Comments ( 23 )

• Any bailout for irresponsible borrowers or lenders will only lead to more irresponsible lending. Why be responsible when the government will just bail you out? Also, allow judges to screw with mortgages and there will be no more mortgages but for the most creditworthy.

• I think I would support helping borrowers who really got bilked due to lenders breaking the law and over-reporting their income, etc. But only if it’s combined with prosecuting those lenders to get some of the money back (not like this Enron baloney where now Lay’s widow is claiming he didn’t break any laws and she shouldn’t have to return any of the ill-gotten gains).

  but that’s about it. taxpayers always get stuck footing the bill for these problems, the S&L crisis, companies like United dumping their pension obligations on us while rewarding the ax-man CEOs with huge golden parachutes, etc.

• “I think I would support helping borrowers who really got bilked due to lenders breaking the law and over-reporting their income…”

  Were there lenders over reporting borrowers incomes without the borrowers knowing about it? Or am I misreading you? I knew there were borrowers fudging their incomes, many times with the full knowledge of the lender, but I hadn’t heard of lenders over reporting borrowers incomes without the borrowers knowing about it.

• just read the link in the story about Lisa Madigan posted earlier.

  to be more accurate, it was likely the mortgage broker who did it, but I’d certainly think that if they caught a few there are a lot more out there who just didn’t get caught.

  additionally, there have been numerous stories on how the larger street gangs like the Gangster Disciples were engaged in all kinds of mortgage fraud, picking on (surprise) the elderly for the most part.

• The odds of this working as intended are slim to none.

  First, the odds are that a plaintiff in bankruptcy won’t be able to make the payments, even if the rate is lowered to the “teaser” rate.

  Second, this still will require a case-by-case determination, with judges in different courts giving different interpretations to mortgages.

  Finally, banks and financial institutions both love and hate “case by case” situations. They love them because the barriers to jumping through the bankruptcy/foreclosure process are difficult, so many debtors just continue to pay. They hate them, however, because they have to pay attention to what’s going on. What I expect is massive dumping of unpaid debt to collection agencies/ loan “curers” and a savaging of consumer credit scores. There are just too many variables to find a solution.

• “Supporters of Durbin’s bill include…bankruptcy lawyers…”

  Imagine that.

  Although it didn’t say as much in the article I’m sure Durbin will be touting this as a no cost option to the taxpayer. Nevermind that they’ll have to hire more bancruptcy judges and attorneys for those who can’t afford their own lawyers. The courts will be working 24/7. But it won’t cost a dime for the taxpayer because they don’y pay for the courts.

• The main culprit in this instance is the bankruptcy law being changed to much less favorable terms to lendees less than three years ago, at the strong urging of the lobbyists for the credit card issuers. They made it much more difficult for those who need to declare insolvency to get out from under their debts – you can basically do a financial workout with them sometimes, but they’re going to dock your paychecks for the rest of your lifetime. No one wanted that law changed, except the credit card folks. Quel surprise.

• The National Association of Realtors supported parts of the bankruptcy law change.

• Changing the bankruptcy law will be the surest way drastically reduce home prices and mortgage lending. The provision seeking to be changed is to apply the cram-down provision of the code to mortgage lenders. They already do it with used vehicles and the credit challenged pay much higher interest rates because of it. Here’s how it works. I buy a McMansion for $600,000 at a teaser rate of 2% for the three five years. After three years I lose my job and the interest rate reset. I file bankruptcy. I get an appraisal of my home and now it’s worth only $495,000 based on comps in my neighborhood. The Judge ‘crams-down’ my mortgage payment to reflect a 30 amortization of a $495,000 note at a market interest rate and the remaining $105,000 becomes unsecured credit i.e. discharged. If I cannot afford the new mortgage payment then I give the keys to the bank. If I can then I’ve drastically reduced my payment because of the principal has been cramed down. Viola. That’s it. When I sell my house a few years later I only need to payoff the bank for the reduced loan amount, not the pre-cramed down amount. Banks will lend only to the most creditworthy. Subprime banks will lend at much higher interest rates…higher rates then they currently do because they need to compensate for the added risk that the principal value of the note could be crammed down.

  I’m firmly against this idea. I don’t like it one bit and I think it will cause further damage to the real estate market and general health of the economy. In fact, it sounds socialist. It has a flavor of ‘get more than you deserve and pay only what you can afford’ – very populist and socialist thinking. Thanks Durbin – once again doing more harm than good in the interests of pandering to the public for more votes.

  I work in a field related to both the foreclosure and lending industry. I feel that there is a good chance I could lose my job if this bill is passed. Expect appriasers to make out. They’ll be appraising homes trying to meet lower target, in contrast to the last few years when they allegedly over appraised homes.

