Senate housing bill fails homeowners. Pelosi hopes House bill will swing to favor families.

[flpoljunkie]

New Housing Bill Criticized As Scant Help for Distressed

By Dina ElBoghdady and Lori Montgomery
Washington Post Staff Writers
Friday, April 4, 2008; Page D01

Excerpt:

The House plans to offer its own version of the legislation, and Democratic leaders said they would focus on different priorities. "Hopefully, the balance will swing to be in favor of the families who are in danger of losing their homes," House Speaker Nancy Pelosi (D-Calif.) said.

For consumer groups, the biggest setback was the Senate's decision to strip the bill of a provision that would have allowed bankruptcy court judges to rewrite the terms of troubled loans for people who filed for personal bankruptcy. The Senate yesterday killed an effort to restore the measure.

The measure could have saved more than half a million borrowers from foreclosure through 2009, according to its supporters, by allowing judges to lower the interest rates of mortgages, extend the life of the loans or forgive part of the debts.

Of all the legislative proposals aimed at helping homeowners, consumer advocates said this one offered the most relief.

But the lending industry lobbied against it, saying it would increase borrowing costs and encourage some to use bankruptcy as a cheap alternative to refinancing.

Without the provision, "there's no guarantee of any help whatsoever for many of the clients I work with," said Nancy Ryan, a bankruptcy lawyer in Fairfax.

http://www.washingtonpost.com/wp-dyn/content/article/2008/04/03/AR2008040304030.html

[Atman]

1. I gotta admit, I have problems with the bankruptcy judge part

A loan is based upon the promise to pay back; a certain amount over a certain time. Now, imagine your employer said that your salary was going to be $XX, but that at any time in the future they might ask some third party to figure out a way to legally pay you half that. (I know salaries are a bad analogy these days, because employers can just send you packing without any notice at all, but you get my point, right?). How could you plan anything? How could you secure more credit if the people who you are looking to borrow from know that some other party can come in and change all the numbers?

I understand the underlying intent. I really do. But this seems to be one of those "law of unintended consequences" scenarios setting up. The solution isn't to let judges rewrite loans, the solution is to begin regulating the loan industry again and for lenders (and borrowers) to use a little old fashioned common sense when applying for/writing loans. If you have to fake numbers and fudge your application to get a loan, you probably shouldn't be trying to get the loan in the first place.

Remember, it's been pointed out that many people got in this situation because of speculation. Guessing or assuming that they'd make more money in a year and that their home would appreciate another ridiculous, unsustainable amount. In other words, guessing, instead of using real numbers and real data. You'd be basically telling banks to do the same thing...just take a wild a guess that they won't be overruled by a bankruptcy judge at a later date. So what they'll begin doing is only giving loans to AA++ credit risks (which aren't actually "risks" at all). So the rich people, or those who don't really need the money, will get the benefits, the little guys will get cut out of the market.

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[Mojorabbit]

2. I understand what you are saying

but when I did my homeless feeding Wed there were a whole lot more people there than last month. Each month the number increases and the available services are just not there.

If people can be helped to keep their homes instead of having their credit ruined, their children withdrawn from their schools while other lodging is found if any,etc it seems it would be a lot more productive use of the law as opposed to throwing them out on their ear.

The need for scarce social services would increase as more are evicted otherwise. Neighborhoods going to ruin as more houses empty, property values dropping, crime moving in, all those things that happen when people lose their homes.If refinancing can help save these homes I think the tradeoff to the above happening is warranted.
I know this is disjointed but I am only on my first cup of joe.

[flpoljunkie]

3. Durbin's bill has built-in safeguards to avoid helping speculators. Lobbyists killed his bill.

[flpoljunkie]

4. More from Robert Reich on the Senate bill...

posted by Robert Reich
Wednesday, April 02, 2008

The Senate Housing Bill Won't Do Squat

The housing bill emerging from the Senate is something Herbert Hoover would have been proud of. Like Hank Paulson’s much-touted plan for “overhauling” Wall Street by deregulating it, the Senate housing bill “helps” distressed homeowners by giving them lots of little things that won’t really help them at all. Lesson: The Fed (and, indirectly, taxpayers) can bail out investment banks but there’s no stomach for bailing out regular folk who got caught in the downdraft.

Paulson’s proposal, remember, leaves out the most important overhaul of all – forcing investment banks, hedge funds, and other bank-like financial institutions to maintain capital in proportion to the risks they take on. Now the Senate bill leaves out the most important things distressed homeowners need – changing bankruptcy law so borrowers have enough bargaining power to get refinanced, and letting the Federal Housing Administration guarantee the refinanced loans if lenders reduce the amounts the borrowers owe to reflect the reduced home values.

If the market were working, lenders would automatically refinance most of these loans. After all, it’s better for them to have someone in a house paying a mortgage than being stuck with an empty house and nobody paying anything. But as we now know, the loans were repackaged with other loans into securities which were then resold to other investors. So the original lenders no longer have the authority or the incentive to do the refinancing. Hence, there's no market that will automatically do the refinancing. That’s why we need carrots and sticks: A new bankruptcy law that would give distressed homeowners the power to go into bankruptcy to get refinanced if investors don't respond, plus federal guarantees to back up any investor who buys up the securities at a discount and then works with borrowers to refinance the loans.

But as with Paulson’s proposal, the bankers and lenders who are still in relatively good shape went into action. Their lobbyists, working with and through Republicans, watered the Senate Democrats’ housing bill down to almost nothing. If this recession turns much worse, all of them may rue the day they blocked the housing bill. And Democrats will regret how easily they caved.

http://robertreich.blogspot.com/2008/04/senate-housing-bill-wont-do-squat.html

[Atman]

5. I have a real problem with this one line...

"If this recession turns much worse, all of them may rue the day they blocked the housing bill. And Democrats will regret how easily they caved."

The Democrats have yet to demonstrate any regret at all in how easily they've caved on anything (which is everything).

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[flpoljunkie]

6. You do have a point.