Obama Administration Says NO to Bankruptcy Loan Modifications
So Congress has been trying to push a law that will allow bankruptcy judges to modify the terms of mortgages including reducing interest rates and “cramming-down” loan principal. Many have opposed this because it violates contract law. The highly justified fear is that if the government can just violate any contract at will then contracts of any kind (past, present or future) will no longer have any value. Up until this morning the Obama administration has signaled that it supports these in-bankruptcy modifications. That all changed on the Sunday morning talk show circuit when Larry Summers, head of President Obama’s National Economic Council, came out in strong defense of contract law.
According the the New York Times:
Mr. Summers, who also appeared on CBS’s “Face the Nation” suggested, however, that the government’s ability to require…scaled back was restricted by preexisting contracts, even though he did not specify what those restrictions may be.
“We are a country of law,” said Mr. Summers, one of several economic officials to hit the Sunday-morning talk show circuit. “There are contracts. The government cannot just abrogate contracts.”
Ok, now for a little truth telling. Dr. Summers was actually talking about the bonuses being given to AIG employees but isn’t the sentiment the same? After all, last time I checked a mortgage is a contract and by Dr. Summers own admission the government cannot “abrogate” them yet that is what congress wants to do.
As an invisible renter I am sure you are thrilled because you want your shot to buy a house at a fair price and by NOT allowing in-bankruptcy loan modifications you will get your chance. So please don’t forget to call and email Dr. Summers to thank him for his support of contract law (I just talked with his office) and for signaling that the Obama administration will now veto any in-bankruptcy loan modification legislation that Congress may propose.
- Email his assistant Bryan Jung (bryan_jung@who.eop.gov)
- Direct phone #: 202-456-1337
Or is that not what he meant to say…
P.S. See how the New York Times also seems to have come out against housing bailouts in this analysis of an article by Joe Nocera.
Like this:
This entry was posted on March 15, 2009 at 8:45 am and is filed under Stories with tags abrogate, bankruptcy, bryan jung, bubble, CBS, contract, contract law, debt, Face the Nation, foreclosure, foreclosures, homeowner, housing bailout, housing bubble, Joe Nocera, lawrence summers, loan modification, mortgage, mortgages, new york times, refinance, refinancing. You can follow any responses to this entry through the RSS 2.0 feed You can leave a response, or trackback from your own site.
March 18, 2009 at 3:45 pm
[...] Why AIG Must Fail Some say banks choose to lose money Obama’s No Socialist. I Should Know. Administration says No to loan mods Walking way from a home and a mortgage Citi Paying New Hires Millions In Signing Bonuses Builder: [...]
March 17, 2009 at 5:59 pm
I think there should be contract modifications.
First, AIG bonuses are nixed completely. If they want our money, we set the darn conditions. Period.
Secondly, a 20% loan modification is in order because it has to be. The government can break the rules. The U.S. has broken the rules in many instances. This time it needs to be done for the sake of the country’s survival. So, someone’s profits will suffer.
Extraordinary circumstances demand extraordinary solutions.
Businesses and the national Chamber of Commerce are not above the well being of the United States.
Is this really an individual homeowner’s site or a corporate passing as an individual ??
March 17, 2009 at 6:55 pm
First and foremost this is an individual’s site and I am NOT a homeowner. I’m a renter. I actually don’t have a problem with loan modifications per se as long as they are between two consenting adults. If the bank holding a loan chooses to do a loan modification then it is totally within their right to do it. Its when I have to pay for the loan modification that I have a problem with it. I have saved, lived below my means and put up with the social stigma of not being a homeowner. Not to mention tax policy (theoretically) favors homeownership (although it actually harms home buyers). Why should I now have to pay for it for someone else’s home when I have been saving up to buy my own home.
Also a blanket 20% modification actually doesn’t help those most in trouble because home values have fallen about 40% on a nationwide basis since the peak and are expected to go down another 10-15%. Any approach sadly needs to be more nuanced and situation specific and any “accross the board” help doesn’t work. Remember the money to support these prices just disappeared. It doesn’t exist anywhere and so its got to come from somewhere else and that is you.
