The Housing Chronicles Blog: The increasing politics of the housing bust

Thursday, February 28, 2008

The increasing politics of the housing bust

The Bush Administration has promised to veto any legislation offered by the Democrats that could hint of a lender bailout or allow bankruptcy judges to alter the terms of mortgage documents. Claiming that lenders have been too slow to act to prevent foreclosures (which has been well documented in recent weeks) and arguing that changing mortgages after the fact will only prevent the housing market from righting itself according to the normal laws of supply and demand. From

The White House promised on Tuesday to veto a bill seeking to follow up the recent economic stimulus package with several proposals to shore up the struggling housing market and reduce foreclosures...

The Democratic housing bill would change bankruptcy laws to allow judges to cut interest rates and reduce what's owed on troubled borrowers' mortgages, provide $4 billion to communities to purchase and rehabilitate foreclosed homes, and improve disclosure of subprime mortgage loans in hopes that borrowers won't be surprised by big payment increases.

But the White House said the $4 billion for purchases of foreclosed homes is too expensive and "would constitute a bailout for lenders and speculators, while doing little to help struggling homeowners."

The provision rewriting the bankruptcy code, the White House said, would allow borrowers to effectively rewrite their mortgage contracts, leading lenders to tighten their standards and raise interest rates.

The White House said both provisions would in fact slow the recovery of the housing sector...

In response to the criticism, Democrats announced they would tighten the bankruptcy provision so that it would only apply to subprime borrowers who can prove that they can't afford the current mortgage and permit bankruptcy judges to reduce interest rates to the prime interest rate plus a premium for lender risk.

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