Why the mortgage cramdown bill would hurt consumers

The Democrats are pushing a “cramdown” bill which is a bill designed to allow federal judges to renegotiate the terms of delinquent mortgages when the person who entered into a contract to borrow the money cannot repay it. The problem with this bill is that it hurts the very people it is intended to help – because as soon as banks see that they cannot rely of the courts to enforce contracts, they will immediately stop making loans to those with mediocre credit ratings. So, the people who most need to borrow money will be the hardest hit. And it opens the door for the government to then seize control of the banks and force them to make the loans, so that we turn into Venezuela.

Consider this article from the Heritage Foundation:

Just as the housing market is showing definite signs that it is stabilizing after a lengthy drop in housing prices, the House of Representatives is about to vote on proposal that would destabilize it once again while also raising the cost of mortgages for future home buyers.

The proposal – to be offered by Rep. John Conyers (D-MI) as an amendment to the financial regulation bill now before the House -would allow bankruptcy judges to reduce the principal owed on a mortgage, a practice often referred to as a “cramdown.” Judges would also be able to reduce interest rates or lengthen the term of the mortgage.

This is a huge policy mistake that would help only a few people while raising the cost of borrowing for thousands of moderate-income and first-time homebuyers.

Fortunately the bill failed to pass, but it does show you the fatal flaw of Democrat emotion-based policy-making. They hurt the very people they are trying to help – the cause the very crisis they are trying to alleviate. That is standard operating procedure for Democrats. They don’t understand the incentives they are creating when they pass “compassionate” laws.

Democrat secures TARP funds for unemployed homeowners

On another subject, take a look at this AP article. (H/T Michelle Malkin)


Call it the $6 billion boycott.

By boycotting a key House committee vote last week and threatening to abandon support for banking regulations, members of the Congressional Black Caucus got $4 billion added to a Wall Street regulation bill and $2 billion to a proposed House jobs bill in spending they sought for African American communities.

House Financial Services Committee Chairman Barney Frank, D-Mass., this week inserted $3 billion to the legislation to provide low-interest loans to unemployed homeowners in danger of foreclosure. He added $1 billion for neighborhood revitalization programs.

The money would come out of the $700 billion financial rescue fund.

“For those of us who walked out, it was absolutely essential that we have parts of that legislation directed toward helping people who have been left out of all of these bailouts,” Rep. Emanuel Cleaver, D-Mo., one of 10 black caucus members in the Financial Services Committee, said…Among the caucus’ demands were greater assistance for minority-owned auto dealerships and banks that lend in African-American communities and more government advertising in minority-owned media.

This is taking money out of the private sector, which creates jobs, and bailing out people who bought too much house. Taking money out of the private sector destroys economic growth. And that is why we have a 10% unemployment rate.

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