Helping some 9 million troubled mortgage holders keep their homes makes sense during these recessionary times, which were brought on largely by the mortgage crisis.
But we question the so-called “cram down” legislation that recently passed the U.S. House. It would give bankruptcy judges the power to modify home loans without the consent of banks.
We would have been happier with the Obama administration’s plan to offer $75 billion in direct mortgage assistance if this provision hadn’t been floated at all; the new authority seems contrary to how business and government are supposed to interact — even in today’s new climate of increasing government control.
Yes, supporters likely are correct that if the judges hold that stick lenders will move more quickly to renegotiate troubled loans at today’s more favorable rates, and in so doing help keep people solvent and contribute to a recovery. We get that.
But we’re not familiar with many government programs that act quickly. We find the courts to be even more meditative and lethargic, and we don’t at all like the prospect of government dictating terms to lenders. Besides, in this economic climate, banks have millions of reasons to want to work with homeowners to refinance mortgages just to keep some type of payment coming in, and keeping the banks from owning homes they can’t even unload.
Centrist Democrats in the Senate and House blocked an earlier version of the bill, arguing that more needs to be done to ensure that homeowners do all they can with their lenders before taking bankruptcy protection.
We hope those more sober minds continue to hold sway in the “cram down” debate.
Meanwhile, we’re not at all pleased to see the $75 billion plan extend taxpayer relief to wealthier homeowners who appear poised to take advantage of the assistance even though they are far from struggling. The plan allows for mortgage-holders with unpaid principal as high as $729,750, but whose homes have fallen in value, to renegotiate interest rates as low as 2 percent — the same terms offered to the more modest homes we imagined Obama was trying to save from foreclosure.
Why so high? Aren’t people capable of earning the kinds of wages that support that kind of home also capable of refinancing on their own?
Also, why should government step in and help homeowners refinance simply because they’re “underwater,” meaning they owe more on their homes than they’re worth? If they’re able to make their mortgage payments, those homeowners should ride out the bad market and hope for better days.
However, we approve of the plan to help up to 5 million mortgage-holders make loan modifications due to job loss or adjustable rate mortgages they no longer can afford.
Overall, the plan aims to lower mortgage payments to no more than 31 percent of owners’ income, which is considered financially reasonable. Government makes up part of the gap.
With so much money at stake, we hope that Congress looks closely at extending new authority to bankruptcy judges — and rethinks just how expensive a mortgage ought to get a bailout.
