Bankruptcy laws to stop foreclosures

[one...two...tree 2,762]

Congressman John Conyers sure is, President Obama seems to be, and now Speaker of the House Pelosi wants to bring a housing bill to a vote this week that would empower bankruptcy judges to modify mortgage terms for borrowers on their primary residences. As David Dayen (aka Dday) explains, "This is an important provision, which most economists believe will be the best tool homeowners can have for them to stay in their homes, and for lenders to agree to loan modifications."

[MrsCat 6]

This is going to be bad. Very very bad. Sorry, but this is going to lead to a real backlog in the courts, where judges are going to try to figure out whether a foreclosure action is right in this circumstance, and then try to make the payments manageable for people who couldn't afford the house in the first place. This is scary and bad news.

If the debtor could have come to some kind of agreement with their creditor, it would have been done already before going to court.

[one...two...tree 2,762]

This is going to be bad. Very very bad. Sorry, but this is going to lead to a real backlog in the courts, where judges are going to try to figure out whether a foreclosure action is right in this circumstance, and then try to make the payments manageable for people who couldn't afford the house in the first place. This is scary and bad news.

If the debtor could have come to some kind of agreement with their creditor, it would have been done already before going to court.

The idea is that most banks will not want to drag it out in bankruptcy court - so they'll be more willing to renegotiate with homeowners to get them down to more reasonable payment terms.

[MrsCat 6]

This is going to be bad. Very very bad. Sorry, but this is going to lead to a real backlog in the courts, where judges are going to try to figure out whether a foreclosure action is right in this circumstance, and then try to make the payments manageable for people who couldn't afford the house in the first place. This is scary and bad news.

If the debtor could have come to some kind of agreement with their creditor, it would have been done already before going to court.

The idea is that most banks will not want to drag it out in bankruptcy court - so they'll be more willing to renegotiate with homeowners to get them down to more reasonable payment terms.

And I don't think that's going to happen. I understand the theory, and it would be a nice one, but the banks have too much to lose on a grander scale.

The banks are going to fight this tooth and nail in court. And drag it out at every level of appeal. Because essentially what this law is saying is that a mortgage is an amendable document. Its not a black and white contract regarding ownership of real property. There is a reason that there are so many documents to sign when closing on a property. Because the law recognizes that ownership of land is one of the most important property rights. Its also the reason the foreclosure proceedings take a long time, and there is a period of grace given to people to catch up on their mortgages if they are in arrears.

While its nice to think that people may be able to stay in their homes, this has far greater repercussions in the market. Its saying the buyers, that when you make a binding agreement, the terms become amendable when you're in a situation that you can no longer afford to make the payments. Are they going to move that onto the auto sector as well? If you can't afford your vehicle which you bought new, a judge can step in and make you pay only the depreciated value?

Additionally, what happens when the market turns again and the values of homes increase? Can the mortgage company come back and ask for a higher payment because the asset has increased in value? Probably not, because they understand that they're in a binding contract as to the sale price and mortgage amount.

Furthermore, there are plenty of people out there who are paying for a home and trying to sell it. To further devalue homes in their neighborhood (through the act of a judge) is certainly not helping them.

Don't get me wrong, I do actually feel sorry for people who are losing their homes, I just don't think this is the best way to keep them in it.

[Ban Hammer 13,360]

This is going to be bad. Very very bad. Sorry, but this is going to lead to a real backlog in the courts, where judges are going to try to figure out whether a foreclosure action is right in this circumstance, and then try to make the payments manageable for people who couldn't afford the house in the first place. This is scary and bad news.

If the debtor could have come to some kind of agreement with their creditor, it would have been done already before going to court.

The idea is that most banks will not want to drag it out in bankruptcy court - so they'll be more willing to renegotiate with homeowners to get them down to more reasonable payment terms.

And I don't think that's going to happen. I understand the theory, and it would be a nice one, but the banks have too much to lose on a grander scale.

The banks are going to fight this tooth and nail in court. And drag it out at every level of appeal. Because essentially what this law is saying is that a mortgage is an amendable document. Its not a black and white contract regarding ownership of real property. There is a reason that there are so many documents to sign when closing on a property. Because the law recognizes that ownership of land is one of the most important property rights. Its also the reason the foreclosure proceedings take a long time, and there is a period of grace given to people to catch up on their mortgages if they are in arrears.

