Under Obama Proposal, Bankruptcy Judges Will Be Able to Modify Home Mortgages
By Susie Madrak Thursday Feb 19, 2009 6:00pmHome equity loans are, after all, a major part of homeowner debt. The Obama proposal would allow homeowners to wipe out that debt in bankruptcy court, allowing homeowners to keep their houses. And of course the credit card industry (those usurious scoundrels!) is screaming.
Gee, that reminds me. Maybe it would be a good time to repeal all those changes in the bankruptcy laws the credit card industry won in the Bush era, too:
A key provision in President Obama's $75 billion foreclosure prevention plan would allow bankruptcy judges to modify home mortgages — a measure supported by bankruptcy attorneys and consumer groups but opposed by lenders.
The American Bankers Association has argued that allowing bankruptcy judges to change the terms of mortgages will increase the risks of mortgage lending at a time the market is already struggling.
The industry isn't unanimous in its opposition. Last month, Sen. Dick Durbin, D-Ill., announced that an agreement had been reached with Citigroup on legislation for bankruptcy mortgage modification.
"If enacted, this legislation would represent an important step forward," Vikram Pandit, chief executive officer at Citigroup, said in a letter to Durbin and three other senators. "Given today's exceptional economic environment, we support its swift passage."
The mortgage restructuring plan, called a mortgage cram-down, would give Chapter 13 bankruptcy judges the power to change loans for a primary residence.
Judges can already modify mortgages for second homes and commercial buildings.
"That's the rule for investors who own two, three and four homes," Obama said Wednesday. "It should be the rule for ordinary homeowners, too, as an alternative to foreclosure."
The change in the law would empower judges to lower interest rates, extend the repayment period, and change the principal amount owed on the mortgage to what is determined as the home's fair market value.
The banking and credit card industry say the proposal is too broad, because it could apply to any borrower, including those who aren't having trouble paying their mortgages.
To protect themselves, lenders want to be allowed to veto any alteration in a home mortgage, says Michael Calhoun, president of the Center for Responsible Lending, a consumer advocacy group.
Don't you love that? "Center for Responsible Lending." Right! Seducing people who are already on the ropes with credit cards so you can charge usurious rates is "responsible lending". But I digress: As it turns out, the Center for Responsible Lending is a group that fights predatory lending. I apologize for the mistake; they sounded like industry advocates from that isolated quote. My bad.
Bankruptcy attorneys argue that such a veto isn't necessary because under the proposed change, the homeowner and the lender would be able to present their case.
Each side could have an appraiser, and the judge would hear the testimony of both sides, including information about the borrower's income and expenses, says Joe Lee, bankruptcy judge for the Eastern District of Kentucky.
Many homeowners have two mortgages because they have taken out a home-equity loan to pay off their credit card debt.
Under the plan, the bankruptcy filing could wipe out the home-equity loan, enabling the family to keep their home, Lee says.
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Boo Hoo for the credit card companies and banks. Kiss the asses of America and STFU.
excellent move!
this had to happen. I can't wait to here the sound of GOPer heads exploding all over the country. Music to my ears.
Frankly, they should simply nationalise the entire banking industry and disband the Federal Reserve. Then the .gov would get its trillions of dollars back, could burn the toxic debt in a cash incinerator, and reset mortgages (and thusly housing prices) at a much more reasonable level.
business could go on and Do Stuff, and not have to worry about a bunch of worthless parasites called The Banking Industry.
Absolutely! First obn the list should be the abolition of the Federal Reseve Corporation. That should never have been created in the first place.
The banks serve no one but themselves.
It's an excellent next step. Keep going, Mr. Prez.
So Alice sold her home in 2004 for $200K. Bob buys it for $200K. Now it is worth only $150K, and Bob owes $175K on it. Bob declares bankruptcy and gets the total amount owed reduced to $150K.
The creditor that paid Alice $200K now is out for $25K of that money. So Obama's $75B foreclosure plan will give "incentives" to the creditors to adjust the terms.
So who is the loser here? Taxpayers.
This means that basically taxpayers are paying to keep these people who bought homes they cannot afford in these homes. I'm all for unemployment insurance, health insurance, welfare checks--but it is ridiculous to have taxpayers buying homes for these Americans.
A STUPID BOMB or a house for some nice family....
Oh! how about this one...
A huge tax break for some scummy piece of shit that lives in a mansion and pays his employees minimum wage or a house for a nice family....
I understand your disbelief and pain; it must be unbearable to see public funds spent upon families that need it.
For one thing, Bob is a taxpayer and has been one for years.For another,he has been paying taxes which the top 2% of our population have not. On top of that, his taxes been used to pay Halliburton, and KBR exorbitant fees for shoddy, reckless work in Iraq,that might as well have been a black hole (remember that (still)missing $9B?). His taxes also paid Dick Cheney's salary while he let major oil companies like Exxon and Standard Oil determine our so-called energy policy, which didn't help other taxpayers one bit. At the very least, Bob deserves a break.
