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Good morning, and welcome to the second day of this online forum on the foreclosure epidemic and legislation that Linda Sanchez and I introduced to allow bankruptcy courts to modify home mortgages. Matt Stoller, who blogs at Open Left asked me to participate and I roped Linda in. The Sunlight Foundation  organized the forums.

We had a good discussion yesterday at TPMCafe with a pretty impressive cast. I’m not sure who will be back today. DailyKos’ chief economist, Bonddad, will probably join us, although I hope for his sake that he occasionally has to work for clients, since he’s now trying to eke out a living as a lawyer.

The foreclosure rate is already the worst it’s been in twenty-five years, and soon will be the worst it’s been since the Great Depression. According to Lehman Brothers, about 30 percent of the subprime loans made last year will end in foreclosure. Probably more than two million American families will lose their homes to foreclosure in the next couple of years, and with their homes, they will lose their membership in the middle class, probably forever.

None of this should come as a surprise. Here’s what’s happened in mortgage lending in the last couple of years, based on a summary of industry statistics by the Center for Responsible Lending:

Approximately 28 percent of all mortgage loans made last year were subprime, compared to eight percent in 2003. About 90 percent of the subprime mortgages made in 2005 and 2006 had adjustable rates with an adjustment after just two or three years. The typical adjustment in the interest rate was from about seven percent to 12 percent, resulting in an increase in monthly mortgage payment of 30 to 50 percent. There is no reason to believe that more than a tiny fraction of those borrowers would enjoy substantially more prosperous circumstances in two or three years. About 70 percent of subprime loans have prepayment penalties, 75 percent have no escrow for taxes and insurance, and almost half (CRL estimates between 43 and 50 percent) were "without fully documented income." The vast, vast majority of Americans can easily document their income by payroll records, employer verification, bank statements or income tax returns, and the interest rates on loans with less than full documentation are substantially higher.

The mortgages were designed to become unaffordable, so the borrower would have to refinance again, paying up front costs and fees for the next mortgage and a prepayment penalty to get out of the last mortgage.  As long as the home values kept appreciating, it all worked exactly as intended—the various players in mortgage lending ended up with the increased value, not the middle class families who owned the homes.

But when home value stopped appreciating, the music stopped.

No, the people with subprime mortgages aren’t just people with "problem" credit. According to the Wall Street Journal, 55 percent of subprime borrowers qualified for prime loans. And no, the loans were not "innovative mortgage products" that lenders offered to encourage home ownership. Only about one subprime mortgage in ten is to purchase a first home, and 72 percent of subprime mortgages are refinances. Professor Elizabeth Warren has written about how the mortgage market steers homeowners into predatory loans, and so have I.  

I’ve worked in Congress for five years on legislation to reform mortgage lending, but we have a more immediate problem: what can we do to help the families now facing foreclosure?

In turns out we’ve been here before. The Great Depression began on the farm before it began in the factory.  Millions of family farmers borrowed against their farms to try to ride out the depression. When farm prices didn’t improve, they had no way to pay their mortgages.
Woody Guthrie was writing about family farmers losing their homes to foreclosure in the lyrics to "Pretty Boy Floyd":

Now as through this I ramble
I see lots of funny men
Some will rob you with a six gun
And some with a fountain pen.
But as through life you travel
As through your life you roam
You won’t never see an outlaw
Drive a family from their home.

Congress first passed bankruptcy legislation in 1934 to help family farmers avoid losing their farms and their homes to foreclosure. The legislation was temporary, and after the Democratic Congress extended the legislation a couple of times, the Republican Congress elected in 1946 let it expire. But after another epidemic of family farm foreclosures, Congress enacted legislation in 1986 that is now a permanent part of the bankruptcy law.

When I asked around early this year about what Congress could do about the foreclosure epidemic, a couple of bankruptcy judges suggested that Congress could just let bankruptcy courts modify home mortgages the same way bankruptcy courts can modify mortgages on family farms.  In fact, home mortgages are the only form of secured debt that is exempt from modification in bankruptcy. A bankruptcy court can modify a mortgage on investment property, a car loan, or a loan secured by a washer and drier, but not a home mortgage. Does that make sense to you? No, it doesn’t make any sense to me either.

So Linda and I introduced a bill that would eliminate the exemption of home mortgages from modification by a bankruptcy court. There’s a well established body of law on how a bankruptcy court can modify a secured debt: If the debt exceeds the value of the collateral, the court can limit the debt secured by the collateral to the value of the collateral and treat the rest as unsecured, which goes to the back of the line for payment. And the court can then set a term of up to thirty years and an interest rate of prime plus a couple of points, because someone in bankruptcy is a greater risk than the typical debtor.

In other words, the lender will end up with the mortgage the lender should have made in the first place—a subprime mortgage, but not a predatory mortgage.

According the CRL, 600,000 or so families to save their homes from foreclosure under this legislation. The chief economist for Moody’s thinks that’s an exaggeration—probably only 500,000 families would save their homes.

The legislation obviously doesn’t help every family facing a mortgage adjustment that they can’t afford or even every family facing foreclosure. If you don’t have the income to pay a mortgage on the full value of your home at an interest rate of a couple of points above prime, you’ll still lose your home.  You can’t seek bankruptcy relief unless you meet a financial requirement—in other words, unless you’re bankrupt.  And going through bankruptcy is no treat.

Okay, so let’s get started.

Originally posted to Rep Brad Miller on Thu Dec 20, 2007 at 07:13 AM PST.

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Comment Preferences

  •  I'll be here straight through to about 11:30, (27+ / 0-)

    and check back from time to time this afternoon. Linda should be here for an hour or two also.

    •  Thank you for working with this Rep. Miller (3+ / 0-)
      Recommended by:
      celticshel, Joy Busey, TomP

      I live in Greensboro and my wife is a Realtor there.  She see's this first hand every day and it is a truly crying shame that so many people are going through this.  She alerted me to the fact that it's re-fi's not first time buyers.  Too much unsecured debt being paid off by secured debt in the way of re-fi's is what she runs into mostly.

      Another day, another devalued Dollar. -6.00, -6.21

      by funluvn1 on Thu Dec 20, 2007 at 07:18:33 AM PST

      [ Parent ]

      •  Yep. The lenders say they bent over backwards... (10+ / 0-)

        so folks could buy homes. Subprime lending isn't about home ownership. Only one subprime loan in ten is to purchase a first home, and 72 percent are refis.

        •  'bout half an inch, I'd say. (3+ / 0-)
          Recommended by:
          bubbles, lcrp, Pariah Dog

          The whole idea was that this ASSET BUBBLE (can you say "Tulips" yet again?) was still growing.  Hey, it might not pop! Sell this instrument, the people will turn the asset, everybody makes money.

          About as short-sighted as you can get.  This was clearly an attempt to get in, get as much as possible, and get out.  Preferably leaving someone else to hold the bag.  Whether you're talking the S&L crisis, the stock market, or now houses, every bubble will come to an end and they're really ugly when they do.

          Just as with Charles Ponzi, each bubble (or sucker if you prefer) has to be larger than the last, so it cannot go on indefinitely.

          Guess what!  We're here.  And this administration has been systematically DISMANTLING the protections we put in after the Depression.

          I think we're really headed for a Depression, it's just that people keep putting on band-aids™ of one kind or another delaying when it will happen, and ultimately making it worse.  (It could have been a small RECESSION in '99, but no -- there was an election in '00, not to mention the Y2K bug!)

          Rep. Miller, this is the tip of a very large iceberg.  Yes, we need to look to the past to see how to help people keep their homes.  But even more importantly we need to fix our economy and currency and see that this kind of gaming does not happen again.

          Edwards: 'Silly season has begun.'
          Ain't that the truth!

          by polecat on Thu Dec 20, 2007 at 08:20:28 AM PST

          [ Parent ]

          •  the lack of enthusiasm shown (3+ / 0-)
            Recommended by:
            polecat, lcrp, Pariah Dog

            here today and yesterday on TPMCafe demonstrates that this legislation is but a mere drop in the bucket of what's needed. It's a tiny band-aid when everyone knows major surgery is required.

            •  An IMPORTANT band-aid, never-the-less (4+ / 0-)
              Recommended by:
              bubbles, lcrp, SparkleMotion, Pariah Dog

              Rep. Miller, your efforts are definitely appreciated.  We just want you to understand (as we're pretty sure you already do) that this IS going to be huge.  And our tools for fixing it are diminishing rapidly.  (And are being spent on Iraq and to line the feathers of Halliburton's nest.)

              Edwards: 'Silly season has begun.'
              Ain't that the truth!

              by polecat on Thu Dec 20, 2007 at 08:41:10 AM PST

              [ Parent ]

        •  This supports the idea... (0+ / 0-)

          ...that these were not people looking for a place to live.

          These were people who had a place to live and gambled it away.

          They must not be bailed out.

    •  What's a foreclosure? (0+ / 0-)

      This is probably a really dumb question for most people, but, thankfully, I've had nothing to do with subprime mortgages and have been largely unaffected by the turmoil. I have a very basic understanding of what they are, from reading a Krugman editorial, but I want I just want to know for sure...thanks.

      GOP stands for Grand Old Problem.

      by LennyLiberal on Thu Dec 20, 2007 at 07:20:17 AM PST

      [ Parent ]

      •  A mortgage gives the lender... (6+ / 0-)

        the right to sell your house to collect what you owe. State laws govern how it works.

        Your house is "collateral," and the debt is "secured," by the home.

        •  Thanks for that (1+ / 0-)
          Recommended by:

          That was a brief and comprehendable explanation. But just to clarify, I'm assuming that "what you owe" refers to late and unpaid interest, correct?

          Also, I'm just curious, why would any corporation take the risk of indulging in the subprime market? I can imagine that dealing with poor borrowers with a bad credit history creates a huge risk for lenders and doesn't guarentee a profit.

