Opposition to Homeowner Assistance Gets Silly

The Wall Street Journal editorial page weighed in Tuesday against S. 2636, the Foreclosure Prevention Act of 2008. The credit industry lining up against the bill is expected. And, probably to no one’s surprise, the Journal once again opposes a pro-consumer proposal.

You can tell a vote is coming soon — The anti-consumer arguments are becoming bizarre and downright silly. But then bizarre and silly are consistent features of opposition to this proposal, as we have discussed many times before.

The Journal swallows hook, line and sinker the industry argument that rates will go up dramatically if bankruptcy judges can modify mortgages. The editorial doesn’t explain how the mortgage market will keep rates down if 500-600,000 homes that could otherwise be saved are instead processed through the foreclosure mill. Instead it makes the bizarre comparison to credit card debt which is often paid little or nothing in bankruptcy — even if it’s irrelevant. (Ignoring for the moment the even more bizarre theory that the reason credit card interest rates are high is because of bankruptcy losses…while conveniently ignoring the awe inspiring profit margins on most credit card lending.)

No doubt the Journal’s credit industry ghost writers wanted to avoid the real comparison — car loans — where debtors are allowed to modify the amount owed to match the value of a car and lower the interest rate to a reasonable market rate. There’s precious little evidence that cramdown of car loans has caused less credit to flow to car loan markets — or that the interest rates paid have been dramatically higher as a result.

The editorial also implies that somehow the additional workload that would befall the courts and trustees would justify denying help to consumers. The ABI’s executive director said something slightly similar a few months ago and it was bizarre then too. Next we’ll hear it’s bad to divert trains or buses to move people out of the way of floods or natural disasters — because it would disrupt transportation schedules. Heaven forbid we bankruptcy professionals have to work late to help save homes!

The editorial even tries to forcibly conscript Supreme Court Justice John Paul Stevens against the legislation. This takes a real stretch of the imagination. Stevens filed a concurring opinion in the 1993 Nobelman v. American Savings Bank case. He pointed out that Chapter 13 envisioned no modifications of home mortgages because Congress intended to encourage home lending. How Justice Stevens’ unsurprising and undisputed interpretation of congressional intentions becomes the judge’s opposition to S. 2636 eludes me, certainly. The emerging question is whether Congress will reasonably conclude that protecting home lenders at the expense of homeowners is no longer good public policy.

Ultimately the Journal reasons that most of the effect of this legislation will benefit California, since a study indicates Californians were six times more likely to have taken out subprime loans. The implication, I assume, is that somehow the rest of America should oppose a bill because the largest state in the Union will benefit more than others. Perhaps we in Missouri are supposed to be jealous that more Californians could be forced into bankruptcy to save their homes. We’re truly green with envy, indeed.

The truth is that the editorial writers at the Journal don’t have a lot of good arguments against this bill. It boils down to this: “Bankers don’t like it, so we don’t like it and we don’t really need good reasons.” The editorials are smoke and mirrors to protect an industry that has slashed and burned its way through our economy, cannot now effectively help the victims and doesn’t want anyone else to really help them either.

Why this industry needs continued protection from itself completely eludes me.