House Speaker Nancy Pelosi speaks during a news conference on Capitol Hill in Washington, Thursday. She had to negotiate with an increasingly assertive coalition of centrist and conservative Democrats before getting a bill passed in the House.
(Susan Walsh/AP)Photos (1 of 1)
Congress wrestles with home mortgage crisis
The House passed a bill giving some homeowner relief. Now it's on to the Senate.
By Gail Russell Chaddock | Staff writer/ March 6, 2009 edition
Washington
Until this week, “cramdown” for a family’s primary residence — that is, a provision to allow judges to change the terms of a mortgage — was a non-starter on Capitol Hill.
Opponents said that forcing lenders to lower principal or interest rates on a family’s No. 1 home would increase interest and shift costs to more responsible borrowers.
But the deep crisis in the US housing market and the shift in power in Washington are changing votes on Capitol Hill.
This week, against robust opposition from finance industry lobbyists, the House voted 234-191 to give primary homeowners the bankruptcy option to alter the terms of loans that has long existed for second homes, vacation homes, or investment property.
Judges would have a range of options
The bill requires bankruptcy judges to consider a range of options currently unavailable to them. These include: Lowering the interest rate on a troubled mortgage to as low as 2 percent and reducing mortgage payments to no more than 31 percent of a borrower’s income.
If these changes don’t make mortgage payments feasible, a judge can then consider lowering the principal owed on a loan.
The proposed law also requires homeowners to demonstrate that they have used available options to modify loans with lenders on their own, including the Obama administration’s voluntary refinancing program.
If homeowners subsequently sell their home for a profit, mortgage lenders can recover some of those funds to compensate them for cramdown on the loan’s principal.
The vote came after an intense week of negotiations between House Speaker Nancy Pelosi and an increasingly assertive coalition of centrist and conservative Democrats who wanted assurances that borrowers were acting responsibly.
“Many of the suggestions made were very positive and constructive,” said Speaker Pelosi at a press briefing on Thursday, before the vote. “They weren’t necessarily there to win votes. But they are better — they made better policy.” Democratic leaders lost 24 members of their caucus on the vote and picked up seven Republican votes.
The House bill also mandates that the Government Accountability Office studies the effectiveness of judicial mortgage modifications, including the impact on bankruptcy courts.
Not all homeowners are covered
Wary of a bailout backlash from voters, House leaders revised the bill to deny relief to borrowers who can afford to repay their loans without modifications mandated by a court.
Republicans proposed going further. They offered an alternative bill to bar relief or assistance to homeowners who lied on mortgage applications or failed to follow underwriting standards. That failed 182-242.
Rep. Tom Price (R) of Georgia also proposed an amendment that provided that mortgage lenders can recapture the full amount of principal lost in a mortgage modification, if homeowners later sell the home at a profit. That amendment narrowly failed 211 to 218.
“Members of Congress don’t understand the negative implications of what they voted for,” said Rep. Joe Wilson (R) of South Carolina, after the vote. “Cramdown, which could change the principal, interest, length of payments, interferes with the financial markets.” That means that people who are responsible will have to pay higher interest costs — shifting the cost from people who have been greedy or were taking risks they shouldn’t have taken.
The bill faces an uphill fight in the Senate, where Republicans are raising similar concerns to those raised in the House.
“It will cause interest rates to go up and will make it more difficult for people to get a mortgage,” says Sen. Charles Grassley (R) of Iowa, the top Republican on the Senate Finance Committee. “But it’s now a Democratic Congress,” he adds, suggesting that this time, cramdown provisions may make it to the president’s desk.
Comments
2. Fred Phelps | 03.06.09
I hate socialism, these people bought houses, how dare they. They should have known that they couldn’t afford them even though the banks gave them loans with low rates. We really shouldn’t trust professionals anymore. I hate people who can’t afford to pay their mortgage after they lose their job due to poor managing by CEO’s, people should be able to see these things coming!!! Saving American’s is NOT the American way, let them rot.
3. John_Mayer | 03.06.09
It is estimated that it could benefit 3 to 4 million homeowners from the new modification procedures. So how do you qualify for the Mortgage Modification? Check the website http://mortgagemodificationprogram.blogspot.com
to see if you qualify. I was in trouble I am glad I did check it before I talk to my mortgage company and it worked - John Mayer, California
4. Robert M | 03.06.09
I have a number of issues with this bailout. While some people may have been dumber than rocks about the risks, most were capable of doing the research. They were capable of knowing if a house payment was greater than they should be taking on for their income. They should have known that a variable interest rate means just that. Where’s the rocket science?