          ...thanks for educating me :)

          GOP stands for Grand Old Problem.

          by LennyLiberal on Thu Dec 20, 2007 at 07:43:51 AM PST

          [ Parent ]

          •  It would refer to the entire balance of the loan (6+ / 0-)

            Including unpaid principal and interest.

            What is getting people into hot water is that many banks were offering to finance in excess of 100% of the appraised value of a home, speculating that the housing market would continue to rise.  When the housing market took a dip, many home owners were left holding a mortgage that exceeded the value of the property.  Thus, even a forclosure sale couldn't cover the amount of the debt.

          •  This is kind of the whole story (3+ / 0-)
            Recommended by:
            lcrp, LennyLiberal, sima

            Also, I'm just curious, why would any corporation take the risk of indulging in the subprime market?

            I am not an economist, but the basic picture looks like this.

            We start with the guy who wrote the loan.  He gets paid a fee when this happens, some money to handle the payments, and in many subprime cases, all sorts of fees when the loan gets paid off in a refinancing.

            Now, you are wondering why anybody would write a big loan to somebody so uncreditworthy that they need a 12% (or whatever) mortgage, since surely they are very likely to default.  (For example, you won't loan me billions of dollars at any interest rate, because I am a grad student and will never be able to actually pay.)  This is where the trick comes in: the loan gets sold to an investment bank.

            The investment bank takes a bunch of similarly bad-looking loans and mixes them using some opaque formula which is suppose to make it highly likely that not too many default.  The resulting bond then gets a ``high quality'' rating, and it can be sold to entities that want low-risk with high returns (pension funds, money markets, insurance companies, highly leveraged hedge funds, small towns in Norway, etc.).

            So now the picture looks like this: the original lender doesn't have the risk any more, and just got to keeps the fees.  The investment bank also took huge fees.  And all the risk is spread out to the final buyers, who are just bond market speculators of various forms.

            What happened was this: the ``risk models'' were total BS.  Lots and lots of these loans did default, and the supposed income stream from the high interest rates never materialized, causing all the problems in the credit markets.  With no market for these weird mortgages, the lenders can't get money to make new ones, so people can't refinance out of them.  Hence a bill to allow bankruptcy courts to modify the terms so people can get back to an affordable payment.

            Ortiz/Ramírez '08

            by theran on Thu Dec 20, 2007 at 08:47:03 AM PST

            [ Parent ]

      •  Payment of collateral for a defaulted loan (1+ / 0-)
        Recommended by:

        You take a loan to leverage an asset, and if you can't make the payment, the loanmaker (bank, cc co., mortgage co.) takes possession of the asset. In return, the liability (what you owe) is usually written off, but if the loan was for more than the home was valued, the bank may ask for more.

    •  As we've gone from asset bubble to asset bubble (4+ / 0-)
      Recommended by:
      lcrp, wgard, SparkleMotion, sima

      each one a larger Ponzi scheme than the last, the big question has been "When will it end?"

      Or, more cynically, where can we find another bubble?

      It's not like we didn't know this was coming.  It was clear that the stock market bubble was a bubble -- the only unknown was when it would pop.  Remember all of us saying "Tulips" back then?

      By deliberately driving down interest rates and keeping them low, we STRUCTURALLY have harmed our economy and our currency (which, as a fiat currency is really based upon confidence in our economy).

      We've really been seeing 8-13% inflation for the last 6-7 years and the Federal Government has systematically been understating it ("substitution of hamburger for steak," anyone?).  This has allowed them to act like we're in a period of growth when we were not, underpay social security (yet another way of cutting back on entitlements), and pay less for treasuries.  Since the other countries "bought it" for awhile, it was a way to export inflation.

      Wages HAVE TO move.  (basically everyone has gotten a 33-50% pay cut in the last 7 years, except for the rich folks who are now richer and got a tax cut!)  We've dramatically lowered the standard of living for the vast majority of Americans from the 1980's.

      On a macro level there are really five choices:

      1. CUT interest rates again and try to restore the bubble.  (Problem with that is that the Dollar is no longer the default currency world-wide and a lot of money is going to be leaving Wall Street.  Inflation will reign.  Welcome to Argentina.  A VERY bad idea, but the Fed appears to be doing that.  "The 70's show."  But 1972, not 1979.  Can you say "Stagflation?"  Whip Inflation Now, thank you Gerry Ford.)  Lower interest rates are like cocaine to the markets, but with the flight of capital to other countries (since the return on the dollar is SO bad), any pop will be extremely short-lived.  God help us if they pick this route.
      1. RAISE interest rates to strength the dollar like Paul Volcker did and start to repair our currency and our economy.  (Instant recession or depression depending upon how high the rates go.  However, we've got about 50% inflation from the last 7 years to realize and it's going to hurt.  Also, the recession or depression won't really be over until FORECLOSURES/BANKRUPCIES START TO DECLINE.  And that will be awhile.)  I would add to this reciprocal protectionism in trade agreements and domestic spending to keep people employed.  Further, I'd actually FUND NSF and NIH and attempt to restart America's science employment engine for the future.
      1. TRY to find a MIDDLE ground on interest rates.  (This MIGHT have worked in 2002.  I don't think there is a middle ground anymore that could prevent a recession.  Further, as we saw in the 90's, having a stronger currency enabled us to spend less money on payment of debt, and allowed us to start to repay the debt.  Dream on.)
      1. REVALUE THE CURRENCY.  Basically screw all of our Debt holders and start over.  (This is about the ugliest thing a country can do to its neighbors, and since we've systematically DESTROYED much of our own economic and industrial engine, it would be extreme folly.  Doesn't mean that we can't/won't/shouldn't do this.  If #1 is chosen, we may have no other choice.)
      1. HARD CURRENCY (e.g. gold/uranium/wheat/oil/kWH).  (IF we actually PRODUCED something that everyone wanted, this might work, but since most countries are on FIAT CURRENCIES at this point, it really won't work, and our balance of payments are SO out of whack that it would only last for a short time. The other thing we've learned is that in a Depression, he who devalues first is more likely to survive.  But the whole argument about surviving a world-wide depression is a different one.  It'd be best to avoid it if we can help it.)

      With the right Government choices to help people survive the ensuing recession/depression, #2 is the only viable choice.  We've been here before (twice in the last century -- Great Depression, and the 1970's) in different forms and this is at least as bad as that.  

      Edwards: 'Silly season has begun.'
      Ain't that the truth!

      by polecat on Thu Dec 20, 2007 at 08:14:32 AM PST

      [ Parent ]

      •  Only when wealth is more equitably distributed (2+ / 0-)
        Recommended by:
        ManhattanMan, lcrp

        The problem is that the Reagan, Clinton and Bush policies have increased and accelerated wealth concentration.  Further, and this sounds strange, but at a certain point you have so much money that there is nothing to buy.  Let's face it there are only so many places to invest 10 billion.

        No one wants to make infrastructure improvements or expand the commericial/industrial base (factories and such) because that takes time and effort and there are cost overruns, etc. Much easier to roll everything up into a security and buy that.  Thus assett bubble.

    •  Some missing data (2+ / 0-)
      Recommended by:
      ManhattanMan, lcrp

      As an insider in the sub-prime credit risk profession, one of the key pieces of information missing from the debates about the current crisis and solutions for it is this:

      No one really knows how many foreclosed homes, especially on the sub-prime refi side of the business, are homeowners losing their homes, and how many are investors walking away from their loans because of an inability to rent the homes or to obtain rent high enough to cover their costs.  

      Having seen many such foreclosures, I am skeptical of the argument that the current crisis is really affecting homeowners any more than it normally would during a decline in property values.  I can be convinced by the data, but from my own experience, it really looks much more like investors are losing their over-levereged properties because they have no renters in the current market and they borrowed too heavily against the homes to leverage further investments.  It's not a case a many more families suddenly becoming homeless like the current social construction of the issue makes one believe.  

      Since it is very easy for investors to claim occupancy at time of application, only a survey of foreclosures can get the truth here. Bank records are inadequate.

      Either way, there is ample reason to support better regulation of mortgage brokers by making kick-backs illegal and requiring that brokers provide the best possible rate on market for borrowers, even if it means passing the customer off to another prime lender if they qualify. (Prime quality borrowers, usually real estate investors, who are sold sub-prime mortgages are called "heroes" in the business.) Also, there should be even more aggressive federal action against the current teaser rates by simply banning all teaser rate increases above standard long term mortgage rates.  The effect of this will apply the burden on secondary market investors where it belongs -- they bear most of the blame for this crisis due to their lack of due diligence when investing in increasingly exotic mortgage backed securities and thus driving the sales pressure mentality among mortgage brokers.

  •  I smell Japan (0+ / 0-)

    The proposed bailout plans (both by you and by Paulson) reek of what happened to Japan in the 90s.  The real problem is most of the people effected adversely in this mess should have never been in the homes they bought and thus greatly contributed to the spike in home prices.  The proposed bailouts will do nothing more than drag out the inevitable fall in home prices, as if these "homeowners" cannot get conventional refinancing (or afford it) at a fixed rate (which are still at historic lows) then eventually they will fail.  Finally, government should not be offering those in bankruptcy the opportunity to refinance to the "current value", as it essentially once again punishes all of their neighbors who now have to eat those reduced values because they made more prudent purchasing decisions.

    •  Did you even read what I wrote above? n/t (8+ / 0-)
      •  I'm not sure I understand either (1+ / 0-)
        Recommended by:

        The proposal is to let bankruptcy courts change the terms of mortgages so that homeowners with negative equity leave bankruptcy with zero equity, as I understand it.  But if prices continue to fall, then it seems likely this person will end up back in the same place, and the only effect is to help out the lender for a little while.

        I think this is the question above as well.  Of course, my question is based on whether it is more ``rational'' just to walk away, and people's lives don't work like that, but the grandparent does have a point from a policy perspective.

