The Mortgage Bankers Association has just fired off a letter to Congressional leaders opposing in no uncertain terms the expected introduction of a so-called mortgage bankruptcy "cram-down" amendment to the Wall Street Reform and Consumer Protection Act. The amendment will be put forth by Representative John Conyers, Democrat from Michigan.
Many economists believe -- as do I-- that the only real way to put the brakes on foreclosures is to allow bankruptcy judges, in certain cases, the flexibility to not only reduce mortgage interest payments but also the actual principal of the loan. They already can do this for second vacation-type homes (meaning, oddly, the rich can take advantage of this should they face foreclosure on their second property) but , under current law, cannot touch the principal on primary mortgages.
But in the letter sent to both House Speaker Nancy Pelosi and House Minority Leader John Boehner Thursday, the 2,400-member strong MBA says that the proposed cram-down legislation "will encourage more homeowners to opt for bankruptcy, and it will inject new risk into the mortgage market, thus making it more difficult for borrowers to buy, sell, or refinance a home."
Gee, they could have fooled me! And I thought it was already difficult for borrowers to "buy, sell, or refinance a home." Guess the past year or so of foreclosure hell was just a figment of my imagination.
As you might imagine, Congressman Conyers has a different take on all this ... one that is not delusional.
The fact is, folks, as I said, bankruptcy judges already have the power to reduce the principal of secondary mortgages, so it is not like this is some alien concept of American law. And, I would rather trust the judgment of, well, judges to decide the best course of action than I would the Mortgage Bankers Association, which clearly did a bang-up job protecting the interests of homeowners throughout the inflating of the housing bubble, whose enormous bust led us all into this financial debacle to begin with.
Charles Feldman is a journalist, media consultant and co-author of the book, "No Time To Think-The Menace of Media Speed and the 24-hour News Cycle."
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