Multiplying failed mortgages and home foreclosures were at the heart of the global financial meltdown and remain a national socio-economic disaster. So-called “cramdown” legislation would give bankruptcy judges the power to alter bank loans in order to keep people in their homes. Pres. Obama campaigned in support of such legislation last year and unveiled a related foreclosure-mitigation plan in February. Since then the White House has done very little to ensure the bill’s success. Yesterday, we got more of the same from the Obama Treasury department.
Hoping to bring “cramdown” legislation back onto Congress’ radar, a House Judiciary subpanel met this afternoon to re-examine whether bankruptcy judges should be empowered to alter mortgage loans in order to prevent foreclosures.
Witnesses included the obligatory consumer advocates, a conservative think-tanker and a university professor. But the Treasury Department, although asked to send a representative of its own, declined to do so.
A Democratic aide said the agency was simply too slammed this week with other hearings to meet the request (and the Treasury didn’t respond to requests for comment), but the pattern is getting suspicious.
In April, for example, Treasury Secretary Tim Geithner was hardly enthusiastic when asked if bankruptcy changes were a vital element of the administration’s plan to stem foreclosures.
More recently, the White House watched in silence as the cramdown bill was obliterated in the Senate, where 12 Democrats voted against it. Some Democrats said later that they interpreted the president’s silence to mean they were free to oppose the measure.
And now here’s the Treasury, in the middle of the continued foreclosure crisis, saying it’s too busy to talk with Congress about ways to keep folks in their homes?
Cramdown legislation would make it possible for homeowners at risk of foreclosure to go before bankruptcy judges, who could restructure loans to make it possible for people to continue paying. Under the plan, Judges would be empowered to reduce the amount owed on the home to the home’s present value, shrinking payments significantly, especially these days, as property values have sunk. The program would save millions of homeowners from foreclosure. Keeping people in their homes would be a great boon to the economy in addition to alleviating the great social costs of rampant foreclosure and dislocation.
It’s not a radical idea. If you own a mobile home or a boat or a second home, you can already go through this process. The proposal would be a relatively simple and fast fix top an enormous problem, proponents say.
So who is opposing cramdown? Members of the financial sector, of course, and their lawmaker friends.