        Ortiz/Ramírez '08

        by theran on Thu Dec 20, 2007 at 07:34:19 AM PST

        [ Parent ]

        •  Again, the change in law... (9+ / 0-)

          would just give homeowners the same rights in bankruptcy that debtors with other forms of secured debt already have. If home prices continue to fall, it's certainly true that the mortgage amount set by the bankruptcy court at 100 percent of the valuation could later exceed 100 percent of valuation. But the relief is one that the homeowner decides to seek.

          What really will happen, and what happened after Congress adopted a similar provisions for family farms in 1986, was that a few farmers filed for bankruptcy, but a lot more were able to modify their mortgages outside of bankruptcy because the lender would agree to the terms the bankruptcy court would impose. The legislation would give homeowners some borrowing power that they don't have now.

          •  Unfair comparison (1+ / 0-)
            Recommended by:

            using the family farm analogy is a terrible one, as the two situations do not match up.  Land prices for farms are set by the value of the potential yield, not by the sale price of nearby farms.  Home prices are essentially set by comps and thus this bill gives judges the power to determine pricing for entire neighborhoods.

            •  Not back in the 1980's (0+ / 0-)

              Many farm loans were made on the basis of the value of the land.  Repayment capacity was not always analyzed.  That was a big reason for the disastrous loans.

              The subprime fiasco reminds me of that era.  Large loans were made to farmers without repayment capacity but based on the notion that land values would only increase.  In California that worked ok but in places like Nebraska, the bubble burst.  

          •  Perhaps Narrow the Scope and (1+ / 0-)
            Recommended by:

            look at other mechanisms for adjusting the mortgage outside of bankruptcy.

            1.  Allowing homeowners to modify mortgages in bankruptcy will make it harder, although not impossible, to sell the mortgages on the secondary market.  
            1.  Modifying the mortgage in bankruptcy will more likely than not require increased legal fees that a strapped homeowner may not be able to afford.
            1.  Any law protecting homeowners should be carefully written to exclude investors and flippers.  
            1.  Perhaps limit  laws intended to help those who are truly victims to those who can make a prima facie showing of fraud and/or predatory lending practices.  A prima facie case could include factors like loans that at their inception could not be repaid based on existing cash flow, loans without caps, unusual and/or high upfront fees, loan terms not made available until 2 or 3 days prior to loan closing, violations of TIL, violations of other state and federal consumer protection laws, and/or showings of fraud.
            1.  If you look at protective laws for farmers, the bankruptcy laws were helpful for some farmers but Borrower Rights and mandatory mediation programs in the Midwest were probably more helpful.
      •  Representative Miller - (5+ / 0-)
        Recommended by:
        theran, Jesterfox, ccyd, sima, Santarita

        I think the banruptcy plan makes sense.  I also think that the gap between introductory rates and subsequent adjustments should be government regulated.

        And... I am not actually completely kidding when I say that those compulsory credit counseling classes that the bankruptcy law dictates that those who declare bankrupt should also be required for a whole host of people in the banking and real estate industries.

        Frankly, this whole collapse really undermines that whole "bankers are conservative" notion.  We have had a whole lot of gambling and shell games being played and the people really responsible will walk away scot free with their money and won't even have to take one of those humiliating credit counseling classes.

        Thanks for your efforts.

        I am hoping Wright Patman will stop spinning in his grave soon.

        •  Financial Literacy and Business Ethics... (2+ / 0-)
          Recommended by:
          lcrp, inclusiveheart

          should be taught in high school. Back in the early 2000 I remember radio and tv ads pounding the same themes day after day:  real estate is your best investment, buy now, prices are only going to go up, interest rates are at historic lows.  And many real estate agents and mortgage brokers actually believed what they were pitching.

          •  On some level a lot of this stuff is common (3+ / 0-)
            Recommended by:
            theran, lcrp, Santarita

            sense.  I had a banker trying to sell me an ARM loan and while I was pretty young in the 70's, I do remember interest rates soaring into the teens.  When I asked what would happen if the rates did that his answer was that he didn't think they would go that high and that they would try to work with customers if they did.  I knew that it would take us several years to pay off a loan that size and just felt that it was too much of a risk to take - even though it was within the realm of possibility that we could pay it off in five years - but that assumed a very good economy - I don't think you can ever assume that the economy is going to be "very good" when you take out a large long-term loan.

            I am so glad that I didn't do it because the part of the economy that touches me is slowing down and with food and fuel expenses rising at the rates they are the budget is tightening up.

            But the sales pitch and the sunny outlook in that room that day were definitely enticing.  I mean the banker we were talking to was the "expert" in the room.  What if he was right and I was wrong?  Would I find myself regretting not following his expert advice now if the economy was still booming?  I think that is a big part of the problem for consumers.

            We engage real estate brokers, bankers, appraisers and other so-called experts in the process of buying property and we don't think that they are going to be making deals that would hurt themselves - of course you assume that they might hurt you, but not their own best interests - "banks don't want to own houses" and all that jazz - and you think that there are enough market forces in the chain that would keep checks and balances on the people writing bad loans - but the "free market" corrections are mythological and never practically applied until there is a total collapse which hurts everybody and is nothing more than a meaningless "I told you so".  The worst part is that you know that there are many people who will never learn and will be back at the riskiest gambling table again if they are not regulated by some sort of law.

            We had a lot of gamblers running this market who knew how to play the system and avoid injury - until the house of cards fell down and finally starting hurting some of the big boys rather than just destroying a lot of little guys along the way.  Personally, I could care less about saving these folks from themselves, but what they have triggered is a meltdown that hurts everyone so as far as I am concerned they should be prevented from doing it again.

            •  Common Sense and Skepticism... (1+ / 0-)
              Recommended by:

              are in short supply when everyone is telling you that the economy is great and you will be a sucker for not joining in the fun.

              I've given some thought to what it means to be financially literate and have come to the conclusion that a lot of it would be just elaborating on some common sense themes like:
               "If it's too good to be true then it probably isn't true."  "The higher the return the greater the risk."  "Greater risk means greater possibility of loss."  "People working on commissions have an inherent conflict of interest."  etc.

              I'd also throw in a discussion of consumer rights and responsibilities.

              As to thinking that financial institutions wouldn't make loans that they know can't be repaid, unfortunately not all credit decisions are wise and there are other factors that go into a bank's decision making process like getting up front fees to meet short term goals for income.  Also they may calculate that the loan will be repaid even if repayment is through liquidation of collateral.

      •  I read every word (2+ / 0-)
        Recommended by:
        bubbles, theran

        My point is that this will allow those that used non-prime/fixed rate mortgages to get bailed out of a negative equity situation while their neighbors that may have bought with better finances/30 year fixed have to eat the negative equity.  And yes, while foreclosures drive down the price of other homes, these foreclosures would get that price reduction out of the way quickly rather than drag it out over years (creating a Japan-like situation).  And my guess is that a great majority of those "helped" by this will end up still losing their homes anyways (and may still only be able to barely afford them after a judge reduces the collateral value.  So what happens then is this judge gets to set the price for the neighborhood and those that get their mortgages reduced will actually be able to sell out and at least break even, while the rest of the owners on the block still have negative equity and now have a low comp to deal with.

    •  i don't understand (5+ / 0-)
      Recommended by:
      theran, celticshel, vox humana, Jimdotz, sima

      Finally, government should not be offering those in bankruptcy the opportunity to refinance to the "current value", as it essentially once again punishes all of their neighbors who now have to eat those reduced values because they made more prudent purchasing decisions.

      But the market pric of a home isn't determined by the loan size or mortgage terms of the current homeowner.

      •  It would make it easier to sell, right? (2+ / 0-)
        Recommended by:
        lcrp, vox humana

        If my neighbor's negative equity is wiped out, then they can sell for what they owe, whereas I might have to take a huge tax hit by selling for the same amount.  This will have the effect of suppressing the price of my house.

        Everything seems really messed up.  What's important is that Reps Miller and Sanchez are trying to do something to help people, but I feel pessimistic.

        Ortiz/Ramírez '08

        by theran on Thu Dec 20, 2007 at 07:37:33 AM PST

        [ Parent ]

        •  What really suppresses the value of homes... (6+ / 0-)

          is to have a couple of homes on your block in foreclosure.

          I'm not sure I understand your concern exactly. Could you explain it in other words?

          •  It was just a question (1+ / 0-)
            Recommended by:

            And you answered it above: the intent is to give borrowers more negotiating power outside of bankruptcy.  (The question was that if you have a bunch of people with mortgages for similar amounts, once some of them get modified down, then effectively this is the new price.  But like you said, people wouldn't be going bankrupt if they could sell for the original number.)

            Your point is well-taken, which is that if prices are falling, they are going to do that in one way or another.  Thanks!

            Ortiz/Ramírez '08

            by theran on Thu Dec 20, 2007 at 07:50:04 AM PST

            [ Parent ]

          •  I'm very, very late to this discussion, but... (0+ / 0-)

            the above commenter is trapped in a 'personal responsibility' frame that's been pushed on both sides of the aisle. Henry Blodget pushed  it on HuffPo and it's also been circulating widely on broadcast news.

            Basically, it advances the false view that the problem with the sub prime crisis  is that debtors did not adequately do their due diligence.  This is patently false, but it is difficult to respond to the concern when the phrase "predatory loan" is used.  In fact, it's not just predatory--it's a con game.  These problem loads are debt products sold to the homeowner or home buyer by fraudulent means--in particular, by concealing the rising value of the loan payments in the reality of the market.  It's not possible to perform due diligence on such a loan because the key information is concealed.  

            So the shortcoming in the bill is not the bankruptcy reform , but the way "predatory loans" are discussed.  You may want to reframe that concept--present it both to Congress and to the public as a 'con game' or a 'shell game' or some phrase that emphasizes the impossibility of actually researching one's way out of these types of loans.  Careful people can stay clear of 'predators.'  But once a con artist has his hooks in you--game over.

            On that note, I think a bankruptcy bill of this nature should also include penalties for bankers who sold 'con game' mortgages.  

