California foreclosure blog

Well, the banking lobby's millions have carried the day, and the Obama Administration left over 8 million American families twisting in the wind by failing to back up an Obama campaign promise.

On Thursday, the Senate failed to pass the cram down bill. The final vote was 45 in favor to 51 against. A dozen Democrats, including Democrat of convenience Arlen Specter of Pennsylvania, voted against the measure.

This is such a shame for the American people, as well as the economy.

As I've previously written, ending the cram down exclusion on primary residence loans would have: (1) forced lenders to deal honestly and fairly with homeowners regarding upside down properties with ridiculous loans; (2) provided a means to stop the spiraling rate of foreclosures; (3) helped stem off the continuing decline in property values fueled by the foreclosure crisis; and (4) allowed banks to make more money than they will by taking back millions of upside down properties. All of this would have been accomplished without spending one penny of taxpayer money.

I am, to say the least, upset, but not deterred. This relief must happen for the economy to recover, so one way or another, we will revisit this issue. I only hope that it happens soon.

The American people should be up in arms about this failure to do right by millions of struggling families. This is a disgusting display of money at work in politics, at the expense of the greater good for the common person. How did this happen? Why was the banking industry allowed to spend millions lobbying against this bill, when most of the industry's key players have taken billions in taxpayer TARP funds, and as such are forbidden from lobbying activity? Will the House (which passed the bill back in March) investigate whether institutions funneled lobbying cash illegally through banking trade groups such as the American Bankers Association and the Mortgage Bankers Association?

And where was the Obama White House in this debacle? Candidate Obama publicly declared his support for this measure on several occasions throughout the campaign, and President Obama claimed that this bill is vital to the Administration's housing and economic recovery plan. And yet, the Administration was strangely silent when push came to shove. For the past few weeks, no one from the Administration put any real effort into helping push through this important measure.

Now, the Senate's stripped down housing bill must go into a conference committee to reconcile its differences with the House version. I only hope that the rabble rousers in the House block passage of the parts of the bill that mainly benefit banks, as a return favor to the industry on behalf of the American people.

America, the banking industry is at war with your family. If you have an unsustainable loan secured by a house that is not worth enough to cover the loan balance, the banking industry just spent your tax dollars to rob you of the right to make your lender deal with you fairly. It's time for you to let Washington know that you're mad as hell. At the end of the day, politicians need your vote, and one third of the Senate is up for re-election next year. If this issue is important to you, remember how your members of Congress voted when you vote next year.

For those of you who are already at risk of losing your home, let me propose a new cram down, one that's available under the current bankruptcy rules. If you can't cram down the loan, I propose that you meet with a bankruptcy lawyer to see about cramming your upside down house down your lender's throat. A bankrupt homeowner can surrender an upside down house to their lender in bankruptcy, avoid foreclosure, and rebuild their credit faster and easier than they could after a foreclosure. Since banks keep claiming that their loans are worth more than they really are, let's make them put their money where their mouths are by forcing a new tide of upside down REOs. In the near term, with the reserve requirements and carrying costs associated with holding REOs, and the still declining real estate market, banks would hit the tipping point of having too many properties to deal with sooner or later. Under the current system, a homeowner could surrender a home in a Chapter 7 bankruptcy (presuming they qualify for a Chapter 7 - ask a lawyer), and rebuild their credit enough to qualify for a home loan in as little as two years after receiving a Discharge. Meanwhile, home values will continue to stay low, and the bankrupt former homeowner could end up buying a better house for less money with an affordable, realistic loan. In short, at this point, homeowners may be better off walking away through bankruptcy and forcing lenders to realize their losses. As noted above, be sure to talk to a lawyer about your individual situation, because the rules are complicated, and your results may vary.