• I’m not too worried about stuck homedebtors or their dumbass lenders getting bailed out. Since the federal government is in charge of the program, nothing meaningful will come out of it. Bush will find one of his Brownies to do a heck of a job administering the bailout organization and the end result will be wasted time and money but no real progress.

• Do people that lied on their loan applications so they can buy something they knew they could not afford get the bail out too???

• Isn’t this just restoring some of the fairness of bankruptcy law that was taken out a couple years ago when the credit card industry bought some new legislation?

  Anyway, these bailout plans (including the one Bush is announcing later today – a few details have already been leaked) are going to kill the ARM mortgage. Who in their right mind would offer one knowing that it can (and most likely will) be modified later on to lock in the “teaser” rate? I would also expect to see higher interest rates for lower-FICO borrowers. This is going to lead to a lot of price declines.

• Odujoko, I didn’t see your post before making mine. I agree with your assessment on the higher interest rates and more stringent borrowing requirements. I’m not so sure 20% down is enough. 25%? 30%?

• Do people that lied on their loan applications so they can buy something they knew they could not afford get the bail out too???

  No, they won’t. Admitting mortgage fraud to a federal bankruptcy judge is not a smart idea. Unless they plan to attempt to continue the fraud all the way through, in which case the bank that stands to lose hundreds of thousands might actually do some investigation and find out the truth, present it to the judge, and make the fraudster even worse off.

  Perhaps I’m naive, but I would expect the fraudsters to stay away in droves and force the lender to foreclose to get them out of the house they stopped paying for.

• “…more stringent borrowing requirements. I’m not so sure 20% down is enough. 25%? 30%?”

  If 20% was required that would essentially slam the brakes the home buying market.

• Z, I don’t think it would slam the brakes on the home buying market, just force it to be “affordable” again.

• You may be right but I just don’t think a whole lot of people have 20% to put down at the current price levels.

  Based on my economic situation if I was shopping today I would be looking at a place around $200,000. 20% of that, as you know, is $40,000. I have $50,000 grand available to me but there is still clsoing costs and other expense to considering when buying. putting 20 down would leave me with only a few grand left over which is enough of a cushion. Now certainly that’s only my situation but I’m buying at the lower end and have all my ducks in a row and a quite a bit of saving relative to my income. I’m fairly confident in saying I’m in a better financial situation than the average American and I would struggle to buy even at the lower end in a 20 down environment. Now, I’m not looking to buy now and when I do I plan on having another $10,000+ in my hopper when I do to provide me the cushion I want. Just my two cents.

• Raising the down needed to 20% is going to keep a huge number of people out of the market who are otherwise good credit risks and who live within their means.

  and what would be the point? What does the extra 10% have to do with someone’s ability to meet a monthly payment?

  Consider those people who are given money for a down payment by their parents – are they really any better of a bet as far as paying off the mortgage monthly?

• “…20 down would leave me with only a few grand left over which is enough of a cushion.”

  That should be “isn’t enough of a cusion”. Apologies.

• 20% down does not keep someone from defaulting; it gives the bank more equity cushion IF someone defaults.

• exactly – but a better way of insuring against those defaults is to tighten up the damned lending aspect, to rein in the phony-baloney assessments, etc.

  really, this sounds an awful lot like an industry which is begging for more regulation.

• Good points by all:

  (1.) It is absolutely accurate that if 20% down, no exceptions, was required, lots of people (myself included) would have to wait years to save up for a down payment, if they ever could do it.

  Keep in mind, we’re talking $60,000-$80,000 for most “starter” homes in the Northern Suburbs. ($300-400k) [Aside– whether you agree that this is a starter house or not, it doesn’t matter. Say $20-30k for a 200-300k house, keeping in mind the asking price for single family homes in Chicago). That kind of cash is not readily available, even if you have a good job. You put that kind of requirement on loans and property values will plunge, going back to 1990s levels.

  (2.) Of COURSE the industry is in need of more regulation, and OF COURSE it skirted it.

  The banks are going to make their move sooner or later. It won’t be pretty. Right now the “efforts” to stave off default is just window dressing that the banks know won’t affect their bottom line. When their bottom line is affected, they will start doing unilateral actions (like wholesale selling of debt to collection specialists). The consumer finance industry has been very sophisticated in avoiding regulation.

• We left the days of 20% down behind nearly 40 years ago.

  I don’t think we’re ever going to see those days again.

  Five and 10 percent down loans are likely to be widely available in the future. FHA and VA loans may make a comeback.