            Frameshop needs your love to survive! Click through to support the site...

            by Jeffrey Feldman on Thu Dec 20, 2007 at 08:40:41 PM PST

            [ Parent ]

  •  the other side (2+ / 0-)
    Recommended by:
    theran, socialist butterfly

    Here's what the other side thinks.

    "Giving judges free rein to rewrite the terms of a mortgage would further destabilize the mortgage backed securities market and will exacerbate the serious credit crunch that is currently hindering the ability of thousands of Americans to get an affordable mortgage," said Kurt Pfotenhauer, senior vice president for government affairs and public policy at the MBA. "The current legislation gives no guidance as to the proper parameters for judges to modify existing loan contracts."

    Pfotenhauer says judges with more authority to decrease a loan's value also have the ability to hit all consumers in the pocketbook.

    "The reason you only pay six percent on a mortgage loan, where another type of consumer loan may cost ten percent or more, is that the mortgage loan is secured by an asset—the home," explained Pfotenhauer. "When a judge can unilaterally reduce the amount that the lender can get when the home is sold, it devalues the asset securing the loan and the lender and investor will either not fund a loan, or will increase the cost of the loan. Either way, consumers are the ones who pay the price."

    Why do they think this?  I don't get it.  It's not like there is any more money to make on this debacle for the lenders.

    •  Has that dufus ever heard of a Brptcy Trustee? (0+ / 0-)

      I'm no bankruptcy lawyer (I don't even play one on TV), but my understanding of the process is that a trustee is appointed to maximize the creditors' recovery.  I don't see where a judge would ever have the unilateral power to devalue the asset securing the loan.  That is what the market does, not a bankruptcy judge.

      •  Typically... (2+ / 0-)
        Recommended by:
        Cathy Willey, Santarita

        Trustees aren't that involved in an ordinary bankruptcy.  Basically, a bankruptcy court divides people into three classes:

        1.  Secured Creditors
        1.  Unsecured Creditors
        1.  Equity holders in a corporate bankruptcy/The debtor personally in an individual bankruptcy.

        The basic rules of bankruptcy are:

        1.  The people highest on that list get paid first, but are generally equal within a class.  Every secured creditor gets 1 dollar before any secured creditor gets 2 dollars.  It's a little more complicated with secured creditors, but the basic principle applies.  
        1.  Until everyone in a class gets paid off, in full, with interest, you don't move down to the next class.
        1.  Debtor's counsel gets priority over everyone in getting paid (generally).

        Most disputes in bankruptcy are either debtors trying to knock down creditor claims, or creditors trying to knock down each other's claim.  Usually, the pie is pretty much fixed, and it's squabbling about how the pie gets cut up.

      •  The proposal... (0+ / 0-) to give a judge that power.

        •  Not really. (0+ / 0-)

          The proposal was to give judges the power to revise the terms of the mortgage.  Nothing in the proposal gives the judges the power to revalue the asset.  The trustee makes the deccisions about what to sell and how to maximize the return (with Court approval).

          •  That's what the revising will do (0+ / 0-)

            "If the debt exceeds the value of the collateral, the court can limit the debt secured by the collateral to the value of the collateral and treat the rest as unsecured, which goes to the back of the line for payment."

            You loan me $100K against my house.  I spend $45K on a BMW and throw a $55K wedding for my daughter.

            I stop paying you.  But prices have house is now only worth $50K! So I get the judge to "limit the debt secured by the collateral to the value of the collateral".  I sell the house for $50K and give you the proceeds.  Yeah, I still owe you another $50K, but that is now "unsecured".  

            You must now go through major legal hurdles if you want to get my Beemer.  If, instead of a BMW, I had put $45K under the would have even less chance of recovering.

    •  Better lobbyists please. (9+ / 0-)

      The quality of the debate has been kind of embarassing. I think some business interests have forgotten how to argue policy because it's been so long since they've had to, with a Republican
      Congress for a dozen years that was completely obeisant to them.

      The legislation we introduced just provided that home mortgages will no longer be exempt from modification in bankruptcy. Since every other kind of secured debt can be modified, there's no shortage of court decisions that make it very clear exactly what a bankruptcy court can and cannot do.

      He's also said that interest rates on mortgages would go up two percent if the legislation became law. There's absolutely no evidence of that, and plenty of examples of how security interests are treated differently in different states, and before and after changes in the law, and there's not even been a hiccup in the availability or terms of credity.

      This same crowd said that the bankruptcy law of 2005 would save the average consumer $400. Have you gotten $400 from your credit card company?

      •  That bankruptcy bill... (5+ / 0-)

        in hindsight looks like a smart strategic move on the part of its authors. There are those of us who knew that in 2005, of course.

        I closed a struggling business 2005, after the vote but before Oct 15, because I knew that was my window. We should call it the 'Don't you ever dare open a small business' bill.

        Thank you for your leadership on this issue.

      •  Actually, I would prefer no lobbyists (3+ / 0-)
        Recommended by:
        polecat, benny05, vox humana

        I can't afford to hire a lobbyist to represent my needs.  Most working class Americans can't.  

        Meanwhile, lobbyists for insurance and healthcare companies wrote the disastrous Medicare D program.  They fight for corporate profits at our expense.

        We need a voice in this process.  We are being shut out and denied access though lobbyist proxy.  

        All your Obamabots are belong to us

        by pkbarbiedoll on Thu Dec 20, 2007 at 07:43:42 AM PST

        [ Parent ]

      •  That bill was a travesty (2+ / 0-)
        Recommended by:
        polecat, vox humana

        and was designed to help Charles Grassley and his big business buddies.

      •  Every other kind of debt can be modified... (0+ / 0-)

        ...and every other kind of debt carries a higher interest rate because of that fact.

        Now maybe it is worth trading "fewer foreclosures" for "higher rates".  For one thing, we can subsidize the higher rates with tax credits, etc.

        But this proposal will bring higher mortgage rates.

      •  This seems to be the only solution to work for (0+ / 0-)

        all citizens (as opposed to lenders).

        If the bankruptcy judge can restructure the loan and fix the price at the current market value, yes, that seems to lower the market value for that house -- and therefore every house in the neighborhood.

        But the key words here are: fix at the current value.

        In other words, the bankruptcy judges will be holding up the boards that will stop the falling knives of home prices.  In a poetic-justice kind of way, the people who go bankrupt and have the values of their homes fixed by the judges will be the ones who begin to create a stable bottom in this falling market.

        If this bill does not go through, then there will be no institutional, dependable -- believable -- support for real estate prices for a long, long time.  

        And everyone, not just the victims of these loans, will suffer.

        by LindaR on Thu Dec 20, 2007 at 09:09:45 AM PST

        [ Parent ]

    •  Precedent and Securities (2+ / 0-)
      Recommended by:
      Cathy Willey, Jesterfox

      They want to avoid dealing with meddling judges in the future. It's the same-old false 'domino theory' they always use.

      The second part is more important. Mortgages used to be just a loan from a bank. Maybe a local bank that cared about its community and its solvency, so there was common sense involved.

      Today the banks and brokers don't care what they do - they just bundle the mortgages and sell them as investment instruments to some Wall Street institution. It becomes just another thing to watch bounce up and down every day.

      The theory is legitimate that letting judges reduce the interest rates that underpin these types of securities may destabilize the securities. But so will massive foreclosures. The theorists have ignored the risks, which is the same exact problem that has driven us to this situation.

  •  Thanks for stopping by (2+ / 0-)
    Recommended by:
    polecat, theran

    I'm far from an expert, but I wonder if more regulation of the credit card industry could have an indirect effect on the number of people unable to pay their mortgages. Probably not possible with this Senate or this President, but it's something to keep on the back burner.

    •  Certainly limitations on debt instruments (0+ / 0-)

      would really make a difference.

      Predatory lending practices lead to a lot of problems for us all.  It is unfortunate that we (as a society and as taxpayers) can be stuck with having to bail out the people that made the quick bucks lending this money.  Just like the Savings & Loans.

      Edwards: 'Silly season has begun.'
      Ain't that the truth!

      by polecat on Thu Dec 20, 2007 at 08:25:05 AM PST

      [ Parent ]

  •  Thank You (1+ / 0-)
    Recommended by:
    Cathy Willey

    Both for putting this whole mess in a concise format everybody can understand, and for introducing a bill to help solve it.

    My pet peeve with this thing is how people who were easily eligible for a standard loan, of the sort that used to be the norm, were forced into one of these shady subprime things designed to fail them. I will never understand how any of this was legal.

    Okay, talk amongst yourselves.

    Meddle not in the affairs of dragons... for thou art crunchy and good with ketchup.

    by Pariah Dog on Thu Dec 20, 2007 at 07:28:46 AM PST

    •  Ther were not "forced" into a subprime loan. (0+ / 0-)

      They gambled.

      They bet that their home value would rise enough so that they could refinance, pay the prepayment penalty, and still be ahead of the game before the teaser rate expired.

      Many of these "subprime loans" were designed sprcifically for speculators, developers, and flippers...who need to conserve cash until they can sell out for a Big Profit.

      Well the Big Profit didn't happen.  The speculators must be held accountable for the full value of their debts at the as-agreed upon level of securitization and senority.

      If I hit a 16 at a Vegas Blackjack table...and a King comes up, I do not get to pull my chips off the table and replace them with "unsecured" IOUs.  That's not fair, and it encourages future bad behavior.

      •  That is one story. That is not every story. n/t (1+ / 0-)
        Recommended by:

        The law is slacked and judgment doth never go forth: the wicked compass about the righteous and wrong judgment proceedeth - Habakkuk 1:4

        by vox humana on Thu Dec 20, 2007 at 08:16:47 AM PST

        [ Parent ]

      •  Seven percent. (6+ / 0-)

        Seven percent of foreclosures are on mortgages made to speculators. And if the speculators didn't actually live in the home, if it was an investment property, they can already get modification in bankruptcy. It's only mortgages on principal residences that cannot be modified.

