foreclosure-by-respres.thumbnail.jpgWord is that House Democrats want bankruptcy reform in the Stimulus bill and that Obama and Senate Democrats don’t, because they’re scared of a Republican filibuster.

Having a stimulus bill without bankruptcy reform is like organizing a bucket brigade on a sinking ship without sending a crew down to patch the hull.  The current bankruptcy bill does not allow judges to change the terms of mortgages on primary residences (only on holiday homes and investment homes, because helping rich people keep homes they don’t need is important).  That might be liveable, except for two things.  Credit cards are currently prioritized over housing payments, meaning that people are being forced out of their home to pay MBNA its pound of flesh; and ownership of mortgages is so confused that banks can’t rewrite mortgages themselves.  Each mortgage was usually sold to so many different people that even tracking down all the owners, let alone getting them all to agree to changes is effectively impossible.  Banks can’t make the changes because they only service the mortgages, they don’t own them, and if they make changes without owner approval, they can be sued.

Republicans respond, in essence, so what?  They borrowed the money, they should pay it back.  Leaving aside the fact that this applies a standard to ordinary Americans which was not applied to banks and brokerages, which got plenty of help for their bad loans, this is cut off your nose to spite your face thinking.

Without the ability to rewrite mortgages what happens isn’t "people pay their debts", it’s "people go bankrupt anyway, and lose their houses which then go on the market.  Once on the market they depress house prices even further."  Since falling home prices are at the heart of the financial crisis, this makes banks even more sick requiring more money. It puts even more homeowners "underwater", meaning they owe more on the houses than they’re worth.  It puts more pressure on States as people without homes need help.  And so on.

Allowing judges to rewrite the terms of mortgages is in the interest of most owners of mortgages and most homeowners. It is in the interests of muncipalities and states, who do not want to see entire neighbourhoods depopulated.  It is in the interest of America.  Yes, some people who bought parts of mortgages on the secondary market may lose money, but in most cases they would have lost the money anyway.

And let’s be frank, many of these mortgages were essentially sold based on fraud.  They were sold fraudulently to the home owners, using financial projections which were unrealistic, and they were sold fraudulently to the buyers of the securities they were bundled into, because due diligence wasn’t done and promised returns were based on the idea that the largest housing bubble in post-war history would continue forever.

Hoyer claims that the bankruptcy reform has enough support to pass on its own.  At the same time the claim is made that if it’s in the stimulus bill Republicans may filibuster.  These statements appear somewhat contradictory to me.  Stop putting it off.  It is more important, in many ways, than anything else in the stimulus bill.  Put it in, and get it through, and if it takes a bit of extra time, so be it.

Without it, all the stimulus in the world is nothing but bailing water out of a sinking ship without bothering to patch the hull.

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