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Democrats Want Mortgage Adjustment   January 6th, 2009
Legislation to give judges authority to modify loan terms       


More observations...

When a bad idea doesn't work, it seems like often Democrats think it's because the bad idea wasn't pursued vigorously enough. Loan modification to keep people in their homes has already been demonstrated to not work but Democrats have re-introduced legislation to give judges the authority to "modify" loan terms for those in bankruptcy.


A Democratic plan to change bankruptcy law so judges could adjust the terms of mortgages is officially back. Sen. Richard Durbin, D-Ill., in the Senate and Rep. Brad Miller, D-N.C., in the House on Tuesday introduced complementary legislation designed to reduce foreclosures by giving judges the authority to eliminate some mortgage debt.

Again, we have to remember that loan term modification was tried and didn't produce encouraging results:


Office of the Comptroller of the Currency director John Dugan on Monday released statistics showing a high re-default rate on mortgages that have been modified in the first two quarters of 2008. "... According to the OCC statistics, which looked at loans modified in the first quarter and second quarter of 2008, 36% of borrowers had re-defaulted by being more than 30 days past due and after six months, the rate was roughly 56%.

So even when loan terms are modified to assist the homeowner, most re-default within six months. Yet Democrats are now proposing legislation that would give judges the authority to "eliminate" some mortgage debt?

In other words, if a lender loans someone $200,000 for a house, the value of the house drops to $150,000 and the homeowner can't make the payments he promised, the judge should have the authority to state, "Ok, now you only owe $170,000." By fiat the judge may arbitrarily decide that the lender is not entitled to $30,000 (or whatever amount) of the cash that was originally loaned?

In an economy where a primary problem seems to be an unwillingness to extend credit, I'm sure that allowing judges to modify the amount owed is going to make lenders really eager to loan money. If I were a lender, why would I want to loan out money if a judge can come along and decide that I'm not entitled to get all my money back?

This is yet another example of the end of personal responsibility that I wrote about a couple of weeks ago.

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