        •  Just because someone lives in a house... (0+ / 0-)

          ...doesn't mean they weren't speculating.

          The fact that home sales went up so much indicates that easy credit cause a bunch of people who would not have normally gotten homes to attempt home ownership.  They did this because there was a possibility of a Big Win on the table...low teaser rates followed by a sell out in 5 years (with lower capital gains taxes because you lived in the house!)

          Well, the sell out didn't happen.  But if we go back and give do-overs, then banks will be reluctant to loan next time.

          •  You're kidding, right? (1+ / 0-)
            Recommended by:

            Easy credit also means that people who would normally fork out nearly twice a mortgage payment in rent (as in the DC area) believe they can make better financial decisions by buying.  This was my situation.  I normally would never have qualified for a mortgage, but as credit became easier to get, I squeaked by just above a subprime loan.

            My income stayed stagnant, my property taxes went sky-high, and my mortgage payment went up more than $1K in 4 years.  I had a fixed interest rate, but my property taxes, like I said, skyrocketed.  And they jumped like that every year I owned the place.  I suppose to people who know everything about mortgages, like you appear to, property taxes skyrocketing would have been foreseeable.  However to me, a first-time home buyer, it hadn't been.  I ended up selling my place a month before I ended up in foreclosure, through the luck of whatever god looks after fools.

            Never for a moment was I looking for a big score.  I just wanted to be able to afford to remain in the area and spend less than 2 hours commuting one-way every day.  And there are literally thousands of people just like me, just in the DC Metro area alone.

            •  I wanted to "remain in the area" too. (0+ / 0-)

              My area is Midtown Manhattan.  When our child was born, we needed more space.  Banks would have loaned us money to buy in Midtown...but the prices were too high and the loans terms contained resets.

              So we moved uptown...and face a longer commute.

              Sometimes you cannot get what you want.  Sometimes you have to settle for what you can afford.

              •  Sometimes there's no choice. (0+ / 0-)

                No car, no reliable public transportation at 5am and 11pm, no possibility of moving out of the area.  Metro DC, outside of areas the Metro runs, is not midtown or even uptown Manhattan, or even Long Island (maybe even Staten Island) in terms of transportation.

                Sometimes you settle even when you buy, especially when what you buy is all you can afford.

                Life can be hell.  

      •  Here's another version. (2+ / 0-)
        Recommended by:
        LindaR, sima
        Average borrower goes into bank and gets a mortgage.  Average borrower has no idea s/he has obtained a subprime mortgage, because mortgage loan officer never described it as such, and the 10,000 miles of fine print involved in a mortgage did not make it clear.  Average borrower knew they did not have a great credit score, but believed that was balanced out by the relatively higher interest rate.

        The mortgage process is not a user-friendly one.  It's filled with seven-syllable words printed in 5.5 type, on backs of pages and in light grey type.  It's stressful in the extreme for the average borrower, which does not make it more likely that all that fine print will be read, let alone understood.  Most places that offer subprime mortgages don't describe them as such.  More than one of my friends has been caught in this crunch, and none of them were aware they had subprime mortgages until the bottom dropped out of the market and this problem started getting some traction in the press.

        •  That's "fraud" (0+ / 0-)

          And that's the elephant in the room here.

          Some of these people with sub-prime loans are victims.  They were lied to, scammed, stolen from.  Some had signatures forged, or appraisers bribed.  Some had bogus charges added to their bills.

          We need to hunt down the criminals who made these particular loans and throw them in jail.  They are easy to find.  Their names are on the loan docs!

          But some people signed things without reading them, or made bad decisions, or knew what they were signing and gambled and lost.

          The victims need relief, the criminals need punishment.  But the gamblers do not need bail-outs.

          •  How do you tell the difference between (0+ / 0-)

            a gambler and a "victim", years down the road?  Who's going to admit to being a gambler if only the "victims" are going to be protected?

            IMO, everyone should be protected, gamblers or not.  The important thing, it seems to me, is leveling the playing field between companies making subprime loans and the people taking out the loans.  

            Again IMO, the illegality here should be in lenders setting up an inevitable default, not in trying to buy and sell a house for a profit.  Unless you buy a house to insure it to the gills then torch it for a profit, there's no crime in trying to maximize your profit on a house.

      •  On The Contrary (0+ / 0-)

        I've talked to several people who wanted, and were qualified, for a 30 year, fixed rate loan and couldn't get it. No one wanted to talk to them about that, all they kept getting offered were these "variable rate, no down, balloon payment, pre-payment penalty" type loans.

        I'm talking about older, empty nester, folks with exemplary credit, and few debts who just wanted another house. Well, they don't have exemplary credit any more and they're up to their necks in mortgage debt.

        Meddle not in the affairs of dragons... for thou art crunchy and good with ketchup.

        by Pariah Dog on Thu Dec 20, 2007 at 09:47:16 AM PST

        [ Parent ]

        •  I hit something vaguely similar... (1+ / 0-)
          Recommended by:
          Pariah Dog

          ...when I briefly looked at whether I could afford to buy a house/condo back in early 2006; I wasn't nearly to the point of "couldn't get it," but just trying to get information on whether I COULD afford a 30-year mortgage, would immediately get the hard sell on all kinds of more complicated mortgage products.  And that from two banks, not even from brokers.

          So I gave up, and am renting and am glad of it.

          •  Yes, the banks (0+ / 0-)

            are every bit as much to blame as the shysters (sp?) in this mess.

            A few years back the place next to us went on the market. I live in rural SE Ohio and many places around here are "weekend retreats." That's what the one next door was. Two and a half acres with a nice moho on it. My husband and I wanted to buy it as possibly a rental property (actually I just wanted the land to prevent another horrid neighbor like the one I'd gotten a couple years before).

            We own our place - which is twice the acreage and house - free and clear. No debts, class A credit. And we couldn't believe the deals we were being offered! Every one of them would have put the payments up around $1000 a month. Now who the hell can rent a moho for that? One outfit even wanted us to use our paid for property as collateral "to lower the rate" - which was 10% on a fifteen year loan.

            It was almost like they were saying "oh, you're secure and have good credit? Well, let's see what we can do about that."

            Not a day goes by that I don't get some credit card offer or "refinance your home to take that dream vacation" scam in the mailbox. Unfortunately this old dog's been in the woods before.

            Meddle not in the affairs of dragons... for thou art crunchy and good with ketchup.

            by Pariah Dog on Fri Dec 21, 2007 at 03:14:52 AM PST

            [ Parent ]

            •  Pariah Dog... (0+ / 0-)

              ....don't you wish you had taken those offers?  If you had, you would own the land next door and possibly be getting a bail-out! <snark>

              Seriously, though there was a solid economic argument for those deals...suppose the bubble had lasted for 11 years instead of 7?  In the extra 4 years, you could have sold the land at a huge profit.  Or refinanced it and held it at a much lower rate.

              These people gambled.  And they did not gamble stupidly...the possibility of gains were there.  Many people actually did get rich off of the bubble.

              What we hear now is the wailing of the ones who got caught without chairs when the music stopped.

              Now there are victims.  We need to hunt down those loan sellers who lied, forged, cheated, stole, or inflated closing costs.  They should get Jail.

              But, please, no bail-outs and do-overs!

              •  No (0+ / 0-)

                I'm not sorry I passed. I was among those who knew this whole thing was a scam from the git go. I've long been saying it was specifically manipulated and kept alive because it was the ONLY thing making Bush's economy look good. FWIW, I've been expecting what's happening now since the Ray-Guns era. It just took a lot longer than I envisioned.

                Although I recognize your snark, I beg to differ. I would not "own the land." I would be "buying the land." Probably for the rest of my life. Nor would I have sold it for any profit whatsoever. I'm not a speculator. I would say most people aren't. They just want a decent place to live.

                We used to have that here, but as an illustrative point to what happens when speculators target an area: That "horrid neighbor" I spoke of? He bought the place across from me from a flipper who'd bought it from the original owners, built a 8 X 12 minibarn, and put it back on the market 366 days later (at 10 grand more than he paid for it).

                It used to be a beautiful place, now it's a dump. The horrid one will be losing it in a year or so because he let his signature overload his ass-ets. But in the meantime we've got a blighted property squatting right across from us that will have a foreclosure sign on it some day soon. Of course the flipper doesn't give a shit about any of that - he made a killing. I can only hope he was one of those without a chair when the music stopped.

                I do agree with you that there should be no wholesale bail out and that the crooks should be ferreted out and jailed. Problem is IDing them and holding them accountable. Unless I miss my guess, the list includes some pretty big fish who already aren't being held accountable for things we all know they did. And they'll be sure to stage cover fire for the smaller fish who did the actual dirty work.

                I just don't want to see Joe Blow lose everything he has because he re-fied his paid for house to settle a hospital bill.

                Meddle not in the affairs of dragons... for thou art crunchy and good with ketchup.

                by Pariah Dog on Fri Dec 21, 2007 at 06:32:32 AM PST

                [ Parent ]

  •  political problems (1+ / 0-)
    Recommended by:

    What are the obstacles in Congress to moving this kind of legislation?  Would Bush sign it?

    •  Linda and I have shown every willingness... (8+ / 0-)

      to compromise to accomplish our objective of helping homeowners avoid losing their homes to foreclosure. This kind of gets at the debate here and elsewhere about whether the current political environment makes compromise possible, or we will have to fight pitched battles with entrenched interests to get anything worthwhile done.

      Although our bill was very modest, and I'm just the soul of reason, from the reaction of industry to our bill, I thought Linda and I should send our dogs to stay with relatives at undisclosed locations until after this was over.

      And there's no telling what this President will do. But the whole problem's going to get a lot worse next year.

      •  Understatement of the week: (0+ / 0-)

        But the whole problem's going to get a lot worse next year.

        Sorry to be all gloom and doom, but this thing is going to get a LOT worse, both economically and POLITICALLY.