While its nice to think that people may be able to stay in their homes, this has far greater repercussions in the market. Its saying the buyers, that when you make a binding agreement, the terms become amendable when you're in a situation that you can no longer afford to make the payments. Are they going to move that onto the auto sector as well? If you can't afford your vehicle which you bought new, a judge can step in and make you pay only the depreciated value?

Additionally, what happens when the market turns again and the values of homes increase? Can the mortgage company come back and ask for a higher payment because the asset has increased in value? Probably not, because they understand that they're in a binding contract as to the sale price and mortgage amount.

Furthermore, there are plenty of people out there who are paying for a home and trying to sell it. To further devalue homes in their neighborhood (through the act of a judge) is certainly not helping them.

Don't get me wrong, I do actually feel sorry for people who are losing their homes, I just don't think this is the best way to keep them in it.

this was a topic of discussion at work this morning, and many of your points were raised too. particularly that one in bold by me.

[Peikko 1,575]

This is going to be bad. Very very bad. Sorry, but this is going to lead to a real backlog in the courts, where judges are going to try to figure out whether a foreclosure action is right in this circumstance, and then try to make the payments manageable for people who couldn't afford the house in the first place. This is scary and bad news.

If the debtor could have come to some kind of agreement with their creditor, it would have been done already before going to court.

The idea is that most banks will not want to drag it out in bankruptcy court - so they'll be more willing to renegotiate with homeowners to get them down to more reasonable payment terms.

And I don't think that's going to happen. I understand the theory, and it would be a nice one, but the banks have too much to lose on a grander scale.

The banks are going to fight this tooth and nail in court. And drag it out at every level of appeal. Because essentially what this law is saying is that a mortgage is an amendable document. Its not a black and white contract regarding ownership of real property. There is a reason that there are so many documents to sign when closing on a property. Because the law recognizes that ownership of land is one of the most important property rights. Its also the reason the foreclosure proceedings take a long time, and there is a period of grace given to people to catch up on their mortgages if they are in arrears.

While its nice to think that people may be able to stay in their homes, this has far greater repercussions in the market. Its saying the buyers, that when you make a binding agreement, the terms become amendable when you're in a situation that you can no longer afford to make the payments. Are they going to move that onto the auto sector as well? If you can't afford your vehicle which you bought new, a judge can step in and make you pay only the depreciated value?

Additionally, what happens when the market turns again and the values of homes increase? Can the mortgage company come back and ask for a higher payment because the asset has increased in value? Probably not, because they understand that they're in a binding contract as to the sale price and mortgage amount.

Furthermore, there are plenty of people out there who are paying for a home and trying to sell it. To further devalue homes in their neighborhood (through the act of a judge) is certainly not helping them.

Don't get me wrong, I do actually feel sorry for people who are losing their homes, I just don't think this is the best way to keep them in it.

this was a topic of discussion at work this morning, and many of your points were raised too. particularly that one in bold by me.

You can't fix bad situations with bad law. If it is bad law then toss it out. It sounds like it from Cat's explanation, although I have no idea one way or another.

[Ban Hammer 13,360]

This is going to be bad. Very very bad. Sorry, but this is going to lead to a real backlog in the courts, where judges are going to try to figure out whether a foreclosure action is right in this circumstance, and then try to make the payments manageable for people who couldn't afford the house in the first place. This is scary and bad news.

If the debtor could have come to some kind of agreement with their creditor, it would have been done already before going to court.

The idea is that most banks will not want to drag it out in bankruptcy court - so they'll be more willing to renegotiate with homeowners to get them down to more reasonable payment terms.

And I don't think that's going to happen. I understand the theory, and it would be a nice one, but the banks have too much to lose on a grander scale.

The banks are going to fight this tooth and nail in court. And drag it out at every level of appeal. Because essentially what this law is saying is that a mortgage is an amendable document. Its not a black and white contract regarding ownership of real property. There is a reason that there are so many documents to sign when closing on a property. Because the law recognizes that ownership of land is one of the most important property rights. Its also the reason the foreclosure proceedings take a long time, and there is a period of grace given to people to catch up on their mortgages if they are in arrears.

