Changing..the Principal?

Did Biden really just say courts should be changing the principal on troubled mortgages?

Comments

[Mike G]

Why not, as long as we're completely removing all the rules and consequences of borrowing and redefining credit as free money?

[Kolohe]

It's not *that* outside the box. In bankruptcy proceedings, I imagine that you can alter the amounts owed to all sorts of creditors, secured or un-secured.

(of course, it only makes sense to the bank if they'll get more money from doing this cramdown than they would from just re-posessing and selling the house. But with the status of the market and tranaction costs, it may be worth their while.)

[James Anderson Merritt]

Where is the Reason counter-debate with Wayne Root? I looked all over the website and found nothing! Wotta crock!

[James Anderson Merritt]

Oh, and now there has never been any better friend to Israel than Joe Biden. Out of his own lips.

American interests and security are #1, Mr. Biden. Don't out yourself as an agent for a foreign government, not on national TV!

[James Anderson Merritt]

"I'm so glad to know that we BOTH love Israel." -- Sarah Palin, moments ago

See, THIS is why we drink whenever we hear "noo-kyu-lar"!

[Orange Line Special]

Uh oh. Honorary Koctopus member Sully's Power Glutes are *not* happy.

[Diddly Squat]

As a bankruptcy law type, I heard both of these jamokes running their mouths about Federal Code that neither of them seem to know a damn thing about. Biden didn't seem to know the difference between a Chapter 7 and 13.

However, looking past the bankruptcy laws, when I heard "The Comb-back Kid" say "change the principal" I almost drove my car into a tree.

Yep, throw away basic contract law, the underpinning of American jurisprudence. Hell, I would like the principal on my student loans reduced to Two Bucks, while Biden is handing out chips and ponies!

[James Anderson Merritt]

"Noo-kyu-lar weapons in this country are used as a deterrent..." -Palin, explaining why we must prevent anyone else from getting nukes

Yeah. So Sarah, if we had not incinerated two cities in Japan in WWII, would our possession of nukes be as effective a "deterrent"? Who else in the world has ever used nukes against a civilian population, wartime or not?

(I heard Biden slow down his pronunciation of "NEW-cle-ur," oh so subtly. I think he is digging at her...)

[MS]

Okay, the heartbeat question gives us the biggest laugh of the night

BIDEN: God forbid something should happen to Barack Obama ... BUTLETMETELLYOUWHATIWOULDDOIFITDIDHAPPEN!!!! (breaks out 800 page manual)

PALIN: Since we're both Mavericks, we'll dispense with press conferences and just show James Garner reruns ...

Palin's sentence structures are killing me! Wasn't this woman a JOURNALISM major?

[Jay]

If they hiarcut mortgage principles the home-ownership rate should soar to 100%. Anyone who rents under such precedence is insane.

[jdd]

Hey BK lawyer guy - can't the courts in Chapter 13 reduce the amount of a secured lien to the value of the collateral? If so, that is basically foreclosure, right? I don't ask to be snarky, I really can't remember from law school.

Is Biden plan to allow a reduction below the value of the collateral, so as to create a windfall for the delinquent?

I suppose this is not all that novel. As far back as 1819, states passed anti-forclosure laws during real estate busts.

The entire concept of an insolvency statute kind of undermines the freedom of contract, doesn't it?

And btw, I think that it would only be fair to reduce the principal balance on student loans by like 30% across the board if we are forgiving debts. Probably better for consumption, people paying their student loans are in prime consuming years as opposed to house poor people.

I mean, the whole thing is a big give away. As a debtor, I'd rather see ridiculous inflation than deflation. The worst of both worlds is that greedy, zero societal benefit risk taking debts get wiped but debts supporting pursuit of knowledge that arguably have some spillover to society remain untouched.

[bendover]

So Biden wants to change the principal to loans the gov't is about to buy - why should this come as a suprise? Can you really not envision a scenario where a foreclosure sob story gets reported in some congressional district, and the rightous anger that something must be done to solve this problem? Bailouts for everyone!

[Jon H]

I've heard something about how non-primary residence mortgages can be adjusted in bankruptcy court.

Given that, I don't see why a primary residence mortgage shouldn't be adjustable by a judge.

I'd be willing to have it be contingent on the lending practices of the loan originator. If the originator was a notorious scam house, and the terms are insane, then by all means adjust to something reasonable that the borrower can afford.

If the loan's terms aren't insane, and the loan came from an originator with good practices (at least locally to the home in question) I'd be less likely to support an adjustment.

