King Amendment Hurts the Middle Class

Another scary Steven King

As David Leibowitz reports on Mortgage Law Network, under the “King Amendment” to the mortgage modification bill in Congress (H.R. 200 and S.61), people who got their mortgage by “fraud” won’t be able to get mortgage modifications in Chapter 13.

There is no question that borrowers and lenders ignored the risk of loose underwriting requirements since the turn of the new millennium.  However, the King Amendment, named after the “other” horror writer Rep. Steven King (R-IA), shifts the entire burden on the middle class and completely absolves lenders of their fraud in the process.

There are two glaring problems with the King Amendment.  First, it ignores the fraud by lenders in these “liar loans”.  The truth is that lenders often completed the income section for “no-doc” loan applicants, or actually changed the income reported by these applicants to get underwriter approval.  The underwriters knew this was going on, but were pressured by the lenders to turn a blind eye.  Lenders justified the charade by assuring themselves that skyrocketing home values would continue and would provide adequate security in the probable event of default.

The second problem with the King Amendment is that it will dilute the effectiveness of the Helping Families Save Their Homes in Bankruptcy Act of 2009.  The amendment’s true purpose HAS NEVER BEEN to help homeowners, or it would have passed many years ago.  The purpose of the amendment is to stabilize the housing market by halting the growth of current foreclosure inventory.  The King Amendment will keep the foreclosure spigot half open just to provide some cover for Wall Street.

The Democrats, who now control Washington, D.C. with a solid mandate from the voters, have shown a lack of leadership on this issue.  The kooky King, who just recently referred to Obama as a “Marxist” and called the Obama administration a “totalitarian dictatorship” (Where’s this guy been the last eight years?), should be relegated to serving lunch to the Committee on the Judiciary, not adding amendments to such critical legislation.