        Edwards: 'Silly season has begun.'
        Ain't that the truth!

        by polecat on Thu Dec 20, 2007 at 08:26:31 AM PST

        [ Parent ]

  •  Train wreck seen long ago? (6+ / 0-)

    One thing that has bothered me regarding the subprime crisis: Weren't knowledgeable people fully aware that this train wreck was approaching?

    You cite the Center for Responsible Lending. I had the good fortune of hearing Martin Eakes, the co-founder of the center, give a talk in September 2006 in which he said 2.2 million people "had already lost their homes and didn't know it."

    If a consumer advocate like Eakes was fully aware of the magnitude of this approaching problem, surely policymakers and financial services executives were too. Why weren't they doing more to address the problem?

    I know the answer: Money. Too much money was being made to change course.

    Which leads to the bigger question: How are we going to deal with real problems our society -- and our world -- faces if the people profiting from the problems are allowed to continue to write the rules?

    "We have trouble in the oil states because the President is viewed as favoring cheap energy." ~ George W. Bush in 1992.

    by chapel hill guy on Thu Dec 20, 2007 at 07:31:16 AM PST

    •  This storm has been brewing for a while (8+ / 0-)

      I had discussions with my colleagues about the impending disaster of the sub-prime mortgage market as far back as 2003 or 2004.  

      I have no sympathy for many of the players:  Mortgage Brokers who pushed the loans; Realtors who convinced buyers to sign up for more house than they could afford; property flippers and real estate speculators who got in at the top of the market; home owners who kept tapping their equity to live beyond their means -- who really needs a 60-inch plasma HD television anyway?  Many of these people are getting a well-deserved lesson -- don't gamble with the roof over your head.

      There are a number of people, however, who were the unwitting victims of this get-rich-quick scheme, and those are the ones who need and deserve help.  I think the best way to identify these people is through the bankruptcy process.  That will make it less likely that the bail-out goes to the perpetrators of the problem and more likely to help the people who are in danger of losing everything.

      •  Make it Easy to Identify the True Victims (1+ / 0-)
        Recommended by:

        The class of borrowers who should be given special relief are those that consumer protection and fraud laws would give protection to in the first place.   If a lender knows that they are dealing with a borrower who qualifies for special relief, then the lender will negotiate a deal acceptable to the borrower without the need to go to bankruptcy court.  

  •  Ex-Treasury Secretary Supports the Idea (1+ / 0-)
    Recommended by:

    Former Secretary Summers from yesterday's WSJ.

    Instead, he proposed changes in bankruptcy laws to allow insolvent homeowners to reduce their existing mortgage debt. He argued that such moves would allow more borrowers to keep their homes, and ultimately cost lenders less money than would a raft of foreclosures that would gut neighborhoods and further drive down house prices.

    •  What? You want the asset bubble to deflate SLOWLY (0+ / 0-)

      instead of all at once?

      Well, fear not, the Fed is trying to inflate the currency fast enough to absorb the bubble so you won't see the prices drop much further.

      Too bad you'll need to spend $20 for a loaf of bread.

      Edwards: 'Silly season has begun.'
      Ain't that the truth!

      by polecat on Thu Dec 20, 2007 at 08:28:24 AM PST

      [ Parent ]

  •  wish I could participate (2+ / 0-)
    Recommended by:
    theran, gregflynn

    but today is last day of classes for students, and I am trying to finalize grades for the quarter, so I will be busy.

    Glad to see you hear, and happy to recommend.


    Those who can, do. Those who can do more, TEACH! If impeachment is off the table, so is democracy

    by teacherken on Thu Dec 20, 2007 at 07:39:47 AM PST

    •  Sub prime Foreclosures, student loan debt, (5+ / 0-)

      rising cost of living (Food, gasoline, heating costs) are all skyrocketing.  These issues are the next crisis. Is there any hope for middle class Americans?

      no catchy signature from me

      by triciawrites on Thu Dec 20, 2007 at 07:45:29 AM PST

      [ Parent ]

    •  The student loans are killing more than just us (8+ / 0-)

      I have student loans. No need to get into the details but I would never have my master's degree without taking out loans. Is my master's degree useful? The average person with the same degree does extremely well.

      Not me, for whatever reason. Today, I am treading water. I consider the loans, my employment, and financial situation to be entirely my responsibility.

      However, I know that I will never own a home, own an expensive car or open a business. My budget for holiday spending is about $60. But this is not just my problem. It is Countrywide's problem, and BMW's problem, and Capital One's problem, and Target's, and Disney's, and US job creation's. In short, the student loans prevent me from behaving like a Patriotic Spending American. So as long as I rein in spending, Wall Street hurts.

      And knowing that I am hurting Wall Street takes the edge off.

      •  Hate to say it (3+ / 0-)
        Recommended by:
        vox humana, pkbarbiedoll, sima

        But your student debt probably got securitized too.

        It does seem like student debt is going to be the next issue to fix.  But then the government would need to start supporting universities again.

        Ortiz/Ramírez '08

        by theran on Thu Dec 20, 2007 at 08:00:11 AM PST

        [ Parent ]

        •  Maybe the universties should start tapping (0+ / 0-)

          those bloated endowments.

          •  These are all that keep prices under control (1+ / 0-)
            Recommended by:
            vox humana

            Compare the growth of tuition at Harvard (going down) to UMass (rapidly rising).  With the current trend, Harvard is going to be cheaper than major state schools soon.

            The real problem is that states have been balancing their budgets using student borrowing, and Bush pays for the Iraq war the same way.  But there are limits to how much a degree is worth.  (Do not get me started on whether getting shot in Iraq to hear some lectures is a good trade...)

            Ortiz/Ramírez '08

            by theran on Thu Dec 20, 2007 at 08:07:50 AM PST

            [ Parent ]

      •  Dreams stolen by Sally Mae, Nelnet (3+ / 0-)
        Recommended by:
        theran, celticshel, vox humana

        By the time I am able to finish paying off my loans I will have paid well over 100% of the principle in interest.  I will be in my mid-40s by the time it is paid off, so I will never own my own home.  I can't work forever.

        I have no qualms paying off the original principle and reasonable fees for maintaining the account.  $30,000 is not a reasonable fee for maintaining an account.  It is an outrage.

        All your Obamabots are belong to us

        by pkbarbiedoll on Thu Dec 20, 2007 at 08:01:43 AM PST

        [ Parent ]

  •  I am going to go out on a limb a bit (8+ / 0-)

    to demonstrate a situation where subprime mortgage was used: mine.

    My mother, who has had three (!) hip replacements and has diabetes and high blood pressure, had been living alone for years, hundreds of miles away from any of her children.

    Our family, as I am the eldest, looked for and found a home that was big enough for all of us to live. We had some savings, put our old house on the market, using our equity to refinance for a down payment on the new home, which we also refinanced at subprime so we could afford both mortgages until such time as the first house sold; then we would refinance.

    Except now, it has been almost a year. The market was just cooling down when we put it on the market. Our savings are almost out. My mother is here now.

    I realize this is an unusual situation, but we did not enter into it frivolously or out of greed. We thought six months of double mortgage would be enough to carry us to a sale.

    I don't offer this as a boo hoo for us story. I just offer it as an example of someone who is in a bit of a fix, who was trying to be financially careful and do what needed to be done within the family.

    The law is slacked and judgment doth never go forth: the wicked compass about the righteous and wrong judgment proceedeth - Habakkuk 1:4

    by vox humana on Thu Dec 20, 2007 at 07:41:44 AM PST

    •  A good example... (6+ / 0-)

      of why subprime credit needs to be available for folks for whom the equity in their home is almost their entire net worth, their entire life's savings, so when they need to borrow money, they have to borrow against their home.

      When I first started working on this issue in Congress five years ago, I was always careful to say that not all subprime loans are predatory, and we're just trying to get at the truly abusive loans. But if you read in my diary what has happened in subprime market in the last couple of years, almost all subprime loans made were predatory.

      •  Yes. We honestly thought we were being (4+ / 0-)
        Recommended by:
        polecat, theran, celticshel, sima

        financially prudent. The problem now comes that we are being pulled in with all other reasons for taking out subprime mortgages. The falling market will affect all of us negatively (and our neighbors).

        What might have been somewhat wise a year ago has proven to be disastrous in the current market. Live and learn, I guess. I just don't want to put my mother on the street!

        The law is slacked and judgment doth never go forth: the wicked compass about the righteous and wrong judgment proceedeth - Habakkuk 1:4

        by vox humana on Thu Dec 20, 2007 at 07:59:35 AM PST

        [ Parent ]

  •  Thank you Congressman Miller (2+ / 0-)
    Recommended by:
    celticshel, gregflynn

    Thank you for bringing this important subject to light.

    Any estimates of how many North Carolinians will benefit from the president's relief package? It appeared to be subpar, so I wondered how it would affect people in our state?

    Thanks again!

  •  How do we punish the lenders who (6+ / 0-)

    steered clients who could have afforded regular mortgages into sub-prime loans? What kind of safeguards can be put in place so that this does not happen again?

  •  Rep. Miller, a couple of questions (1+ / 0-)
    Recommended by:
    vox humana

    After a foreclosure can a lienholder go after the homeowner for the difference between what was owed on the loan and what the house sold for at auction?  If so, is bankruptcy the only way to get out from under it?

    Is is true that the IRS can tax the homeowner for the difference between what was owed and what the house sold for at auction? As if it were income?

    I realize that these answers might vary per state.  I'm in CA.

    And thank you for addressing this important issue.

    •  That varies from state to state. (4+ / 0-)
      Recommended by:
      polecat, vox humana, sima, Tam in CA

      Some states have "anti-deficiency' laws that prohibit a lender from collecting the ballance of any indebtedness after a foreclosure sale. And there is no evidence, by the way, that the terms or availability or mortgage credit is any different in those states than in states without such a law.