[Orange Line Special Reports]

The ticket of Change and No Change in 35 Years...

His house is his total investment?

Was he cracking up or cracking up?

More at my name's link...

[Chance Yohman]

None of this matters anymore. Tomorrow 700 billion dollars will reward mistakes. Why even try anymore? The government will just pick you up if you fail. All my hard work during school, my hard work at my job, paying off my loans early, and investing in solid companies doesn't mean dick anymore. I have no personal debt and a nice start on retirement, even despite the losses, at 27. Yet I'll be picking up the tabs for this Crappy Deal and the next iteration, The Crappier Deal, still when I retire. I give up. America is dead to me.

[jdd]

I think the issue is whether the secured can be compelled to accept something less than the PV of the collateral. That seems to be the base level even under the CH 11 cramdown rules - from a very quick read.

The sanctity of the security agreement/mortgage is respected. The lender assumed the risk that the collateral would be insufficient. To take the collateral away is unfair and a windfall. And future borrowers would see higher interest rates with this provision in there.

Ahh, the peverse result of another socialist bright idea from the leftists.

It is too bad there is no longer a free market party to fight these clowns. I will laugh if I ever here right-wing-radio guys whine about how Pell Grants are evil because they distort the price of college. Yah, but so do ranch subsidies and wall street bailouts. We're all commies now!

[scott clark]

Why is that a surprise? I thought I read somewhere that Obama was looking to have the cramdown provision put into this bailout bill at their summit this past weekend.

[Bingo]

See, this is what happens when we get the hippy generation in office. Suddenly the price of assets has no real meaning and can be whatever you want it to be.

Fuck baby boomers.

[Jay]

It's funny that Biden suggests lowering the principal when for years I've been arguing to remove "non-recourse" from mortgages loans.

[Jon H]

Suddenly the price of assets has no real meaning and can be whatever you want it to be.

Deficits don't matter, man. Assets don't matter, it's all stardust.

[Orange Line Special Reports]

What heating program was JB refering to?

[KenK]

"Suddenly the price of assets has no real meaning and can be whatever you want it to be."

Assets are worth whatever you can sell them for. If no one will buy them they are worth nothing?

[Jon H]

Biden's daughter(?) wins the leg primary.

[Bingo]

Or whatever the government will bail you out for!

[CONVENTION2008LIVETEAMCOVERAGE]

The Power Glutes had a mood swing:

Biden's sobriety and authority and call for fundamental change is both reasonable and solid. It will resonate, I think...

More at my name's link...

[Bingo]

Palin's leadership and resolve will see us through the next 4-to-8 years.

More at my name's link...

[Hazel Meade]

One of these days, people are just going to start saying "Fuck it. I want my cut." And then it will really be the end of the Republic.

[Jon H]

"One of these days, people are just going to start saying "Fuck it. I want my cut." "

They already do at high net worths.

[CONVENTION2008LIVETEAMCOVERAGE]

You know that chart at the bottom of the CNN screen showing reactions? Here's something odd. Of course, CNN would never do anything like that, even though they've been caught doing things like it before. Just not now. Of course not!

[Hazel Meade]

Jon H; yeah, and then the Democrats say, "yeah, lets make sure they get their cut so we can have an excuse to divvy up the rest. "

[juris imprudent]

Wasn't this woman a JOURNALISM major?

What part of this comes as a shock to you?

[Scott]

After this debate, can I PLEASE become a nihilist without taking any crap from anyone. Haven't I been proven right? 🙂

[Mike]

Its nice that Biden has a good looking set of teeth to lie through because he sure used them a lot.

It was also nice to see Biden spend 90% of his air time talking to Iliff and not the viewing audience.

I could tell if the lies were coming through his teeth at those times because all I could see was his left ear and profile of his nose.

[Kolohe]

can I PLEASE become a nihilist without taking any crap from anyone.

Say what you want about being a politician whose only goal is higher office, at least it's an ethos.

Wait, what?

[nonPaulogist]

I was rooting for Palin going into this thing, but she's JohnnyMac's Stepford wife. I think in the future I will just automatically oppose anyone who cannot pronounce the word "nuclear" properly. By my "calcleation", she went a little overboard with the Ma Kettle shtick.

[Ammoniium]

Too bad Sarah Palin can't use the east coast pronunciation of "nuclear". Totally disqualifies herself from being VP.

I guess people like me (and the nuclear scientist I was talking to yesterday) just can't aspire to be VP.