The argument that the poor creditor is cheated out of $25K doesn't hold water when you consider it will be at least five years before Bob's mortgage payment makes a dent in his prinicpal.
No one is buying homes for anyone. We are just taking care of our own.
Your points do not make a good argument.
1) Bob may be a taxpayer, but so is Alice. And they have both been benefiting from government services for years--lower taxes for the middle class, roads and bridges, university funding, etc.
2) Alice and Bob both object to how the money is spent in Iraq. Why don't they both get a break?
3) Re: the creditor. $25K is $25K. I think you would feel different if you were owed $25K and a judge decided that somebody did not have to pay it because "it will be at least five years before the payments make a dent in the principal." What if Alice provided Bob owner financing? She agreed to sell her home for $200K, not $150K. That's not being greedy--it's just fair.
4) Finally, if you don't believe the top 2% of our population pays taxes, then you will realize that the only people paying for Bob's home are working people like Alice. So why should a working person like Alice--who maybe lost $50K in investments in the economic downturn--have to pay more in taxes to support Bob, who only lost $25K in the value of his home?
The problem with these types of policies is that they unfairly create winners and losers. For example, if we are going to have a first-time home buyers credit, let's have it for everyone making under a certain amount and make it permanent. That's fair.
You're "basically" wrong.
You make it sound as if people can just declare bankruptcy to escape their debts, just because they want to.
No they can't. There are still going to be strict guidelines for eligibility to declare bankruptcy.
Also, the banks are the one receiving the biggest 'favor' courtesy of the taxpayers, not the homeowners, since the banks loaned money willy-nilly based on two flawed ideas; that borrower's incomes would increase, and (more importantly) that home prices would rise. They never cared to consider the consequences if home prices fell and borrowers lost their jobs, because they were given the message that the U.S. government would cover their bets, which is not surprising given that many in OUR government wrote legislation that allowed the theft to happen legally, and backed it up with bank-friendly bankruptcy 'reform' that exempted the banks and other lenders from any kind of fiduciary responsibility to their stockholders, passing that responsibility on to the taxpayer. Of course they handed out home-equity loans like candy; they had the bankruptcy law written so that they could take your house as payment, even if you qualified for bankruptcy.
A handful of super-rich scumbags just got away with the biggest con in world history, and you're carping about working stiffs being allowed the privilege of being able to continue making mortgage payments to those who instigated the whole con.
Hmmm...miss something?
Oh, there are all "nice families" who can't pay mortgages and scummy sh*t that live in mansions..blah blah..texasdem is right. It won't work anyway. Resettning millions of mortgages? They don't even know what they are talking about. It will take years and those people are all laid off anyway. I wanted Obama to win badly but I am badly disappointed. He should be listening to Paul Volker not Lawrence Sumners. Caved on tax cuts and thinks he's above the fray but I have a feeling the fray is about to eat him for lunch.
after many of these banks are taken in receivership by the government that now bankrolls them.
The government is going to pick "winners and losers" because someone has to lose in this scenario. Seems like there is a lot of simplistic 'angry white male' rhetoric out there simply because the reviled "they" are getting something for 'nothing'.
So once again, the working stiffs should suffer, while those who created the mess (the very wealthy) should have their 'paper' assets protected with the tax dollars of working stiffs.
I don't think so.
"Usurious bastards" Indeed! At one time, wasn't usury, interest above 10%, against the law? The banks/credit card companies are like mafia loan sharks, but even less ethical. They mislead and cajole people into borrowing, then raise interest rates and minimum payments willy nilly, go back on their word, and blackmail you by threatening to ruin your credit rating, a draconian rating system that, by the way, we nearly inconceivably have all bought into. (WTF is up with that?)
The bastards at Chase Bank offered me a low interest rate that was "fixed until the balance is paid." I've made regular payments, on time, for more than the minimum required each month. Now, they've told me that, "to meet the ongoing crisis," they need to double my monthly minimum payment and add a $10 per month service charge, OR double my interest rate. Just like that. Usurious lying bastards, indeed. How does bullshit like that help their business, or their customers?
I recently got that same message on my credit card statement; when I called to plead my case and argue I had never missed a payment, etc. the guy says: "Well, if you don't like it, all you have to do is close your account"
So I had to do that. But you know what that means, since this is a card I had had for a long time, all that 'good payee' history is gone and my credit score will no doubt drop.
Bastards!
