Friday, January 9, 2009

Good News Cocktail—with a lemon twist

How much, Dear Gentle Reader(s), of the current fiscal mess is the result of unscrupulous lenders hoodwinking easy marks into buying a house for which they were financially unqualified?  Enough to have made the rest of the financial community sit up and take notice.  And the reverberations from that mess will be felt for some time.

One would think that a lesson learned would be that instances such as the housing debacle the dupes need to be protected if for no other reason than we need to protect ourselves from their follies.

In the news today is a story about a “cramdown” proposal for restructuring mortgages.  In effect it would mean that bankruptcy judges could possibly rule that a mortgage must be reduced in order to fit the financial abilities of the mortgagee.

The proposal for this ability to restructure has been on the table for a couple of years.  The mortgage industry has lobbied against it.  (Duh!)

In a surprise move,though, Citigroup has decided to back the measure, with a condition.  Actually, two conditions:

In a statement, Citigroup said it would support Durbin's legislation provided that it applied only to mortgages in effect before passage of the act. To be eligible, borrowers would have to contact their lenders and try to work things out before filing for bankruptcy.

The company also said it would support the proposal only if a provision was eased that would void the mortgage if the lender was found to have violated consumer protection laws.

So, future mortgages would be exempt, and if the lender were a crook (of sorts) the mortgage would be exempt. (In the past there were precious few consumer protection laws, and that’s what put us in this pickle.)

The exemption of future mortgages is arguably a step backwards.  If the lenders were doing due diligence in the first place, the mortgages would have been sound,and we would be continuing on the path to prosperity, rather than bemoaning the largest loss of jobs in recent history.

Some Republicans in the Congress have sided against the beleaguered homeowners in the past; they continue to do so relative to this change in the bankruptcy laws.

Many of us might bemoan a “nanny state,” but, when the nanny is ultimately protecting our particular national interests, it might serve us well to give the ol’ girl some space to do her job.

Trust, but verify.

Sphere: Related Content

No comments:

Post a Comment

The courage of your conviction virtually demands your name, if we don't know you.