Senate Mortgage Banquet Leaves Out Homeowners in Distress

Janice L. Mathis

Like most legislation passed with bipartisan support, last week’s U.S. Senate mortgage foreclosure proposal is a smorgasbord containing something for almost everyone.  Everyone, that is except homeowners who have lost and are losing their homes to foreclosure. 

 

Buyers of foreclosed homes will feast on a whopping $7000 personal income tax credit.  Since a credit comes off the bottom line of the tax bill, the credit amounts to a $28,000 taxpayer-financed subsidy.  Georgia’s own Republican U.S. Senator and real estate mogul Johnny Isaakson pushed for a $10,000 credit which Dems negotiated back a little. 

 

Builders stuck with more inventory than they can sell get a tasty new deduction for prior years’ taxes.  Local housing agencies are being served a yummy $10 billion to refinance subprime loans and make mortgages to prospective (new, not existing) homeowners.  HOPE NOW and other mortgage counselors get $100 million to whet their appetite for more distressed clients, only a tiny fraction of whom are getting real mortgage relief.  

 

There is a widespread but unproven theory afloat about those who are losing their homes to foreclosure– that the crisis they face is of their own making.  This theory helps to justify the lack of public policy action to rescue homeowners in distress. According to this theory, If you caused your own problem, then you are responsible for solving it as well.  There are a couple of problems with this theory.  It does not fit the vast majority of cases.  Most homeowners did not buy mansions, nor were they unreasonably derelict in examining the loan paper work.  Many relied to their detriment on brokers, agents, bankers to tell them the important facts about their mortgages. 

 

Even so, it is possible to offer relief for the needy without subsidizing the greedy.  For example, relief only for owner/occupiers or buyers of properties valued less than $300,000.  Notice that the idea of personal responsibility does not apply with equal weight to financial behemoths like Bear Stearns, which was bailed out with a Saturday night special taxpayer guarantee.

 

Homeowners who got into trouble failed to read or understand the fine print in their ARM’s, bit off more mortgage than they could chew.  But that group generally does not have lobbyists (and industry insiders like Senator Johnny Isaskson) helping to plan the legislative menu.

 

The House of Representatives will take the measure up shortly.  In light of the 80,000 U.S. jobs that disappeared in March we must urge the Congress to offer up something more for the hundreds of thousands of displaced Americans who have already or will soon lose their homes and their creditworthiness.  A good place to start would be a provision rejected by the Senate and the banking lobby - revising the bankruptcy laws to permit mortgages to be modified in Bankruptcy Court.