Friday, February 1, 2008

Real help for homeowners...

In an earlier posting about the economy I compared the current sub-prime mortgage fiasco to the S&L disappearing act of 1986, because both problems were related to home loans gone bad. Why do home loans go bad? Because some of the loans are structured to sucker folks, who might not ordinarily qualify for such a loan, into a deal that will imminently be most profitable for the lender. I recently learned that, once in such an arrangement, the homeowner has no recourse if a lender is not willing to re-finance to more affordable (read: less profitable) terms. Bankruptcy allows the court to restructure a wide variety of kinds of secured debt, but not debt secured by a home (even if it is a person's primary residence).

The Emergency Home Ownership and Mortgage Equity Protection Act being considered by Congress would allow the court to change the terms and conditions of debt secured by the debtor's home. This Act would allow the Bankruptcy Court temporary power to deal with this type of secured debt, but I would suggest that this type of authority be granted to said courts permanently. If this had been the case since the 1980's both the S&L fiasco and this sub-prime mortgage driven, economic recession might have been averted.

The aforementioned, pending Act of Congress would be real assistance to those in need, and it would not cost the US Treasury any money. The current plan, to return tax money to citizens, adds substantially to the federal government's enormous debt while getting money into the hands of people who don't need it. Even if all the refunded monies were spent immediately it wouldn't help the economy. More important, the cash would be no help at all to those with the most urgent need.

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