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Gee, what about the rest of us who never miss a payment on our mortgages and credit cards? Is there going to be some payoff for being responsible people who take our commitments seriously even when \"money is tight\"? Or are *we* the idiots because we didn't bankrupt ourselves or take that adjustable rate mortgage?
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@Bill McCann: I agree with Bill. This is only going to help the people who screwed up in the first place. If you lost your job, you couldn't afford to pay \"lowered\" payments anyway, these are people going bankrupt for selfish reasons.
My hope is that in the future, credit history will have a much much bigger impact on who can get credit to buy a house or get a loan. Then all the people who walked away from mortgages, defaulted on loans and declared bankruptcy can suffer while those honest people who pay their bills can enjoy some sort of benefit for responsible behavior.
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@Bill McCann: what about the rest of us who never miss a payment on our mortgages and credit cards?
you're perfectly welcome to file bankruptcy just like everyone else. if the judge determines you qualify for a cramdown, s/he'll approve one.
@Bill McCann: YOu already receive a reward in the form of good credit terms. The people who go bankrupt are be denied credit and pay higher interest and fees on credit they can get for 10 years. Be grateful that you are not one of the millions who is being laid off and that you were smart enough to avoid the credit/housing bubble. People's lives are being ruined.
@DeannaBubulcus: That's how it's supposed to work, period. It's just that a lot of people turned out to be poor credit risks when given the opportunity to get more of it. So, no, that's not a reward or punishment, it's a logical (almost mathematical) response to someone's actions.
If their lives are getting ruined, that's because they made poor, uninformed choices. It's not society's job to protect people from themselves, at least in my own opinion.
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@Bill McCann: I feel your pain, and it's one of the oldest stories in the world -- the prodigal son gets the fatted calf, and we responsible folk get ... nothing.
But if we don't bail out the prodigal homebuyer, it's going to extend the recession, deepen the economic woes, and impact OUR neighborhoods. This isn't one of those things that happen to \"people in that part of town, but not here.\" This is your neighbors, where-ever you live, and their economic health affects your economic health.
Not that I don't still want to slap some people upside and head and demand, \"WTF were you THINKING?????\"
@Bill McCann: How about not having your property values dragged down by your neighbours in foreclosure, your bank arbitrarily adjusting rates on things like car loans and reducing savings rates to make up for their foreclosure-related losses (which are far more significant than taking a cramdown deal), and not having increased pressure on the social safety net from a large number of homeless or marginal families flooding it, which will increase your taxes as well as crime rates? Seems like a good deal to me.
@kmw2: That stuff is going to happen regardless of whether we bail people out. The dice were cast, and the roll? Snake eyes. All bail-outs do is toss good money after bad, and reward the idiots who got us into this mess in the first polace.
I have a mortgage, and I'm going to be paying it off. What do I care if home prices go down? Oh, no, I go underwater and can't move! THAT WAS A RISK IN BUYING A HOME, PERIOD. If you don't accept risks, don't take them.
Social safety net? Again, these people are going to be going onto that even without a bail-out.
If the banks thought stuff like this was a great way to help them make money, or at least lose less of it, they'd be doing it. The idea that this is a no-lose solution is sadly misguided - SOMEONE is taking the hit, because someone lent the money in the first place.
@Erwos: this is not a bailout. this is a revision to bankruptcy law that would allow people to maintain their home & continue to make payments on it instead of having it liquidated as an asset in bankruptcy court.
@mac-phisto: Does the home owner essentially get part or all of their house for free at someone else's expense? That's a bail-out - it's only that the government is shifting the costs onto someone else.
@Erwos: there's no \"for free\" about it - it's bankruptcy. a more accurate assessment of the options would be:
1) does the home owner keep paying on the home & live in it?
OR
2) does the owner walk away & the lender takes repossession of the collateral?
in cases where the debtor is \"upside-down\" in their home, a bankruptcy attorney will often recommend that they walk away. this benefits no one b/c:
1) the debtor loses their home.
2) the lender must take possession of the property & liquidate it (which in this market could mean a significant loss if FMV - fair market value - is considerably lower than the loan balance).
3) the lender cannot recover any money lost once bankruptcy is discharged.
with a cramdown, both the debtor & the lender benefit b/c:
1) the debtor gets to stay in their home.
2) the lender continues to receive payments on the balance of the loan up to the value of the house.
3) the lender can petition the court for payments from the reorganization plan for the \"unsecured\" portion (the balance above the home's value) for 3-5 years.
4) if the debtor fails to complete the reorganization plan to the satisfaction of the court, the lender can go after the debtor for any money lost (including the balance above the home's FMV).
it is in no way a bailout. it's a release valve for both borrowers & lenders. i think if you understood bankruptcy a little more, you would be in favor of this program.
@mac-phisto: @mac-phisto: Not exactly true that no one benefits in a foreclosure. Somebody else gets the opportunity to purchase the foreclosed house at fair market value ... possibly someone who who has been responsibly renting and not buying during these recent years of bubbly insanity.
@Erwos: So, you believe that even if people are offered a partial bailout to stay in their homes (note that this solution is very partial, as all it'll do is bring _some_ people right side up on their mortgages while destroying their credit for a decade or so) will still result in lowered property prices, increased crime, and increased homelessness and other social ills? Ok...
@kmw2: The result of foreclosure is not that you become homeless and turn to a life of crime. The result of foreclosure is that you go rent. Renting sucks, but we did it for years before buying a home. If we lost our place, we'd go rent again. All of these poor criminals aren't going to be getting loans to buy these foreclosed houses anyways.
