Mortgage Cramdowns, R.I.P. (For Now?)

Go to PDF Version | Go to Recent Issues

To save time in the future, you may select one of the preferences below. You may update your eIBD preferences at any time by going into My IBD and selecting Update Your eIBD Preferences.

Set Web-Based Version as Default Set PDF Version as Default Set Recent Issues as Default

Get QuoteSearch Site

Daily Graphs Online

Mortgages: The House showed some rare good sense in reversing itself on the idea of letting bankruptcy judges rewrite home loans. Time will tell if the vote marks a return to sanity or just good lobbying.

Some rare good news emerged from Congress the week before last, when the House voted on the latest version of so-called "cramdown" legislation that would give federal bankruptcy courts new power to reset the terms of home mortgages.

Back in March, the House had followed its Democratic leadership and approved a cramdown bill by 234-191. This time around, it voted by a greater margin — 241-188 — against a similar measure, offered as an amendment to the new financial overhaul bill.

This turnaround is a victory for sound finance, though we're wary of reading too much into it. Since the first go-round, community banks and credit unions — not just the big banks that everyone loves to hate — had lobbied hard to kill the cramdown idea.

The Obama administration had backed off from its earlier support, and House members were aware that the earlier version had failed to get through the Senate. Some may have figured that it was pointless to cast a controversial vote in a lost cause.

But we'll take any sign of progress we find. And the very fact that the cramdown cause seems lost, at least for now, represents progress. More rank-and-file Democrats appear willing to grant the bankers their point, which is that changing the rules to make lenders less secure would ultimately raise the costs to borrowers.

The secured nature of home mortgages, in which the home serves as collateral, is one of the key reasons why mortgages are cheap and widely available. Likewise for the lender's right to foreclose on the property to settle all or part of the mortgage debt.

Allowing bankruptcy judges to short-circuit this process and unilaterally reduce the loan principal — cramming the lower value down the lender's throat, as it were — would inject a huge new dose of risk into home lending. That risk would have to be covered by higher interest rates, bigger down payments, more insurance or other tightened loan terms. Some foreclosures might be avoided in the near term, but at high cost to future would-be homebuyers.

One sensible vote does not signal a full return to sanity, of course, and Congress faces other tests. One of the most important will be how it deals with the problems of the Federal Housing Administration. The FHA has been around since the New Deal as an insurer of home loans at the low end of the market. But its business has exploded in recent years.

Global Warming: Russian analysts accuse Britain's Meteorological Office of cherry-picking Russian temperature data to "hide the decline" in global temperatures. Is Copenhagen rooted in a single tree in Siberia? Michael Mann, a Penn State meteorologist, wrote in Friday's Washington Post that ...

Taxation: Congressional hearings were held Thursday to create a task force that will write a deficit-reduction plan. Unfortunately, as some are pointing out, the proposed panel will be more of a tax-hike commission. The bipartisan task force is to be made up of eight congressional Democrats, ...

Common sense is tough to find in Washington. Even though unemployment in America has reached double digits, President Obama was in Copenhagen to attempt to commit the U.S. to passing climate change legislation that will increase taxes, kill jobs and reduce our economic growth. I agree that we need ...

Socialism: If you don't think heavy regulation, elephantine bureaucracies, union rule and runaway spending amount to poison for an economy, take a gander at what decades of such socialist policies have done to Greece. Last week, the tiny Balkan state seemed like a blazing house threatening ...

We don't hear all that much about Iraq these days, do we? The war at one point almost tore apart this country. Public anger sent George W. Bush's approval ratings plummeting. And the outrage over our losses helped elect vocal anti-Iraq War candidate Barack Obama. But Iraq is hardly in the news ...

To participate in Community areas, please Sign In or Register

Register

Not only do you want a stock with strong earnings, you want to see earnings consistency.

Get QuoteSearch Site

Read Full Article »
Comment
Show commentsHide Comments

Related Articles

Market Overview
Search Stock Quotes
Partner Videos