Congress to Homeowners: Drop Dead

posted by Adam Levitin
A draft of the bailout plan is out. And it contains nothing substantive for financially distressed homeowners.

The plan directs the Treasury Department to engage in reasonable modifications for residential mortgage loans it controls and to encourage servicers to do so for loans it doesn't control. As I've explained in numerous posts (here and here, e.g.), Treasury is unlikely to end up controlling many distressed residential mortgage loans directly. And Treasury has been encouraging servicers to do loan modifications since last fall, but with very limited success. There is no reason to think that the bailout suddenly changes anything. In short, Congress enacted some show provisions about consumer relief, but nothing of substance. This is the same move Congress pulled when it enacted the HOPE for Homeowners Act in July. All sizzle, no steak.

This is particularly troubling, for continued foreclosures will only further depress the housing market, which is pulling down the entire economy. What's worse is now it will be the Treasury (and hence taxpayers), who will bear the cost.



Sadly, in this bill Congress focused on politically popular, but really meaningless issues like executive compensation. (Any the provisions they passed aren't super meaningful--they appear only to apply to the top 5 employees, when there are a host of lower-ranking, but high-earning people who worked with MBS--and only impose tax penalties that just aren't that big of a deal to a financial institution.) I don't like the idea of lousy financial institution executives getting rich off of taxpayer dollars, but far better to lose a hundred million even there and to prevent a lot of foreclosures. The net social welfare benefit from the later far outweighs the former.

Also, some of the oversight provisions are really empty shells. For example, Treasury is directed to enact conflict of interest regulations (although the TARP program can start up without these regs in place). The key isn't in having conflict of interest regulations; the key is what those regulations will look like. This type of directive from Congress is so vague as to be meaningless. (The exclusion of the FDIC, which has been the only semi-effective regulator in this mess, from the oversight board is also troubling).

There's a lot more to say about this bill, and I suspect I'll be writing more about it, but bottom line for consumers: nothing for you.

http://www.creditslips.org/creditslips/2008/09/congress-to-hom.html#more

I'm tired of everyone wanting a bailout. IT's OK with me if a homeowner that signed off on too big of a mortgage has to find another place to live. It's OK with me if the bank ends up with the house and loses their ass in the process. I'd like to see the home marked down to where it would sell and a family that has been working hard and tred to save up a bit of a down payment could now afford to purchase the house and at a much reduced cost. Dumbass original homeowner is gone. Bank gets it's ass kicked and a family can now afford to purchase a house that they couldn't have before. Lose - lose - win.

Joanne98, I'm not against you posting interesting articles to the Economy forum. Many of them are great. But in your zeal to cut and paste, you're flooding the forum. I just copied the first page into excel; out of 80 topics, you've started 24 of them - that's 30% of the posts in the forum from one person.

PLEASE, stop posting every interesting article here. As well as flooding the forums, you are violating other people's copyrights. I don't see any copyright waivers on most of these blogs you are cutting and pasting. PLEASE, try to just post 1 or 2 articles a day and try posting several links with one paragraph from each instead of complete articles as you have been doing.

Your spam is well-intentioned, but it's still spam. If this keeps up, I am just going to start using my alert button. I can't speak for other people, but it certainly puts me off starting threads or putting time into writing original articles when they are probably going to drop off the front page due to huge numbers of reposts from folks like yourself.