My bank (Wachovia ) just raised normal credit card interest rate to 28.99%. If you are late it is now at 36%. They did tis while including "convenient" credit card checks..."Go on that vacataion you've been putting off"...."remodel the kitchen". funny how they seem to be flush with cash to loan if the interst rates are usurious, but can't seem to find cash to refinance a mortgage with an interest rate of 5-6 %. They were given gazillions in taxpayer money in order to open credit, but refuse to lend for the sole reason that they don't want to lock into any loan with a reasonable interest rate.
The enitre banking industry needs to be nationalized, includoing the Federal Reserve Corporation. I've got the perfect name for it. How's this sound?: the First (and only) National Bank of the United States? come to think of it, the government could earn trillions from home loan interest. could use it to fund universal healthcare.
This is about the only solution I could see that is reasonable for both those who are upside down in a house and those who withstood the temptation to buy a house they could never (realistically) hope to afford. If you're in trouble, you SHOULD be able to use bankruptcy to protect your home - but you also have to take the hit for acting irresponsibly by ending up in in Bankruptcy Court.
I do wonder what goodies the credit card companies will get from Uncle Sugar? Seems like the only fair thing to do would be to allow an accounting change where they wouldn't have to have the reset mortgage negatively affect their leverage ratio. Of course, I suspect that won't be the case and they'll get billion$ more from the very folks that are being rescued.
Now if we can only get bankruptcy reform reform to regain the ability to wipe out consumer debt that would also help those in trouble. Nothing like the debt slavery we have now.
but letting them ALL go into foreclsure (which is what THE SCAR was hinting at Wednesday on Morning JoKe) is completely unacceptable.
You have to agree that saving SOME PERCENTAGE of stressed families and their mortgages is better than doing nothing. And I want to say that I agree with upchuck, above... too baad for the PAIN the Reich Wing is feeling these days when they see public funds being spent on PEOPLE AND FAMILIES rather than BOMBS.
This is going to be real help for homeowners who are facing foreclosure. At least they are going to be able to keep their primary residence. If those who have multiple homes already have the privilege of the judges changing the mortgages of those with second homes, why not for those who have only one? Thank you President Obama for letting us know about this.
Evelyn Guzman
http://www.debtchallenges.com (If you want to visit, just click but if it doesn’t work, copy and paste it onto your browser.)
If you are bankrupt, your assets are liquidated to pay your creditors. How again will this help? So now if you are bankrupt, your mortgage creditor is shit outta luck? That makes no sense. The biggest debt anyone has is their mortgage. Obviously then, this will have to change bankruptcy laws.
You're thinking of a Chapter 7 (liquidation) bankruptcy. This proposal involves cramdowns occur under the auspices of Chapter 13 (consumer reorganization) bankruptcies. Chapter 13 does not involve just selling all your assets and giving a one-time payoff to your creditors. It involves taking a certain amount of your income every paycheck for a period of time (usually 3 or 5 years) and applying that amount to satisfying as many of your debts as possible. Secured debts get priority over unsecured ones, so you'll still be making payments on your house and vehicles (and maybe your computer, furniture, etc.). However, for many secured debts, you can do what's called a "cramdown," which means you reset the balance of the loan at the fair market value of the collateral, and possibly modify the interest rate as well. Cramdown is allowed for just about all debts, but the major exceptions are consumers' primary residences (this has been the case for a very, very long time) and motor vehicles, new or used, purchased withing the 910-day period before filing for bankruptcy (this was part of the 2005 "reforms"). The proposal on Obama's plate would, as I understand it, simply excise the exception for primary residences.
In 2001 when the developer and the Bank of America were filling up this subdivision, they used every trick in the book to get buyers with sketchy credit in these homes. Now 18 out of 25 have been reposessed and more than half have become rental properties.
The Bank of America had a "sweetheart" deal with G.E. capital and sold the buyers PMI with terms that were very favorable to the Bank. A class action got the buyers a cash settlement less than the PMI premium for one month. No one has yet determined the Bank's relationship with the developer except that the were apparently "thick as thieves."
I've lived here these eight years and paid my mortgage on time, despite being forced into chapter 13 by a pay cut at work. The repos have made my property worth about 50% less than what I owe on it. I'd be more than grateful if the Bank would split the difference with me, but instead they get $160 billion and I will pay till I'm 75 on a house that will probably be worth less than I owe on it when I die. (No doubt early from perfoming manual labor until I collapse from exhaustion before I am allowed to retire.)
The Bank doesn't lose, they collect the PMI, get the house back to sell for whatever they can get, and they get big $ from Uncle Sam. The buyers get to move back to Pottersville and pay three times for a house they don't get to live in.
"The American Bankers Association has argued that allowing bankruptcy judges to change the terms of mortgages will increase the risks of mortgage lending at a time the market is already struggling."
