Senate Argues and Agrees Over Foreclosure Rescue Bill
The Senators are arguing over a jumbo package to stimulate the economy. Broadly they have agreed but one important clause has led it to be watered down. It related to the right of the bankruptcy judges to alter the terms of the mortgage.
The officials of the administration who are for the bankruptcy measure did not include it in the bill on the grounds that this would cause the Republicans to delay or cancel the package. It has led to the postponing of the bill till spring when this step would be tagged to another legislation.
But despite the concession not a single Republican votes for the urgent economic recovery bill.
The economic meltdown began with the sub-prime mortgages that were predatory in nature. It led to innumerable defaults that resulted in catastrophic foreclosures. The real estate market has been brought down to its knees with the prices tumbling to record low levels. Until and unless the foreclosure bleeding is plugged the economy will slide down further delaying all hopes for recovery. Foreclosed houses are continuing to glut the market pulling down the prices further. This leaves little equity to those still clinging on to their houses. So they too default and join the swelling ranks of foreclosures.
Falling real estate and defaults lead to credit freeze because banks become shy of making new loans as they continue to suffer losses from the old ones. Consumers too stop spending and that leads to the lengthening and deepening of the recession. The common man is not only without a roof but also without cash. There is a vicious downward spiral that cannot pull itself up without help.
The voluntary steps lenders have been expected to take have failed. Whatever little activity has taken place has had no impact in decreasing foreclosure figures. It was thought that bankruptcy protection would have gone a long way to staunching the bloodbath.
The bankruptcy clause would have allowed a judge to alter the terms of the mortgage in cases where the borrower has gone underwater – the price of the loan is more than the worth of the house. Empowerment of the judges would have had a deterrent effect in so far as the lenders would have been hesitant to take the course of foreclosure and come forward with suggestions for modifications earnestly. The bankruptcy issue was the stick against the carrots being offered by the taxpayers to stubborn lenders.
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