Thanks to the efforts of Sen. Evan Bayh (D-IN), Sen. Arlen Specter (R-PA) and others, a bill allowing bankruptcy judges to cram-down mortgage payments for troubled homeowners hasn’t seen the light of day since it passed the House in early March. Majority Leader Harry Reid (D-NV) is actually thinking of pulling the cram-down provision from the legislation, since it has met such fierce resistance, fueled by a misinformation campaign based on Mortgage Bankers Association talking points.
Cram-downs were meant to go hand-in-hand with the rest of the Obama administration’s housing plan. Under the Obama plan, lenders and servicers are given incentives to modify mortgages, while the threat of a cram-down would encourage them to make modifications that actually helped homeowners stay out of bankruptcy.
According to new data released on Friday, lenders are not yet doing a bang up job on the modification front. First, the Wall Street Journal noted that Obama’s housing plan “has hit a stumbling block: a fight over how to aid borrowers who have more than one home loan”:
The Treasury Department, scrambling to address the problem, is trying to persuade lenders to forgive or greatly reduce so-called second liens. But that effort has sparked a fight between investors who own securities backed by first mortgages and banks that hold second mortgages over how losses should be shared. A failure to resolve the impasse could blunt the impact of President Barack Obama’s housing plan.
Meanwhile, in “the most detailed and broad analysis to date” of the efforts to stem foreclosures, the Office of Thrift Supervision and the Office of the Comptroller of the Currency found that “fewer than half of loan modifications made at the end of last year actually reduced borrowers’ payments by more than 10 percent“:
The report helps explain why many loans are falling back into default after being modified. Many borrowers and consumer groups contend that the modifications offered by the lending industry aren’t very generous, despite more than a year of public prodding from regulators. For instance, nearly one in four loan modifications in the fourth quarter actually resulted in increased monthly payments.
A study released last week by the Center for Community Capital found that the Obama housing plan combined with bankruptcy reform allowing cram-downs can significantly lower the rate of mortgage defaults. But instead of working to get cram-down legislation through Congress, Bayh and his merry band of agenda-less “moderates” are cutting taxes for the heirs of multi-millionaires.