Friday, May 15, 2009

Mortgage Cram Down Legislation-Rejection of something that really would have helped consumers.

This blog is primarily devoted to bankruptcy issues as they face business; however, the rejection of the mortgage cram down legislation is something that bothers me--both as a bankruptcy lawyer and someone who is politically aware. The reality is that businesses have the right to strip liens on their assets in a Chapter 11. Why shouldn't consumers be able to do the same thing. Moreover, as a practical matter, this legislation would have a positive impact on banks, as it would keep more consumers in their homes. Think of it, unless there are some unique circumstances, people are not going to keep their homes unless it is worth more than the amount of their mortgage. The legislation would have only allowed a forced reduction of the mortgage to the exact value, so homeowners wouldn't be getting a windfall. But homeowners would have incentive to stay in their homes. This is the goal of a number of government programs, but they have, not surprisingly, not been properly managed. The banks have cried foul, as no doubt, some actuary has reported this will damage their profits, but these are the same actuaries who told them they were protected with credit default swaps. The 1978 Bankruptcy Codes stated goal was to "give the honest but unfortunate debtor a fresh start." No kidding, that was what the legislatures who wrote the bill stated. Humane, well written, and operating almost perfectly for 25 years, until the banks (the same banks that now need trillion of dollars of taxpayer dollars) re-wrote the bill in 2005. Let's take back the dignity that bill provided. Mortgage cram down legislation is a great start! Get it done!

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