With their respective decisions, Bayh and Landrieu are siding with a slew of special interests — including bailed out banks, goaded by Republicans into not compromising — and standing in the way of economic recovery. As Politico reported, “the primary reason for the banks’ success is simple: money. The industry spent $56 million lobbying Congress last year alone. That can buy a lot of advocates who can win face time with lawmakers to plead the industry’s case.” And that case seems to be taking root.
“My concern about this is that in our appropriate zeal to help the four or five percent of Americans who might be faced with bankruptcy, we don’t unduly raise the costs of homeownership on the 95 percent who never will,” said Bayh, who supported the legislation last year. Implying that cram-down will raise mortgage rates for all homeowners is the Mortgage Bankers Association’s favorite talking point, but it’s simply not true. Incidentally, Indiana has the 13th highest foreclosure rate in the country.
Landrieu, meanwhile, said that “I think we gotta be careful about adopting processes and procedures that would really hurt our community banks.” This is a more legitimate concern, as community banks tend to be closer to their borrowers than giant mega-banks, muck around less with securitization, and retain more servicing fee rights. But as long as banks are working with homeowners to make loan modifications, cram-downs shouldn’t be too much of an issue.
In any case, the need for the cram-down bill hasn’t diminished. According to RealtyTrac, “nationwide, nearly 804,000 homes received at least one foreclosure-related notice from January through March.” And as Harvard Law professor and bankruptcy expert Elizabeth Warren said this week, cram-downs are necessary because the administration’s housing plan “will not help much in hard-hit housing markets where home prices have fallen 30 to 50 percent below their mortgage principal”:
So-called “cramdown” changes to bankruptcy laws or other legal devices were needed to cut mortgage debt to underlying home values. “It would be the one way to deal with principal that exceeds the value of the loan,” she said. “Without that, we risk a foreclosure mitigation plan that is helpful in the areas of modest need, but not helpful where the problems are acute.”
So in the end, why should the banks and their lobbyists be allowed to hold the plan up?