board is a better judge of what is best for banks than the banks themselves?
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For the news not reported in the Post-Dispatch.
Durbin can take his bill and cram it somewhere else. Even in the new age of Obama where unicorns run free and skittles rain from the sky, home ownership and credit are not entitlements. The Post adamently refuses to report on the real causes of the housing collapse — well intentioned but fundamentally flawed government policies that created an artificial housing market and practically begged lenders to come up with phony financing — preferring instead to demonize bankers and insult honest citizens.
Where’s the fairness in forcing prudent homeowners and renters to subsidize people who bought overpriced houses and the banks who lent to them? Your mortgage is not my problem.