October 2, 2008

Biden-Obama Position: Courts Should Have Power to Reset Mortgage Principle

Just simply mind-numbing:

Biden -"Number two, with regard to bankruptcy now, Gwen, what we should be doing now -- and Barack Obama and I support it -- we should be allowing bankruptcy courts to be able to re-adjust not just the interest rate you're paying on your mortgage to be able to stay in your home, but be able to adjust the principal that you owe, the principal that you owe." -Transcript of Palin, Biden debate - CNN.com

As in, "Your honor, I know I owe $490,000 on this $500,000 house I bought, but could you just knock it back to a round fifty-thousand bucks so I can get a handle on things? Thanks." Now that's what I call "adjusting your principles."

Sad that Palin missed that one.

Posted by Vanderleun at October 2, 2008 8:54 PM | TrackBack
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Lord a-mighty, I was yelling "Get 'em, Sarah!" at that point and at so many others...I can only hope that McCain/Palin are holding fire until the last week, so that there's no recovery time for obammy. (Cause it really is just obammy...biden is a placeholder.)
Fannie/Freddie have got to be brought home to roost for the Man From Acorn.
"rev" wright, bill ayers, etc etc et-frickin-cetera.

Posted by: Uncle Jefe at October 2, 2008 10:08 PM

For God's sake...Hit the Dems with both barrels! All they need to do is tell the truth about the F-ups with Franny and Freddie...no spin is needed!

Stop this Mr. Nice guy crap...the Dems are out for blood and the McCain camp is offering them tea and cucumber sandwiches.

I'm not exaggerating when I say that the very future of this country is at stake.

Please, Senator McCain...act like it matters!

Posted by: Mumblix Grumph at October 2, 2008 10:48 PM

Actually, it is worse than that. Biden is a wholly owned subsidiary of the Delaware credit card banks that pushed for the 2005 Bankruptcy Act amendments.

The Amendments made bankruptcy a much more difficult and expensive remedy for many middle class Americans to utilize. If Palin were really a policy wonk, she would have shoved the Amendments down Joe's throat.

The modification of secured debt that you refer to is called, in bankruptcy speak, a cram-down and it can be used, subject to several conditions, in business bankruptcies under Chapter 11 of the Act. It would be possible to add them to Chapter 13, now the primary consumer remedy, but they might not help much, and they would be costly and difficult to administer.

Chapter 13 cram-down is not necessarily a bad idea, just one that makes an already overly complicated and expensive process, more complicated and expensive. It would be cheaper, faster and more just to simply repeal the 2005 Amendments and tell the Banks to sit on it, this is part of the price of the bail-out.

Posted by: Fat Man at October 2, 2008 10:56 PM

Mumblix Grumph:

I've posted elsewhere that Republicans fight using the Marquis of Queensbury rules, while Democrats are street fighters who use brass knuckles and sucker punches. I sure hope the R's figure that out someday.

Posted by: rickl at October 2, 2008 11:22 PM

I don't know where you stand on Bill O'Reilley, but he had a ... spirited exchange of opinions with Rep. Barney Frank (Bought, NY).

If they'd been in the same studio, I think we'd have had a "Bet you've never seen your beating heart before, have you, Barney?" moment.

The link is at Insty.

And I think O'Reilley is one scared Irishman. I mean that with respect; he sees next week coming, and he knows he's had the architects of the coming disaster on his show for years.

He may feel just a little guilt.

Posted by: TmjUtah at October 2, 2008 11:25 PM

Truly A @¿@ STARE [blink] [blink] Moment in American politics.

Posted by: mizze at October 3, 2008 5:23 AM

The hair on the back of my neck stood on end when I heard Biden make this comment. Talk about wealth redistribution. Obama and Biden are communists, plain and simple.

Posted by: Now I'm Scared at October 3, 2008 7:25 AM

Obama is promising this bankruptcy change when he is President, to get Democrats in the House to vote for the bailout. So it is coming if he is elected. He's been talking about it for months in his speeches.