American Bankers Association, would you care to discouse WHY the market is stuggling???? hmmmmmmmmm......? Could it be because of YOUR unmitigated greed that showed itself so strongly as soon as YOUR pals in OUR government cleared the way for YOU to rape Americas homeowners?
economics is an ugly, ugly business. credit card holders stalk all of us like prey, pouncing at the opportunity to get another $10 from 10 million people. likewise, I've been stalking my neighbors for the last 5 years. I saw this shit coming down the pike as early as 2003, and I knew that my neighbor was in over his head, and his banker was in over his head. I knew that, given enough time, I'd be able to buy my neighbor's awesome house at a reduced rate even though I got shitty credit.
because I have cash and my neighbor - and the bank - are losing cash.
but then programs like this one get introduced, and I'm stuck paying for my neighbor's mortgage, on top of my own bills, because "hey, you guys, he really deserves a break." - he's one of the "nice" families. =\
I advocated a stimulus bill that would actually *stimulate*! you know. upgrade schools. repair roads. do some good old fashioned R&D into alternative energies.
but dems caved on that to the closet welfare recipients in the GOP. so now we have less infrastructure investments with this stimulus, and more "quick fix" welfare checks.
Rick Santelli explained my angst very well yesterday:
http://www.youtube.com/watch?v=bEZB4taSEoA
any time when you haven't been a reliable flying-monkey talking pointer...
WHY should I have to pay for another person's mortgage? If they can't afford it, perhaps they should be RENTING!
Should I take out a huge home equity loan and build a $100,000 home theatre and then default on my mortgage so that you and your friends can pay for it?
This makes little sense!
That might apply to other aspects of Obama's $275 billion mortgage relief plan, yes. Changing the Chapter 13 cramdown rules is very different. The government does not reimburse lenders for what they lose in bankruptcy. If a bankruptcy judge writes down a $300,000 mortgage to a principal of $240,000, neither you nor any other taxpayer will be compelled to make the lender whole for the extra $60,000. That's why the industry is fighting this proposal far harder than the earlier program this week that will make vats of federal money available to the banking industry--basically to bribe them to ease off on the terms of their loans.
Bankruptcy is the MAD option. MAD, because of course the borrower is going to take a massive hit to their credit rating should they choose to exercise such an option. (Of course, if they're facing foreclosure anyway, the marginal difference isn't that severe.) That doesn't cause me to lose any sleep, because I believe justice is served on both sides by this method: banks who lent too much and asked too few questions stand to suffer losses on those ill-advised investments. Consumers who borrowed based on more smoke, dreams, and starry eyes than you'll find at a Phish concert will likewise see their credit trashed so that they'll have trouble getting loans again in the future. Given that these people will be getting a break while people on sufficiently sound financial footing won't have to declare bankruptcy, that's a perfectly fair price to pay for the benefit they'll get (shaving substantial amounts off their mortgage principal ... and getting to keep their home).
before going into ecstasies of joy over the mention of giving Judges latitude in doing foreclosures, it should be mentioned that BOTH Prez.O and VPBiden were strong advocates of the Bankruptcy bill of 2005, which was designed to DENY assistance to people struggling with debt. Biden, then senator from MBNA, was a full-on advocate of the bill, and an important vote in its passage. Obama played games, voting with Bidness in committee, then--when it was safe to vote against it becqause its passage was assured--voting NAY on the Senate floor...
Ms. Madrak:
I encourage you to visit the Web site of the Center for Responsible Lending, and if warranted, pen a retraction (or at least a modification) of this quote:
That was uncalled-for and uninformed. I have a strong feeling that that spokesperson was only relating the credit card companies' position, not endorsing it. The Center for Responsible Lending was one of the main drivers behind a recent legislative and ballot-box double victory for responsible lending in Ohio by winning bipartisan passage of a measure attempting to cap payday lending rates at a modest 28% (the previous cap had been 391% ... no, that is not a typo). I believe you would need to spend approximately ten seconds on their main page to realize that you were wrong about them. Just look at their headlines. First and foremost vis-a-vis this topic, CRL's president, Michael Calhoun, testified before Congress in favor of allowing consumer mortgage modifications in bankruptcy. Mr. Calhoun states on p. 12 of his testimony:
Your representation of his organization's position is therefore 180 degrees from the actual one.
As I mentioned above, CRL also opposes the usurious practices of the payday lending industry, which I consider even more predatory than no-doc mortgages (even though the amount of zeroes involved is admittedly smaller). They also target less high-profile financial industry practices such as mandatory arbitration clauses in form contracts and overdraft fees that often exceed the magnitude of the overdraft. They're not your enemy. Please don't treat them as such.
I'm shocked, SHOCKED, that no one mentioned that "all those changes in the bankruptcy laws the credit card industry won in the Bush era" was wholly supported by Barack Obama, who voted for the bill.
Don't forget who was the largest recipient of campaign donations by financial corporations. That's right. Barack Obama.
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