      As to the tax laws, there is no tax liability for the deficiency when the home is sold in foreclosure. There used to be a liability when mortgages were voluntarily reduced outside of bankruptcy, but I think we just changed the law. Like in last couple of days. The House passed the bill a couple of months ago to help encourage modifications of mortgages, and I think the Senate just passed it too.

  •  Robert Kuttner (6+ / 0-)

    gave testimony before congress that suggested deregulation of financial markets has led to this condition - in particular, securitization, previously regulated by the Glass-Seagal Act (repealed in 1999), has to be controlled.

    I urge you to read Kuttenr's testimony:

    and then let us know how much trouble we're in and why nobody is talking about reining in these capital pirates...

  •  Why do risk takers get bailed out? (1+ / 0-)
    Recommended by:

    I am very wary that perception of "home" is going to stick the bill for high risk behavior with low-risk taking taxpayers who did nothing wrong.

    A few observations...

    1. Renters lose hundreds of dollars every month and face eviction if a property is sold or converted. It's not tragedy, it's life. And renters did nothing wrong.
    1. A buyer who choose to buy a home with a high risk mortgage or simply got a loan beyond their means made a bad financial decision.

    Other than some very small measures you can take on the margin to limit the turbulence in the market isn't the most fair, most just solution simply to let the market equalize, let people who made bad investments lose their principle, let banks who made bad loans fail, and move forward?

    Any home value beyond the cost of shelter should be treated the same as a stock or bond that can go up or down like any investment. Some risky investments go to zero. Home ownership is a choice and an investment.

    The federal government can't make bad investments good by being caring without soaking people who NEVER MADE BAD INVESTMENTS to pay for it.

    The answer is recession and 'knock off the funny business' in lending. Not bailouts.

    •  Boy, you're cold! (0+ / 0-)

      Should the people who were SOLD these instruments as the only way in which they could afford to buy a home pay the price with whatever savings they've got?

      I agree that the Predatory Lenders deserve what they get, but I'm not sure their victims should.  Flippers left holding the bag -- that's a tough call.  Many of us knew that this could not last and we all insisted on FIXED RATE MORTGAGES instead of ARMs.  But, as with any game of Hot Potato or a Ponzi Scheme, somebody is going to be left holding the bag in the end.  It's just that there are a lot of them.

      There is the additional problem of very little available capital since these "instruments" were highly leveraged (and probably created ALL of the economic growth of the last 4-5 years) and as they fall, so does everything based upon them.  So we're in an economic LENDING crisis because the people who bought these instruments thinking they were safe (dumb as a stump, apparently) are playing "duck and cover."

      Lasting and widespread implications.  A fix will be needed, but it needs to be applied in the right places.  It may be hard to single out the culpable and nail just them.

      Edwards: 'Silly season has begun.'
      Ain't that the truth!

      by polecat on Thu Dec 20, 2007 at 08:52:08 AM PST

      [ Parent ]

      •  'Only way to PRETEND to afford a home' (1+ / 0-)
        Recommended by:

        More like the only way to PRETEND to be able to afford a home for a short period of time and then have reality catch up with them. I'm highly sympathetic to the shortage of affordable housing in the US but this isn't about not having shelter -- it's about bailing out high risk takers who took risks to avoid the stigma of RENTING which is about #933788458 on the list of problems that Congress needs to be solving.

        It's not just an unabashed warm cookie of goodness to own a home. Every house should come attached with a big sticker that says "Past performance of the housing market is no guarantee of future results". Bad things can happen with home ownership and that has always, always been true.

        I'm all for calling banks scumbags and helping the little guy but unless what banks did is ILLEGAL (it largely wasn't) and the people signing agreements were incompetent (they weren't) then the burden of failure is on the parties to the agreement. Congress should try to moderate the turbulence of a bad period in the housing market but the CORE of the crisis is almost everybody thought home purchasing was an unabashed WIN-WIN and that view was a flat out lie.

        Let's not make this about hearth and home. A good deal of owning a house is an amoral financial transaction the same as owning stock. I don't need Congress to go all "Norman Rockwell" now and pander to middle class home owners (who just happen to be the most likely voters) about how they are going to make it all better. They're going to lavish 90% of the rhetoric on the middle class and 90% of the cash bailout on shady banks. The little guy would be better off in the long run if you kicked him in the teeth and didn't spend a dime bailing out the lenders and commercial paper skunks.

        If it makes Congress feel better to spend a month's worth of Iraq money in flurry of pandering do-gooderism so be it -- but it's idiotic to throw good $$$ after bad. Spare me the speeches about community and watching out for thy neighbor. Congress can move to act in an instant on mortgage foreclosures but they can't seem to build do anything to preserve and build low-income housing (apts.) in poor communities.

        The fix to a decrease in value is...what you own is worth less! I propose Congress fix the mortgage crisis using the same strategy they've used to get us out of Iraq -- Do Nothing! Here's a case where that strategy actually works.

        •  The "stigma" of renting? (2+ / 0-)
          Recommended by:
          polecat, theran

          In a lot of markets, renting is far more expensive than owning.  In mine, for example, when I bought my condo:  rent for a 1-bedroom, 700 square foot place near the Metro was $1400-1600.  My mortgage payment, which I barely qualified for, was $950--and that was for a 2 bed, 2 bath condo within 1 mile of a Metro stop.  

          There wasn't any stigma, it's just that it was far more affordable, once you had the down payment saved up.  I'd imagine a lot of city dwellers, certainly in the markets of a few years ago, were in similar situations.  I couldn't have afforded to keep paying rent at those prices given the job I had.  Buying seemed, and was, the smart choice at the time.

          •  Renters (1+ / 0-)
            Recommended by:

            People always tell renters "you're wasting money! you should buy". As your case indicates -- there are many hidden costs and risks associated with ownership. It makes me sound cold but not everybody gets to live in a great exciting place. If you're in the DC area you could live farther out in MD and have a longer commute. I've lived in Chicago and New York and I'm sympathetic to high rents but not so sympathetic that I think tax dollars should be spent bailing out home owners who voluntarily took on loads of risk.

            When I was in NYC I would have liked to live in Brooklyn Heights in an apartment with a view of Manhattan. Or better yet OWN a condo in Brooklyn Heights. Instead I lived in a basement apartment in Ozone Park, Queens. Why should people who made the choice to rent in some less wonderful location kick in one penny of taxes to help fix the problems of people who made a more risky choice?

            To be a good neighbor? I'm all for being a good neighbor - Congress can spend all the money they want providing universal health care. That's a LOT more neighborly than bailing out people who suffered a financial setback in an arrangement they entered into by choice. But for some reason Congress lacks the courage to tackle THAT problem. Could it be because the people without healthcare lack political clout while homeowners are the backbone of every electorate?

            Things are bad out there because of a lot of bad decisions and lack of oversight that took place over  a long period of time. Mitigatation strategies for this crisis are fine but I fear in their eagerness to help to homeowners a gullible Congress will get played by banks and end up bailing out tens of billions of dollars in stupid loans made by crooks.

            Crooks get away, taxpayers get stuck with the bill has been the story of this administration (and Congress) for years and I'm eager for the cycle to stop.

          •  Did you read (0+ / 0-)

            Probably more than two million American families will lose their homes to foreclosure in the next couple of years, and with their homes, they will lose their membership in the middle class, probably forever.


            Hmm, wonder if there is a perception that to be part of the middle class you have to own...

            The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.

            by deathsinger on Thu Dec 20, 2007 at 12:21:16 PM PST

            [ Parent ]

            •  Rent + stock losses = same thing (0+ / 0-)

              If somebody sank $24,000 into rent over two years and another $20,000 in stock that tanked and lost half it's value should the government make it all better for an individual that lost $34,000 over two years? No.

              So why should somebody who sank $34,000 in mortgage payments into a home that is getting foreclosed because of market circumstances that were foreseable when they entered into their mortgage get bailed out by Congress?

              One $34,000 loss is a crisis and the other is commonplace.

              I said above I'm not opposed to mitigation by Congress to spread out some of the risk and pain over a larger period of time but I'm totally opposed to the Government assuming any of this risk on behalf of every taxpayer when it's only a small subset of people who took on the bad risk in the first place.

              If I sound bitter and angry about Congress it's because I am. I'll stipulate Rep. Miller has good intentions and is working to mitigate the real problems associated with so many foreclosers in so short a period of time for so many people. But I am very wary of Congress being played for suckers in the process and sticking the taxpayers with the bill. IMHO Congress has earned the harsh skepticism.

              •  A) (1+ / 0-)
                Recommended by:

                I don't understand why you replied to me.  I was attempting to point out that even Rep Miller equates homeownership and the "ticket to the middle class."  This stigmatizes renters as not members of the middle class.

                B) I never applauded Rep Miller's proposal.  I even asked him his thoughts on the majority of people (1.5 to 1.6 million) that his proposal does not help.  My purpose is to point out that this "solution" could easily be seen as a stepping stone to a true bailout.  I personally don't think anyone who used a cash out refi should get relief, nor should anyone who bought more home than they could afford should get help.  If on the other hand someone refi'd to a subprime mortgage without cash withdrawal (or did so as because they were scammed) I would consider his proposal in a positive light.

                I don't find you to be bitter or angry (or as some other commenter said "cold").  I don't think you have written your argument as well as it exists in your head.  Of course, most people don't.

                PS.  I will note that the person who lost money on the stock market can declare a capital loss on their income tax, while the person who has some portion of their mortgage forgiven has to count it as income.

                The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.

                by deathsinger on Thu Dec 20, 2007 at 02:23:45 PM PST

                [ Parent ]

        •  Owning stock is AMORAL? (0+ / 0-)


          So I bear no culpability by owning Philip Morris or Budwiser?  Exxon?  Some coal company?  Someone who dumps dioxen into YOUR river?

          Furthermore, when people don't LEND money, a lot of things don't happen.  That's the immediate problem.  Think about the Great Depression when banks failed .. there simply wasn't ANY money to borrow for anything because everyone was afraid they'd lose it.

