Proposed Change a “Tweak” or a Bit More?

CNN Money has this article about the legislation pending in the House of Representatives, which would change the bankruptcy laws to allow bankruptcy courts to modify home mortgages (as they can do currently for investment properties and vacation homes). The Center for Responsible Lending [CRL] calls the proposed change a “tweak,” and says it could save as many as 600,000 homes from foreclosure. As much as I favor the legislation, I can’t go along with calling it a “tweak.” Anything that will make such a difference in the lives of so many people is far more than a tweak.

As might be expected, critics of the proposal broadcast dire warnings of destabilization of the mortgage security markets, and rising interest rates for consumers as a consequence. I am no expert on the financial markets, but it seems to me that if the value placed on any given mortgage more accurately reflected the likelihood that it would be paid in full, that would be a good thing. Put it this way:

But mortgages that go into foreclosure hurt the value of mortgage securities and the pricing of mortgages, too. And since investors and homeowners lose either way, said Henry Hildebrand III, a Chapter 13 bankruptcy trustee in Tennessee, at least being allowed to modify primary residence loans under Chapter 13 means everyone takes a lesser hit than they would in foreclosure.

No related posts.