Misblog

Kudos to Senator Reid for sponsoring the Foreclosure Prevention Act of 2008, (S.2636)¹! Kudos to its 22 25 cosponsors, too!

Our bankruptcy judges, attorney’s and trustees routinely restructure mortgages. Even a million mortgage restructures, with additional temporary resources, could be processed with little or no problems².

Using the bankruptcy process will rationalize the mortgage markets faster and fairer than an unwieldy ad hoc joint bank plan. A faster rationalization will result in quicker stabilization and rebound of the real estate markets (albeit at lower prices)³ and a rebalanced American economy.

Oh, did I mention the homeowner and not the bank retains the home at the end of the plan⁴.

Web:

• UPDATED 02/28/2008 WP, Republicans Block Consideration of Housing Relief Package in Senate Wonder what is more harmful to the mortgage markets—mortgage write-down in bankruptcy for homeowners living in their homes or years of investigations and lawsuits for predatory and deceptive lending practices?

  What's the basis for Paulson's statement that a borrower should not return upside down mortgage collateral to the lender and move on?

  The issue is affordable and sustainable housing—not how high appraisers can push the comps on mostly unaffordable, unsustainable, and overpriced housing before the speculative bubble bursts and the housing comes crashing down around both owners and investors.

-----notes-----

1. Should have been captioned "Million Mortgage Restructure Act of 2008".

2. Using the bankruptcy structure has the added advantage of providing researchers with reliable data that can inform future policy.

3. Speculative growth bubbles always burst with harmful results—if we want fewer speculative growth bubbles we need only require speculators to pickup the tab for cleaning them up.

Much of the current mortgage and sub-prime crisis is perverse—all those participating in the markets have an incentive to inflated real-estate appraisals—the taxpayer who picks up the cleanup tab aren't market participates, just market guarantors!

4. During the Million Mortgage Restructure a consumer bankruptcy for the sole purpose of restructuring the homeowner's mortgage on a primary residence should be transparent to the homeowner's credit report and rating.

The impact, if any, to the solvency of our financial institutions can be dealt with in separate legislation, if necessary.

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