[cunnivore]

...especially considering "nuk-yu-lar" engineer Jimmy Carter famously used that pronunciation, and I'm certain that his left pinky knows more about nuclear physics than 90% of the people on this board.

[cunnivore]

It's easy to knock nihilism, but there's not much else short of heavy drugs that can dull the pain of watching one's homeland run over the edge of a cliff like Wil E. Coyote. The only question is, when are we going to look down and realize we've been running on air for the past few years.

[Sandy]

Ammonium, yes, you and the nukyular "engineer" you were talking to are indeed disqualified to be second in line for leadership of the free world and the second-largest nuclear arsenal on the planet.

cunnivore, you should read up on Jimmy Carter's education on nukyular engineering before bragging on him. Dude was a generalist sub officer who was doing his turn on TDY and learning how to hit the SCRAM button. What he knows about nuclear physics is probably about what 90% of the people on this board know, and no, it's not that much.

[Bob Smith]

It's funny that Biden suggests lowering the principal when for years I've been arguing to remove "non-recourse" from mortgages loans.

Every conventional residential mortgage loan is full recourse. It's state law that makes them non-recourse. In particular, California for purchase-money and Texas for home equity lines. You would think, in a state where loans are non-recourse, lenders would reduce their exposure to compensate. No, they don't, so when California crashes lenders get hit hard. I don't see the problem.

[Bob Smith]

Cramdown isn't permitted on residential mortgages, at least on residences (not sure about investment properties). Guess what happens if Obama gets what he wants? Either interest rates go up to compensate for the risk, or lending stops because Congress is busy impairing the obligation of contracts. I don't see how this benefits anybody. Why should everybody else pay a higher interest rate because some borrowers will demand a cramdown?

[Mr. X]

This is actually one of the few things I thought made sense. In bankruptcy proceedings now, the court can reduce the principal on loans taken out on boats, vacation homes, vehicles, etc. Primary residence homes are excluded, because you get to keep them in bankruptcy, rather than lose them.

He's suggesting that the bankruptcy court have the same power to modify a primary residence home loan as it does to modify other loans.

I'm still not sure it's a good idea, but it's not absurd.

[Bob Smith]

He's suggesting that the bankruptcy court have the same power to modify a primary residence home loan as it does to modify other loans.

"Reduce principal" and "modify" aren't the same thing. As I understand it, Obama doesn't just want to let judges do cramdowns, he wants to give them the power to rewrite the contract in toto. Change the interest rate, change the amortization period, strip out the prepayment penalty, change an ARM to fixed, etc. Impairing the obligation of contracts like this has nasty consequences. If banks can't enforce their loan contracts they'll stop lending to anybody who doesn't have AAA credit. The risk of strategic bankruptcies (where the purpose of the bankruptcy is to screw the lender rather than save the plaintiff from financial doom) is too high.

[brotherben]

"The risk of strategic bankruptcies (where the purpose of the bankruptcy is to screw the lender rather than save the plaintiff from financial doom) is too high."

That'll teach those unGodly predatory lenders. Preying on special needs borrowers and stuff.

(i am not serious)

[gorgonzola\'s foil]

Time value of money: If a court says, due to bankrupty and the concurrent salvage evaluations, that the net present value of the note is $X, reflecting some discount off the nominal value $Y, it really doesn't matter if they do the math to take it out of the interest or the principal.

[economist]

Can I get the principal on my house changed to, uh, zero?

[economist]

Chance Yohman,
It took you this long? I gave up on the world and decided I'd just laugh at it as it destroyed itself years ago.

[economist]

You know, amazingly I was not surprised by the proposal to effectively nullify contracts. Honestly, the only people who would be surprised by any of the modern extent of state power would be those who lived before the New Deal.

[Bob Smith]

Time value of money: If a court says, due to bankrupty and the concurrent salvage evaluations, that the net present value of the note is $X, reflecting some discount off the nominal value $Y, it really doesn't matter if they do the math to take it out of the interest or the principal.

True, but

A) I've never seen a banker, let alone a judge, who could use a financial calculator
B) Nullifying contracts is bad juju

[JB]

Biden is too stupid to be in charge of a paper bag.

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[toetotoe]

Kolohe, it sounds like you're accepting the BS argument that Biden makes to justify larceny: that the government readjusting the prinicple would be benificial to the banks because it increases the probability they will get paid back at least something. You're forgetting that banks voluntarily cut their losses in this way all the time, and if readjusting the principle would be benificial, they would do so. The government lowering the prinicple, therefore, is not win-win and is simply ignoring fundamental property rights and stealing from the bank.