          If they "do nothing" I guarantee you that we'll be back in 1929.

          Edwards: 'Silly season has begun.'
          Ain't that the truth!

          by polecat on Thu Dec 20, 2007 at 11:22:25 AM PST

          [ Parent ]

  •  Can't follow the numbers (0+ / 0-)

    and 72 percent of subprime mortgages are refinances.

    From CRL

    VARIABLE Value 1998 1999 2000 2001 2002 20032004
    PURPOSE Purchase 30.45 31.55 38.47 35.21 32.84 32.09 39.50
    Refi (Cash Out) 47.0351.85 49.65 52.06 52.55 53.70 50.80
    Refi (No Cash Out) 20.12 15.06 11.75 12.71 14.61 14.20 9.68
    Other 2.39 1.54 0.12 0.03 0.01 0.01 0.02

    Do you have any estimate for the number of people that your proposal is going to help?

    The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.

    by deathsinger on Thu Dec 20, 2007 at 08:16:44 AM PST

    •  According to CRL, (2+ / 0-)
      Recommended by:
      polecat, theran

      about 600,000 families. According to Moody's, about 500,000.

      •  Any thoughts on the other 1.6 - 1.7 million? (0+ / 0-)

        The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.

        by deathsinger on Thu Dec 20, 2007 at 08:30:21 AM PST

        [ Parent ]

      •  Specify Class and Relief (0+ / 0-)

        Aren't victims of predatory lending practices already given state and federal remedies?  Perhaps the focus should be on making it easier and less costly for those that would be entitled to relief under the existing state and federal laws designed to prohibit predatory and fraudulent lending practices to get the relief that they would otherwise be entitled to.  If someone qualifies for relief, the relief should be something like being able to write down the interest, giving them credit for any payments made at the higher interest, reversing late fees, reversing any other consequences of loan default, etc.

  •  This bill could make home ownership harder (0+ / 0-)

    First, thank you, Congressman, for posting here and engaging!

    We should remember that people make home loans based on the idea that no judge can later step in and alter the timing, amount, or senority or the payouts.  If we introduce Uncertainty as to whether a loan will be paid at the agreeed-upon rate, we will make loans harder to come by.

    We need to limit relief to people who were victims of fraud.  If you were lied to, cheated, stolen from, had your signature forged, or had bogus charges added to your closing, you should get relief.

    The criminals who cheated you should be hunted down and jailed.  They are easy to find...their names are on the loan documents!  Where are the high-profile perp walks of these scumbags?

    But if you made a bad gamble, you should not be able to have a Bankruptcy judge give you a do-over.

  •  Gotta go now. (4+ / 0-)
    Recommended by:
    polecat, theran, celticshel, sima

    I'll check back in later.

  •  Something that Congress CAN do.. (0+ / 0-) reduce the pain that Forclosures cause.

    Forclosures bring down house prices, and much value is destroyed when houses sit empty. Congress can reduce this pain by requiring transparency and internet-driven information disclosure during the Foreclosure process.

    Congress should require uniform, transparent, and open rules for Foreclosure Auctions.

    - Put the info on the Internet

    - Make localities show the house to bidders so people don't have to bid blind

    - Guaruntee the title so people don't have to factor uncertainty into their price.  And so they can get a loan on the spot

    - Do the auctions quickly instead of letting empty blighted houses sit for years

    Congress can do these things by simply making reporting and disclosure judge-driven modifications to signed contracts will be needed.
    We are focused on avoiding Forclosures.  But if people borrowed money and don't pay it back...there will be Forclosures.  That or Bail-Outs, which nobody wants.  

    Foreclosures would not be so scary if we could make them run quickly and smoothly...get a new family living in that house as soon as possible, so the neighborhood doesn't blight.  Get a higher price at the auction, so area prices don't deflate too quickly.

    Lastly, we should remember that, in general, falling house prices are good.  Many prudent families did not buy or refi during the bubble.  Now, they too, will be able to afford Home Ownership.   We need to make sure that the houses change hands from the speculators and flippers to new owner-occupants...without being tied up in court for 30 months and without sitting empty in the winter with the pipes freezing.

    •  Yes, falling house prices are largely good. But, (1+ / 0-)
      Recommended by:

      Foreclosures would not be so scary if we could make them run quickly and smoothly...get a new family living in that house as soon as possible, so the neighborhood doesn't blight.

      Foreclosures, and the financial devastation they represent for home owners, will ALWAYS be "so scary".  A lot of jobs require credit checks.  A lot of everything require credit checks these days.  You're not going to get that job, that decent apartment, that credit card, or anything else with a foreclosure showing on your credit report for 7 years.  

      The financial effects of foreclosure, which last far, far beyond that one instant in time someone loses their house, will always make it nothing short of terrifying.  And that's without considering how it affects providing for your kids; I'm looking at it from a single non-parenting person's perspective.

      •  It will *always* be scary for the person... (0+ / 0-)

        ...who over-borrowed.  Most of these were re-financing loans...people had a place to live, but chose to borrow far more than they could afford to.  The consequences of their choices will be painful for them.

        But we can stop the fear and panic from spreading to the whole neighborhood by making the foreclosure process fast, fair, and transparent.

        It is a simple matter of making what is already public data available easily, on a single website.

    •  Falling house prices are not good (0+ / 0-)

      think about someone who sells their house for less than they bought it.

      Near stagnant home prices would be okay, but since almost 70% of people own, the idea of falling house prices helping the 30% is helping the minority, while hurting the majority.

      Wealth destruction is not a good thing.  Ask the people who lost money in 2000 on the NASDAQ, if lower stock prices of 2002-2003 were so good...

      The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.

      by deathsinger on Thu Dec 20, 2007 at 12:26:03 PM PST

      [ Parent ]

  •  there is more than one elephant in the room.... (0+ / 0-)

    no, i haven't read ALL of the posts here, but i have read a lot of them, and i really thank Rep. Miller for being willing to tune in to this channel for feedback.

    but i think there's more than one elephant in the room.

    some people were duped by high pressure sales tactics into loans they shouldn't have taken.  loans which were to their detriment and were to the benefit of people and companies which could pretty easily be termed "unscrupulous."  ......... that problem creates several elephants...

    first, should the citizens of the USA gang up to help people who were duped?   i've lost tens of thousands of dollars by being suckered into "investments" which have made only their "perpetrators" rich... except for two who are now in a federal slammer.

    second, is it possible to figure out, by either questioning people faced with foreclosure OR the companies who initiated the lousy loans, whether the customers were actually being "duped" or if they were speculators, flippers, or what?   very difficult row to hoe.  easy to lie, for both sides here.  "gee, i was duped... how about a cheap mortgage?" and "gee, we never REALLY tried to cheat anyone..."   [yeah, right, on both sides.]

    then, there's the elephant called "the law of unintended consequences..."

    if laws are passed to protect consumers at the expense of lenders, does anyone in their right mind imagine that lenders will get VERY cautious and cagey about whom they lend money to????  if the government can pass laws changing the legality of any part of a "legal" [whether unscrupulous or not] contract, don't you think newer contracts will have wording that'll try to safeguard the lenders????    bet on it!

    that will make loans at least a little bit harder to get for everyone.    can we all agree that it's worth the price to charge everyone a little more to protect the few?    tough to get consensus on that one, i promise you.

    next is the elephant of "derivatives."  i think it might be easier to make a lot of derivatives illegal.   if you want to abrogate contracts in courts of law, why not just say that mortgages CAN'T be bundled and re-sold???  i had a mortgage on each of the first two homes i bought.  at least one of them was re-sold at least twice, and gee, it was SO annoying to me.  make that illegal, and you'll have some of the good parts of "It's a Wonderful Life," where the bank WILL know who the borrower is, and some direct contact with what happens if the borrower goes into default..... banks that want to own real estate are probaly not run by the smartest bulbs in the garden.

    next elephant is inflation:  i'm no economics whiz, but from what i've read, the Fed does not control inflation; it controls the overnight interest rates for banks.   another part of the government "controls inflation" by managing the rate at which money is added to the economy [the "folks that run the printing presses for our currency.]

    inflation can be softened or spikes and whipsaws in financial markets can be ameliorated by adjusting the Prime Rate, but if the printing presses are running day and night, we're going to get inflation no matter what Bernanke says....

    i've also read in several financial newsletters that the FRACTION of mortgages likely to or currently going into default is such a tiny part of the overall financial market or gross national product, that we've got to be intellectual morons to pass laws to try to control bubbles that affect some small part of one percent of the market or the gnp!.....  save the legislation for subjects that affect, say, at least ten or twenty per cent of us!

    and as for bubbles, people lost tons of money in the Y2K internet bubble.  the markets roared down the mountain, seemingly out of control.  by 2001 and 2002, billions and billions were "lost" and many companies folded and people lost their jobs.

    then came the bottom in 2002.  if so many people had been so devastated by the internet "disaster," where did the money come from to start the longest postwar bull market in history, driving the Dow to where it is today?

    gee, there must have been a LOT MORE people who WEREN'T destroyed by the market crash....

    and maybe it would be like this for the current mortgage "tragedy," too.   a good friend of mine will be in the market for a home in the Raleigh area in the next few months.   looks like a "buyer's market" to her, and don't MOST of buyers LOVE a "buyer's market"????

    so, if we're going to try to look at all of the elephants in the room, make sure we do a thorough "trunk count" before we start shooting them.  if we handle the wrong one, the Law Of Unintended Consequences" will come back and bite our butts in the years ahead. for example, has some interesting commentary on this.

    thanks for reading.

    now, one more question for Mr. Miller... Brad, has anything ANYONE here said made ANY difference in your thinking or your plans for future action on this subject?

    what does it mean to all of us if the answer is Yes?
    what does it mean to all of us if the answer is No? "The Whole World is a Tradeoff."

    by plusaf on Thu Dec 20, 2007 at 08:38:57 PM PST

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