Here is the deal about this bankruptcy change. Tell this to everyone you know:

First mortgages have been exempt from modification in bankruptcy since 1978. The theory is that they are secured loans and bankruptcy is a way to have an orderly discharge of unsecured debts like credit cards. What does happen in a bankruptcy is that the arrears on a mortgage for a bankrupt borrower can be added to the loan balance at the end of the loan, and more or less “forgiven” in that way since most people never keep a mortgage for 30 years. In most cases, this is sufficient when combined with the discharge of the unsecured debt to get the homeowner solvent and able to make the mortgage payments again for the rest of the loan. But the judge cannot change the loan amount or the interest rate on the loan, or turn a variable rate loan into a fixed rate loan.

Democrats want to allow bankruptcy judges to “cram down” the principal or change the interest rate on a loan, or keep a low teaser rate fixed for the life of the loan. The problems with this are several: First, bankruptcy is an adversarial process and once the homeowner files the lender cannot even talk to them, they must go through the attorney. This is time consuming and expensive. Second, judges know nothing about mortgages and would get played by the lawyers. They would come in with lowball appraisals and ask for huge principal cramdowns. They would claim “predatory lending,” meaning the lender knew the borrower could not afford the loan, and the judge could conceivably rescind the loan altogether and leave the lender with nothing. ACORN would have a million people in court within a week claiming predatory lending.

Third, if this happens, every existing mortgage in America has suddenly taken on an added risk that the servicer and the owner of the note did not anticipate. What happens then? The mortgage becomes worth less money, this must be reflected immediately on the balance sheet of the servicer and the owner of the loan. So we have another instant crash in values of financial institutions and another capital and liquidity crisis. Now, imagine 4 months from now, the U.S. Treasury owns 5 million mortgages because of this bailout and the takeover of Fannie and Freddie, and suddenly all of them are worth 20% less than they were yesterday. And now the risk on those mortgages becomes unquantifiable. Rating agencies cannot rate securities backed by loans if they cannot quantify the risk. Who will buy these loans or securities from the government now? Nobody! Who takes the loss? THE TAXPAYERS. And now the federal government is the counterparty in the bankruptcies. Do you think the judges will take that into account in rewriting the loans? Of course they will! Stick it to the guy with the deep pockets, help out the little guy. Taxpayers will take it up the ass if this thing passes.

Fourth, if this happens interest rates on new mortgages go up immediately due to the added risk. Second home loans are not exempt from bankruptcy (that was also changed in 1978). This is a major reason why it costs a lot more – usually at least 1% - to get a loan for a second home. Mortgage rates stay low because there is no risk of a judge arbitrarily changing the terms of the note. The Mortgage Bankers Association has a very credible study showing that mortgage rates could go up by as much as 2%. How is that going to help the housing market recover? Every increase of 1% in the mortgage interest rate knocks a million potential homeowners out of being able to afford a home. Who is going to buy all these foreclosed homes if they can’t afford the loans?

And then, guess what else happens? A lot of people with ARM loans that are adjusting upward will not be able to afford to refinance into a fixed rate mortgage at these higher rates, or to afford the higher payments on their existing ARM loans. Then what happens? BANKRUPTCY.

Can you see what an unmitigated disaster this will be for our economy and housing market??

This is a full employment act for the bankruptcy bar, which is the real reason Democrats are pushing it, but it is also being pushed hard by ACORN and other socialist groups because they know it will wreck the mortgage system in this country, which they think is “unfair.” What they think it will be replaced with is a mystery. I guess they want the U.S. government to become the new national mortgage lender.

Posted by: rockmom at October 3, 2008 8:53 AM

That was my splork moment last night, too. I was disappointed when Palin let it go by untouched. But you know, the one upside to such a provision might be that banks would become gunshy of making risky loans in the first place. If they know all the mortgagor has to do is declare bankruptcy and have the judge slash the principal owed with no recourse to the lender, their liberal lending policies might change.

Posted by: Kelly at October 3, 2008 10:27 AM

Kelly - "The one upside to such a provision might be that banks would become gunshy of making risky loans in the first place."

That's true, except for that darned Community Reinvestment Act, which forces lenders to make those risky loans.

Unless I'm mistaken, it's still there.

Posted by: just_some_guy at October 3, 2008 1:02 PM

What Biden actually promised do do was to destroy the American housing market.

My long post explaining why is here:

Posted by: Donald Sensing at October 3, 2008 3:37 PM

CRA is not a problem if the loans are written off when made and added to the cost of doing business. It only became an issue when some wise guy tried to sell the junk.

"Those are not eating sardines, those are trading sardines."

Posted by: Fat Man at October 3, 2008 8:48 PM
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