Please Speak Up, Help People Save Homes and Stabilize the Housing Market!

If your neighbors home goes into foreclosure and your home is identical, regardless of what you owe the value of your home will be dramatically affected by the amount of time the foreclosed home is on the market and the eventual selling price. Think about this when you are angry that you might be helping someone who you feel is not a "responsible borrower" get a bailout.

According to the Personal Bankruptcy article in todays news (linked below), "As of Thursday, Sen. Richard Durbin (D-Ill.) was weighing a key concession to the financial services industry on legislation that would allow judges to workout mortgages in the bankruptcy process. Durbin said he may limit the bill to existing subprime loans, which could make the legislation more appealing to the financial services industry — who has strongly opposed the bill thus far."

Since the recent Obama "Foreclosure Fraud Prevention Act" includes the possibility of Cramdown in Bankruptcy, it represents the first real attempt to address the underlying issue of housing price decline, which is principal balances that are no longer sustainable or affordable. The initial response of the Bankers was to immediately say that they would not reduce principal balances in order to save homes.

So far the only legislation that could force them to be realistic is the possibility of Cramdowns. I sent this letter today via email to Senator Dick Durbin (D-Ill.) via the email link at: http://durbin.senate.gov/contact.cfm .  You should make your feelings on this issue known, whether you agree with my point of view or not.

Letter to Dick Durbin

Dear Senator,

I am writing for the first time to urge you in the strongest terms not to gut the Cramdown bill by limiting eligible borrowers only to those who have sub-prime loans. As you know, there is an avalanche of potential defaults in Alt-A and A paper coming through 2011.

I saw these articles today. "Personal Bankruptcy Soars"  and "Record Jump in Non-Agency Jumbo Foreclosure Starts". For more than a year I have followed the progress of the housing decline and related legislation on a blog at unsustainabubble.com.

You must pass this legislation with a requirement that the person filing bankruptcy certify that they attempted a loan modification prior to the filing. This should be enough to get the bill passed with the support of Citi and B of A and pressure should be brought to bear on all large TARP recipients. As you know, this is the only way to put any pressure on banks/lenders/investors to do sustainable modifications (ie. those with principal reductions).

Under the new bailout, Jamie Dimon has already said his bank will not be doing principal reductions, why not? Because he is not being required to by this pandering legislation. If Bankers know the judge will/can reduce principal, they will do it for themselves.

No one wants Bankruptcy, except as a last resort. Forcing borrowers to request a loan mod and certify for the court will reduce moral hazard and result in fewer bankruptcies since some will accept the loan mod offered. If the modification is good enough, taking it can change the filing from a 7 to a 13 and further reduce moral hazard.

Would you rather have the market simply crash to get to the real values? I think you know that even bankruptcy is a stop gap measure where housing values are concerned. Ultimately the market will decide the value of housing,but your legislation could even forestall or reduce civil unrest related to the socialization of bank losses in the future.

Step up to the plate Senator and write a bill with teeth in it, otherwise nothing will change and the decline may even accelerate.

Sincerely,
Lance W. Newton