I most certainly do not believe that some random investor should be _forced_ to bear the hit so that you can stay in your home. If the owner of the mortgage and you want to work something out, feel free, that's great - but forcing them to do it is a direct invasion of their property rights, and you need to have a damn good reason for doing so. I'm not convinced that someone's comfort, which, in the end, is what home ownership is, is a good reason.
Your argument has all of the intellectual credibility of the \"terrorists are out to get us, let's do anything legal or not, constitutional or not, to stop them\". The cure may be worse than the disease - if it's even a cure at all. Would you like me to spin a tale of woe and destruction about the insane debt and deficits we're racking up?
@Erwos: In case you didn't actually read, the \"random investors\" are suggesting this. Why? Because they lose money in foreclosure sales. _Massive_ amounts of money. Do you really think the houses from the story yesterday in Detroit originally sold for $500? No, but that's what they're selling for now. The lenders that foreclosed on those homes are taking hits for tens or even hundreds of thousands. If my mortgage lender foreclosed on me tomorrow, they'd sell this place for $30K tops, leaving themselves upside down by $100K. Is that a better deal for them than rewriting the terms of the loan so they only get a guaranteed $115K? Not so much, I don't think. I'm quite curious to know where you believe the \"criminal activity\" comes in, however. Debtor's prisons went out of fashion quite a long time ago. All this law does is modify the terms of bankruptcy law (which is already exceptionally punitive) to allow for some homeowners to have a greater chance of keeping their homes and some lenders to have a greater chance of maximizing their returns.
(As for renting - only until the rental market is saturated, which will happen rapidly as foreclosures go up and aging housing stocks that weren't renewed with the push to home ownership go out of commission. Then what?)
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@Bill McCann: What you get is a neighborhood filled with relieved, property-caring neighbors instead of shuttered windows, rat-infested, overgrown lawns and crystal meth smoking parties. Oh, and your tax write-offs.
@Trai_Dep: You hit the nail on the head. Sure, we were responsible and it's not our fault, but we're still going to be screwed if we do nothing. \"I got mine\" got us into this mess, \"I got mine\" will not get us out.
@Mr_D: Really? Want to show us some numbers to support that? The burden of proof rests on you, not me, because you're the one advocating taking my money.
People who make dumb, uninformed decisions need to bear the punishment of their dumb, uninformed decisions, unless you want them to _keep_ making dumb, uninformed decisions. Moral hazard, you know?
@Erwos: Moral hazard refers specifically to a decision made knowing that the person making it will not bear the full risk of failure. Homeowners that took bad subprime adjustable loans had no expectation of not bearing the full risk of failure (and most of them still will, in fact.) Making stupid driving decisions when you know you're insured is moral hazard. Making stupid lending decisions to increase your short-term profits when you know the government can't afford to let the banking industry fail is moral hazard. Making a stupid borrowing decision with no expectation of reduced risk is not moral hazard.
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@Bill McCann: I understand your frustration, but I don't think they're getting off Scot- free. They will probably get a major credit score hit which will follow them for 10 years (the reporting time when you declare bankruptcy). So, all their future loans (car, credit cards, etc. ) they will be paying a much higher rate. It may be a small solace to you, but it's something.
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@ARP:
They would be taking a credit score hit with or without court-ordered cramdowns. The difference is now they get to keep their house, and get a better interest rate/terms than someone who was responsible and didn't buy more house than they could afford.
And those of us who don't buy things we can't afford, who pay our mortgages even though we are upside down on them, will foot the bill, because banks will charge more for future mortgages and refinances to make up for the money they lose on cramdowns.
@madanthony: @Bill McCann: Actually it will help you keep some value on your house, so it does not become another foreclosure, which leaves a glut of homes on the market and therefore makes your housing value go down. The fact is, without the law, the person who declared BK just walks away without paying ANYTHING more for the home. It is actually a situation where the person in BK is trying to do something.
I expect these cramdowns will only be used against upside-down mortgages. If the bank could break even or make money selling the house, they'll just foreclose and call it a wash.
The cramdown will extract more money from the deadbeats who are upside-down on their mortgages, thereby relieving pressure against other mortgages, because the bank has more money. The banks are doing this to keep deadbeats in houses, they're doing it to make money.
More money for the banks means, at worst, more paid vacations for CEOs, and at best, a better bank for non-deadbeats to deal with.
I don't see the downside to this, except that deadbeats are going to be stuck longer with their stupid mortgages.
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So why can congress pass laws against red lining and force banks to loan to very risky individuals . But they can't pass a law without the banks approval to amend mortgages facing bankruptcy.
Why doesn't this stuff make sense.
@Munchie: Because you dont know what your talking about.
NO, I repeat NO law was ever passed to force banks to loan to risky individuals, and anyone who tells you otherwise is a liar trying to make the foreclosure mess a race issue.
The law that everyone claims was passed to force banks to make risky loans never forced a bank to do anything but make they use the SAME criteria they use on \"unfavorable\" loanees as they do \"favorable.\" Namely just because you where a minority or currently lived in a unfavorable area could not be held against you as a deciding factor.
Prior to the law banks could discriminate based on race who they gave loans to, regardless of your ability to pay.
This did not open the door to risky lending, that was done completely on the own by the banks because risky lending = more profits as people with less money pay more money in interest on loans.
No law caused this mess, deregulation and risky profit opportunities by the banks did.