California foreclosure blog

Today, the House of Representatives passed a revised version of the bankruptcy bill. This is welcome news for the millions of homeowners at serious risk of losing their homes because their lender refuses to be realistic about the real value of the home securing the loan.

For some strange reason, recent press reports are calling the bankruptcy provision "controversial" and "sure to face stiff opposition" in the Senate.

The only real controversy is this: why the hell should mortgages secured by a borrower's primary residence be the only type of loan off-limits under the cram down rules? A short history lesson: back in 1978, the banking industry was able to convince Congress that home loans would become unavailable unless lenders were afforded special treatment in the form of an exemption from the general cram down rule. Granted, the home loan market was drastically different in 1978 than it is today; however, it is the very evolution of the home loan market that weighs in favor of ending this special treatment.

Also, as I previously mentioned, from 1981 to 1993, we actually had cram downs allowed in some parts of the country, but not others. If there were any truth to the banking industry's claims about loans costing more or being less available if cram downs are allowed, then we should see such differences in the different parts of the country during this period in history. The actual result is that there was no difference in the cost or availability of home loans between cram down jurisdictions and non-cram down jurisdictions.

The bottom line is this: the American people are really pissed off right now. There is a palpable feeling on the ground that, unless the little guy gets some real and meaningful relief, we're headed towards rioting in the streets.

If cram downs are good enough for the bank executive (who likely got taxpayer money), to cram down loan balances on his vacation home, his commercial real estate, his yacht, or his airplane, then it should be good enough for the regular folks who only want to find a way to hold on to their primary residence.

I encourage readers to contact their Senators to urge swift passage of the Senate version of this important legislation. It's time to eliminate the special treatment lenders have enjoyed, especially when the harm it does is so devastating to so many people.