While its nice to think that people may be able to stay in their homes, this has far greater repercussions in the market. Its saying the buyers, that when you make a binding agreement, the terms become amendable when you're in a situation that you can no longer afford to make the payments. Are they going to move that onto the auto sector as well? If you can't afford your vehicle which you bought new, a judge can step in and make you pay only the depreciated value?

Additionally, what happens when the market turns again and the values of homes increase? Can the mortgage company come back and ask for a higher payment because the asset has increased in value? Probably not, because they understand that they're in a binding contract as to the sale price and mortgage amount.

Furthermore, there are plenty of people out there who are paying for a home and trying to sell it. To further devalue homes in their neighborhood (through the act of a judge) is certainly not helping them.

Don't get me wrong, I do actually feel sorry for people who are losing their homes, I just don't think this is the best way to keep them in it.

this was a topic of discussion at work this morning, and many of your points were raised too. particularly that one in bold by me.

You can't fix bad situations with bad law. If it is bad law then toss it out. It sounds like it from Cat's explanation, although I have no idea one way or another.

i agree with that. although it usually happens as a knee-jerk reaction.

[justashooter 430]

banks are businesses that borrow money from people so that they can lend it to other people. if they can't get back what they lent out, how can they pay back what they borrowed?

the good of the many outweighs the good of the few, especially if you can mind meld your consciousness into doctor mc'coy and come back later in the genesis experiment.

[one...two...tree 2,762]

The U.S. House Judiciary signed off on Wednesday on a bill designed to help certain bankrupt homeowners stay in those homes. The highly controversial bill, which faces significant bi-partisan opposition on the floor, is yet another piece in a crazy-quilt of government and mortgage industry attempts to curtail rising foreclosures and stem the collapse of lending and lenders.

The bill, a substitute version of the Miller-Sanchez "Emergency Homeownership and Mortgage Equity Protection Act of 2007" allows bankruptcy courts to change the terms of some existing mortgages to the benefit of the homeowners.

The bill changes the creditor-friendly overhaul of the nation's bankruptcy code passed in 2005. This legislation, heavily promoted by the credit card industry, virtually eliminated the ability of borrowers to wipe out their existing debt through a Chapter 7 bankruptcy filing. Most debtors now are forced to file under Chapter 13 which restructures the debt so that payments are made more manageable while allowing creditors a chance of eventual recovery. Courts can manipulate the terms of credit card and other unsecured debts to fit restructuring plans but cannot force changes in the contractual terms of mortgages so banks can foreclose on the collateral.

http://www.mortgagenewsdaily.com/12132007_...ruptcy_Code.asp

[MrsCat 6]

^ An interesting article!

It just seems that no one was interested in stepping into the market when these ARM and interest-only mortgages were being offered. Now that the worst (but inevitable) has happened, everyone is trying to find a band-aid solution to fix it, rather than allow the proper market flow of foreclosure.

At the end of the article, which is something I forgot in my original post, is that if banks are forced to accept less than they are owed, that just means higher interest rates and tougher terms in the future. The banks will be forced to leverage hefty interest rates on new mortgages, since it will need to reflect the risk assumed with mortgages terms now being negotiable. Scary indeed.

[one...two...tree 2,762]

^ An interesting article!

It just seems that no one was interested in stepping into the market when these ARM and interest-only mortgages were being offered. Now that the worst (but inevitable) has happened, everyone is trying to find a band-aid solution to fix it, rather than allow the proper market flow of foreclosure.

At the end of the article, which is something I forgot in my original post, is that if banks are forced to accept less than they are owed, that just means higher interest rates and tougher terms in the future. The banks will be forced to leverage hefty interest rates on new mortgages, since it will need to reflect the risk assumed with mortgages terms now being negotiable. Scary indeed.

And the alternative is - these banks will continue to repossess homes with values that continue to plummet, further saturating an already sagging market. The scale of foreclosures cannot be remedied by market forces alone. That's like using buckets to try and save a sinking ship.