Yesterday, in the face of “nearly unanimous opposition from Republicans” and “concerns raised by moderate Democrats,” the House delayed voting on a housing bill that would allow judges to “cram-down” mortgage payments for troubled homeowners. Part of the reason for the delay is that the bill has been continually mischaracterized as a bailout for irresponsible homeowners.
Embodying this idea, Rep. Virginia Foxx (R-NC) took to the House floor to decry the bill as helping those “who irresponsibly got mortgages” and now “continue to look for bailouts and continue to look for welfare”:
94 percent of the American people are paying their mortgages and they are paying them on time and they don’t understand why this is happening…Let me tell you a little bit about why that is the case and why I think that people who irresponsibly got mortgages to begin with continue to look for bailouts and continue to look for welfare. This is basically expanding the welfare program in our country.
First, about one-third of residents rent and one-third of homeowners own their homes outright, so how are “94 percent of the American people” paying their mortgages? Are the 62,948 renters in Foxx’s district not Americans? Also, Foxx’s stat isn’t right even if just people with mortgages are included, as about one in ten is behind on payments.
Plus, in 2008, there were 41,750 homes in foreclosure in North Carolina, a 16.2 percent increase from 2007 and a 153 percent jump from 2006. Does Foxx think that all of these homeowners were irresponsible?
What actually caused all of these housing problems is the economy tanked, home prices plummeted, and people got laid off. The proposed housing legislation is meant to complement the Obama administration’s housing plan by giving bankruptcy judges the right to cram-down homeowners mortgages “as a last resort alternative to foreclosure.”
The notion that this constitutes “welfare” is ludicrous. Bankruptcy is unpleasant. Those going through it “have to live under the supervision of a trustee and a judge, and under the observation of creditors for up to five years,” and a bankruptcy can remain on your credit report for up to 10 years. This is not a walk through the park we’re talking about here, but a step for those with, literally, nowhere else to turn.
Now, there will inevitably be some reckless borrowers who will be helped. In an attempt to aid 7 to 9 million homeowners, that’s almost impossible to avoid. But as Clive Crook wrote, this “is a price worth paying if it stems the tide of foreclosures.” Indeed, if the plan is implemented, the average homeowner will be protected from $6,000 in housing price declines as a result of neighbors staying out of foreclosure.