Also what if you cram-down a mortgage and the house continues to fall (which most economists think is a certainty)? Do you cram it down again or do you see people who already had a cram-down default for the very same reasons we were worried aout when we gave the first cram-down. The net effect is that in a falling markets you can’t time the cram-downs in a way that they arent’ wasteful. Instead you’ve just taxed someone to help no one. Now the person you tried to help can’t spend to float the economy because they finally defaulted and the person who paid taxes to temporarily help that person also has dimished spending capacity. You’ve actually made the economy worse by spreading the pain as opposed to localizing it and now two people stop spending as opposed to one.
Look at the letter at the bottom of this post for more information why cram-downs are actually bad for everyone:
http://reallyfuckedhomeowner.com/2009/03/06/renter-action-alert-reign-fire-on-the-new-york-times/
Additionally bailing out homeowners is a surprising regressive act that disproportionately hurts minorities and the poor (and in the long run, homeowners). See that here:
http://watchingmarcitz.com/2009/02/22/obama-hurts-100-million-to-help-9-million/
March 17, 2009 at 7:34 pm
What I am suggesting is 20% off the top. Poof ! Gone ! Consent or not. This is for the sake of the country’s survival.
It is not passed onto any other person or govt.
I’m not suggesting we pay for their f-ups. I feel this is a loss the corporate sector MUST absorb. There are profits and there are losses.
Well, here’s a loss by the name of 20% to all those corporate thugs.
So many people are suggesting, ” Break the UAW contracts and then it’s OK to give Ford/ GM, blah a bailout.” (I am not one of them.)
Well, then, this too can be broken.
March 17, 2009 at 7:45 pm
I’m not sure where that money comes from. That money may start with the corporate thugs but behind it it is all backed by our savings and other assets (hence part of the problem and the outrage because they gambled with our money) so eventually it comes out somewhere and it might touch you. Yes we’re all getting our investments “touched” anyway so the short term sucks no matter what we do. The real question is how do you flush out the bad base and build a more solid foundation.
Arbitrary cuts don’t solve the problem because eventually the market wins. As much as no one likes it this is the market finally winning. The true value came out and exposed all the lies and irresponsibility (of individual thugs as well as corporate thugs).
Yes it is commonly said that this is proof of a market failure but the past many years were not an actual market. A true market has three salient characteristics:
* A transparent market to trade assets.
* Well established asset prices.
* Perfect information about those assets.
The truth is NONE of this existed in the whole housing economy. There was no market for all the mortgage backed securities so no transparency in trading. As a result there was no established price for those assets and third this meant there was imperfect information on the bets people were making. Had mortgage backed securities been traded openly with their prices published the bubble would have never gotten this big.
Oh and THANKS for getting a good juicy debate going here. Yes I clearly have my opinion but I relish a good debate to keep me honest and to force me to really understand and justify my positions.
Please note that the comment depth is capped so if you want to continue this please start a fresh comment.
March 17, 2009 at 8:05 pm
marcitz quote:
” Yes it is commonly said that this is proof of a market failure but the past many years were not an actual market.”
… I don’t necessarily agree. I think it shows a failure of Capitalism. An inherent , deadly, one of many flaws.
I too, have enjoyed discussion. But must zzzzzzzzzz.
March 17, 2009 at 5:25 pm
“The highly justified fear is that if the government can just violate any contract at will then contracts of any kind (past, present or future) will no longer have any value. ”
Its a little late for that isn’t it? After all thats been done to protect AT&T and retroactive immunity etc a comment like this sounds a little bit ridiculous.
March 17, 2009 at 7:48 am
Awesome. Every American renter should be reading this blog.
March 17, 2009 at 8:43 am
Thanks,
Please tell your friends.
- HUD
March 16, 2009 at 11:34 pm
Lol, just lol. They’ll say anything to benefit AIG’s upper brass. At the end of the day you gotta wonder whose really sleeping in whose bed.
March 15, 2009 at 9:00 am
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