What got many people in over their heads was that they speculated that they would be able to sell their home in a couple of years at a big profit. It’s called flipping. Many became interested when shows on TV made it look easy and almost risk free. A few people cashed in. Other people borrowed just because they could. But, it’s just another pyramid scheme. Someone had to lose eventually. The value of houses went up way too fast.
Years ago, many financial advisers warned that the rise in home prices couldn’t last. Some banks wouldn’t deviate from the standard income/payment ratio with fixed interest rates. (They are doing just fine.) People deliberately searched out the cheaper variable rates.
If some senile little old lady was lied to by a loan shark, they deserve help. Few others have an excuse. If you want the freedom to choose, you have to accept the responsibility. A true socialist government doesn’t exist. But, such a government would not have allowed people to have more than they could afford.
Is any of this bailout actually for the benefit of the homeowners or is it just a way to save the investments of the rich?
5. California Dreamin’ | 03.07.09
I remember the first serious look my husband and I had at the housing market here in the Los Angeles basin. He makes an above-average income for the area as a union tradesman, but his income is tied to the big city. We were completely priced out of the housing market. There wasn’t a safe neighborhood within sixty miles of work where we could get a foot in the door. We said, there is no way the market can continue at these prices, because we are the primary buyers, and it’s beyond our reach. A friend pointed out that in Tokyo, things are so crunched that a fifty-year, or even multi-generation mortgage would not be unusual. But I wouldn’t believe that L.A. had come to that yet. With a baby on the way, we chose to rent instead, to wait it out. A year later, the bubble burst. Things dropped into our range, and we grabbed a bank-owned house that was on its second foreclosure, the obvious victim of unskilled, under-funded house-flippers. I’m glad we took it when we did, because it wasn’t long after that the economy broke under the weight of all those speculators’ foreclosures, and the credit market dried up. We are slightly upside-down now, but not dangerously so. The house is worth what we paid for it, and we bought it to live in, not to sell. But what would have happened if we had let ourselves believe, as so many did, that the prices would never come down? I know many people who bought at the top of the market, sure that it was the last chance to get into a house or they would never be able to afford it again. They thought it was buy now, or leave for Pheonix with the rest of California. Can I blame them for being wrong about the market? Can I afford to have their foreclosing homes drag my neighborhood’s value farther down? Can the economy afford the stagnation that will result? It’s not a matter of fairness anymore, it’s a matter of what is or isn’t necessary to prevent the economic system from collapsing. We all have a stake in that.
6. David Jaherald | 03.07.09
This issue involves a lot of aspects of guilt…from government non-regulation, greedy bankers and risky speculative investments, inflated oil pricing, inflated costs of living that a living wage could not cover, all with no regard to the consequences to the snow ball effect it would cause cross America….and the private citizens’ disregard for their selfish appetite to “steal”… a large profit from overpricing their home based on an inflated fair market value which was encouraged by greedy real estate agents and brokers. Those who went into to a mortgage to sell or “flip” their home investment added to the mess, but they were only doing what all the rest of our people in this country have been doing to each other in so many ways in this mortal finity continually stiffing each other for that piece of green paper. The old Phrase “the one with the most toys wins” is not the best motto…it will be our downfall.
Now we are reaping the seeds we have sowed…the problems will continue in all facets of life until we realize the real culpret behind all this kind of behavior…have we really have bought the idea that it is ok NOT be our brothers keeper in life? Our insensitivity to each other cannot be blamed on philosophy, wether democrat or republican, socialism or capitalism. We are all to blame in thinking it is the other person who is the problem. We can change our way of living and start seeing things differently…help your neighbor, your community to get through these tough times, start understanding how to give, share and forgive, drop the hardened heart of condemnation. Our country is in trouble and people are in dire need of help from the innocent children to the elderly, including those who are young starting their lives in business or have just left college with enormous debts. Everyone needs to wake up from the blame game.
If your comfort zone is getting over turned and your upset with it all…that is a sign telling you to quickly search yourself to find out what you should do to live life with the credo of “Love”, “Love thy neighbor as thyself”
7. DL Henderson | 03.07.09
This is in response to the Bankruptcy Cram Down. This story is about my son.
My son just purchased a 5 br 3 1/2 bath house for $172,000. The house had sold for $580,000 in 2005. My son was at the house with his real estate agent, when the previous owner who had just lost the house to foreclosure 45 days earlier, saw them together (while visiting a friend across the street). The man asked my son how much he had paid; he told him $172,000 from the bank that had foreclosed on the property. The man told my son he tried up until the day he moved out to get the bank to accept his offer of $322,000 at a fixed 6% interest rate. He could afford that payment and continue to live in the house. He said the bank would not talk to him in any way, they just foreclosed. My son got a Cram Down from the bank for a total of $408,000 at 4.75%. Everyone is saying how this will affect the future mortgage rates etc. My feeling is the bank lost $150,000 and the extra interest rate from the previous owner. This also hurts the houses around my son’s new house because it will bring down the value of the other homes, due to the low amount my son paid. Don’t get me wrong, I am very happy for my son. But, the bank could have made much more money and saved the values of the surrounding homes.
