Todd Zywiki, professor of law at the George Mason University, wrote a very interesting opinion piece today on the Wall Street Journal on why bankruptcy judges should not be allowed to make changes to mortgage contracts. Here is an excerpt:
Mortgage modification would indeed provide a windfall for some troubled homeowners — but its costs will be borne by aspiring future homeowners, and by any American who uses credit of any kind, from car loans to credit cards. The ripple effects could further roil America’s consumer credit markets.
In the first place, mortgage costs will rise. If bankruptcy judges can rewrite mortgage loans after they are made, it will increase the risk of mortgage lending at the time they are made. Increased risk increases the overall cost of lending, which in turn will require future borrowers to pay higher interest rates and upfront costs, such as higher down payments and points. This is illustrated by a recent example: In 2005, Congress eliminated the power of bankruptcy judges to modify auto loans. A recent staff report by the Federal Reserve Bank of New York estimated a 265 basis-point reduction on average in auto loan terms as a result of the reform.
Congress is considering legislation that would allow bankruptcy judges the ability to change mortgage terms such as interest rates and and amount owed.
Loan Modification 101 – Part 2 of 6
Loan Modification 101 – Part 5 of 6
Loan Modification 101 – Part 4 of 6
Related posts brought to you by Yet Another Related Posts Plugin.
on Feb 14th, 2009 at 10:07 pm
I am starting to have the same reservations about having bankruptcy courts do loan modifications. We are moving so fast that I think there are going to a number of unintended consequences that we are not going to see coming.
on Feb 16th, 2009 at 1:56 pm
Fully agreed!
on Apr 12th, 2009 at 3:34 am
People in trouble with their mortgages should find free professional consultation. Mortgage modifications can often only be done once or have limitations on use. A successful modification with the best possible outcome requires careful preparation. A homeowner must show a viable case for modification to be considered. They must have detailed information on debt to income ratio and budget planning. Free information is at http://www.wemodifyyourmotgage.com . Find out what it takes to qualify before you approach your bank. Carefully prepare you documents for submission to the bank. You are preparing to take advantage of a clause in the mortgage contract.