Finally...something that makes sense coming out of Congress. This is a low cost to government way to ease the mortgage mess. Lawmakers set new mortgage bankruptcy bill WASHINGTON (Reuters) - Legislation designed to stem foreclosures by allowing bankruptcy judges to erase some mortgage debt will be introduced by Congressional Democrats on Tuesday, and hopes are high that it will pass after a similar plan failed last year. Democrats in both the U.S. House of Representatives and Senate plan to introduce the legislation. A similar plan failed in the Senate last spring as President George W. Bush and many Republican lawmakers opposed it, but supporters of what has been dubbed "mortgage cram-down" believe that they will prevail as the housing crisis has deepened and President-elect Barack Obama prepares to take office. "Economic conditions have only worsened since we last debated this plan," said Rep. Brad Miller, a member of the House Financial Services Committee who plans to introduce a bankruptcy reform bill on Tuesday. "Until we stop the slide in foreclosures and falling home prices, the economy will get worse still." Last month, Credit Suisse boosted its estimate of the number of mortgages on which it expects to foreclose through 2012 to 8.1 million -- a 25 percent increase from its April estimate. The legislation would change allow bankruptcy judges to modify home loans in the same way that they currently may modify other unsettled obligations, such as credit card debt. While the housing market downswing continues, some in the housing industry have warned that it is the wrong time to write long-lasting mortgage rules. "Credit markets move like a pendulum so if you accept that there was too much credit a few years ago, there is probably too little credit now," said Francis Creighton, the top lobbyist for the Mortgage Bankers Association. "Cram-down would lock the pendulum at an overly restrictive point." Foes of the cram-down plan argue that it would wrongly invalidate mortgage contracts and raise future costs of borrowing, but that opposition is beginning to wilt in the face of a worsening crisis. "This crisis is so severe that every possible solution must be on the table," Jerry Howard, president of the National Association of Homebuilders, said in a statement last week. In political battles last spring, the homebuilders had used their lobbying heft to help block the bankruptcy plan. LAWMAKERS PREPARE Miller, a North Carolina Democrat, said he is counting on Sen. Richard Durbin of Illinois to help him steer the plan through Congress. Durbin, a member of the Senate leadership, has promised to push for the new bankruptcy rules to be included in an economic stimulus package being crafted by Congressional Democrats. Obama supported the foreclosure-prevention plan last year and has promised new initiatives to help troubled borrowers stay in their homes. The lending industry has said that allowing bankruptcy judges to modify mortgage obligations would change how they weigh risk. Currently a lender knows that it has recourse to foreclosure if a borrower fails to meet mortgage payments, but the lender does not have to factor in the possibility that the payments it receives could be decreased by a judge. Consumer advocates, though, argue that the plan to give homeowners protection in bankruptcy is a natural extension of current law and urgently needed to stem foreclosures. Courts can generally cut through complex mortgage contracts more aggressively than the private sector, said Wade Henderson, head of the Leadership Conference on Civil Rights, who has testified before Congress on the issue. "The continued erosion of the housing market has probably made adopting this proposal inevitable," he said.
I was hoping for more...hoping to see a reversal of the ass-munch that came out of the overhaul from about 5 years back.
Does anyone have a number on the total value? Assuming an average house/mortgage value of 150k that's 1,215,000,000,000 in lost money. I'll bet the high majority of them are non-recourse loans. So how can't some tranches of sub and near prime MBS not be considered toxic again?
You'd need to know: Out of those 8 million, how many have already defaulted? Is that additional ones, or total? What percentage is that of the total mortgages out there? What are the MBS currently valued at? They've already discounted pretty extreme default rates. Do they already account for those defaults, or would this be more than is priced in?
It also important to know how much the home itself is worth. These are loans backed with a house, not just a piece of paper. So if you assume these were 0% down loans and the houses are worth say 60% of the mortgage (assumes each mortgage probably bought at peak of housing value, again conservative), then its 40% of the 1.2T # above....big, but not 1.2T
even if the book value is 60% because of the auction process, banks never get anything near FMV due to many reasons. a glut of homes on the market via auctions would obviously depress it considerably.
Solid questions beyond my level of knowledge. My initial question was asking for a credible value of Credit Suise's foreclosures, but a total number on all foreclosures for all companies would be a better number to play around with. I'm not sure if current percentage of all foreclosures wrt total # of mortgages is the question to ask considering the glut in real estate supply has driven down housing values and even more homes are being forced upon the market as we speak. We haven't fully seen how layoffs and sustained rises in unemployment rates among all income levels will affect foreclosures. As for the last group of questions, I've read different answers, but none I can personally answer authoritatively. I'm willing to read any sources you wish to provide to guide me along your views. It is my understanding that this is only if the banks are willing and are able to unload the houses for a 40% loss. I'm willing to concede that my question about toxic tranches can be more about an issue of liquidity, but those are still real losses that some banks can not recover. One because they are too overleveraged and another because the major players hold the worst portions of an MBS so the risk exposures weren't properly spread out. With bailout mania, increasing opacity of banks, and recent revelations of lax regulators allowing banks to fudge financial information (Indymac), I don't think the real market values of MBS has been exposed. Again, I am open to more sources of information to counter that simple claim.
You will never get rid of the means test. NEVER. There are some people that should be in a Chapter 13, paying a small percentage of what they owe. A few other observations: 1. They need to do away with the section 109 requirement of credit counseling prior to filing a case. All that has done is put an additional (and sometimes substantial) burden on a debtor trying to file to save their home. It also has created a cottage industry of credit counselors. 2. They need to do away with the requirement to use a specific address for a creditor. It is difficult, if not impossible for the average attorney, let alone a pro se, to ascertain the address when the schedules are filed. It renders discharges meaningless because if you do not pick the right address out of dozens the creditor has, then notice is ineffective on that creditor. 3. They need to do away with the "gag rule." This regulates what an attorney can tell the client about their ability to incur certain debt prior to filing (ie buying a car before filing and reaffirming that debt). I believe that this will eventually be held to violate the Constitution. 4. In most cases, qualified retirement plans are exempt property. They need to make IRAs exempt, since that is a retirement vehicle used by a good many self employed persons. The law needs to be much more specifically tailored to going after those persons that have abused the system. The current law captures the honest along with the crooks.
True, with a big caveat. If the bank is going to take a loss on the house, they have a tolerance rate. If the loss is going to be too big, the bank will buy the house at auction, evict the debtor, and sell it on the open market. They use a BPO and factor in the costs of prep and sale. It is pretty complex, but you get the idea.
Just to clarify - I have no idea as to the answer to any of my questions. But whether the MBS's are still going to get more toxic depends on that. If they are valued, for example, assuming a 30% default rate and we're at a 10% default rate now, then they are probably pretty well "safely" valued at this point - that is, they wouldn't get more toxic. If they are priced at a 15% default rate, and we're at 12% now, then they could definitely continue to get valued worse. It all just depends on how aggressively these things have been written down thus far.