8. Marcio Melo | 03.07.09
Do you know who is laughing and having a good time? Mr. Bin Laden. Why? Because he did not have to repeat 9/11. The American business with Wall Street did it for him. By prioritazing greedy, buying derregulation from the GOP, exporting jobs looking for slave labor to maximize profit, using voodoo financing (A GOP invention), to sell houses and other things, they managed to bring the most powerful economy on the planet to its knees. What a job!!!! The CEO’s don’t have to worry about having their bonus cut by Mr. Obama. I am sure that Bin Laden is working on a plan to replace that lost comission.
9. FRANCO | 03.07.09
When Barack Obama became president, I became a born again American. For the first time I began to feel that my fellow Americans could begin the long journey of taking our country back from the special interests and the extremely wealthy who with their money have duped us into believing just about anything in order to make a quick profit. It took another great depression for us to begin to see that 95% of Americans are the issue. We need a competitive education for our children, now it is possible. We need medical and dental attention when we needed at affordable prices. We our public building and bridges to be able to withstand long term use, earthquakes, tornadoes, and hurricanes. Above all, we need a clean peaceful world to live in. I applaud the efforts of responsible law makers who represent the 95% over the 5%, not because the 5% are not entitled to representation; but rather, because it is a heinous shame that these parasites, Republican and Democrats alike have been allowed to destroy our lives and our future for thge benefit of greedy few.
10. mary | 03.07.09
Americans always have think bigger is better and more will make you happy.Two people were neighbors when one bought a car the other bought a bigger, better and more expensive to be better and show up the neighbor. We live beyound our means and want the goverment for digging greedy people out of what they did themselves. It is diffult for us to be happy with what we have in the United States compared so many other countries.
11. Rex Roberts | 03.07.09
First, why do you think that vacation homes, second homes, investment homes–in short the kind of homes which the upper income tend to have to a larger degree than the average homeowner–already have this option, and owner occupied, first homes–which is the only kind of house that the vast majority of Americans have–do not? Second, if everyone is so appalled by the impact that helping some of the underwater homeowners (who, granted, should have read the fine print on their ARM a bit more closely) will have on the great majority of homeowners (ie., those who don’t have the resources to own any of the other kinds of “homes” listed in the paragraph above), think about what the impact of having half of the houses on the block being in forclosure with boarded up windows will have on their property values will be. This sounds to me like more of the same “trickle up” economics which we have suffered through for the last 8 years.
12. Jason S. | 03.08.09
We now live in the land of the unaccountable victim. There are no circumstances for our actions. We have no accountability for our actions. We don’t have to pay for our own bad choices and decisions.
Is everyone blind to the fact that these homes need to become vacant and the housing market must continue to weaken in order to bring housing back to a point of affordability?
At first glance, keeping people in their homes may appear like a noble intention but what does it say to those who were smart enough not to lose their head during the height of the bubble and did the right thing by waiting for the market to correct. This legislation will prove to have a negative impact over the long term. It will work to keep housing prices artificially inflated and new lending will be even stricter. It only prolongs the housing bust cycle and it will take even longer for the housing cycle to get back to normal.
Finally, what does this say for business law. A contract is a contract is a contract. Buyer beware — Caveat Emptor —
If this legislation becomes law it is just one more move toward a society where people don’t take care of themselves, but rather have someone take care of them. As Americans we want to arrogantly claim are rights and freedoms, but we don’t want to own up to the personal responsibility that comes with those lofty claims.
13. James Corbin | 03.08.09
When you allow a judge to change a legal contract just because “it feels good,” you are destroying the whole basis of how to do business in America. These individuals signed the paperwork and should be legally bound by it. Some of these people put more thought into buying a TV or car than they did a house.
Before I bought my house, I researched everything I could get my hands on to learn what I needed to know about buying a house. I hired a lawyer to read the legalize and explain what all of that meant. These people couldn’t be bothered to figure out what they could or couldn’t afford. These people will only learn through the school of hard knocks. Bailing them out doesn’t do anyone any favors.
14. Bill | 03.13.09
If buyers were “stupid” to get mortgages they couldn’t afford, then I guess the financial experts who traded derivatives and packaged “junk mortgages” weren’t that bright either. The problem is, when the financial experts made these mistakes, they were doing it with everyone’s money. Unless you keep your money under a mattress, that is.
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1. Craig Kent Satchell | 03.06.09
Obama Socialism is not the American Way.