Now on to the business of governing.
Congress and the Obama administration are still haggling over the specifics of the economic recovery package. While the House unveiled its proposal last week, the Senate has not yet released its own draft. Part of the hang-up seems to be over Sen. Dick Durbin’s Helping Families Save Their Homes in Bankruptcy Act, which would allow bankruptcy judges to revise the terms of unaffordable mortgages. The Hill has the details.
President-elect Obama and his advisers are resisting attempts to include a provision in the economic stimulus bill backed by congressional Democrats that would allow bankruptcy judges to shrink mortgages.
In a hastily convened Democratic Caucus meeting last week, Obama economics adviser Jason Furman made it clear to lawmakers that Obama thinks the so-called “cramdown” provision would cost GOP votes and endanger bipartisan support in the Senate.
He committed to dealing with the issue after the bill passes, as did House Speaker Nancy Pelosi (D-Calif.).
While it's important to ensure that a broad consensus supports the stimulus, this reform is far too important to put off any longer. Well over two million households have lost their homes to foreclosure since the housing bubble burst in 2006 and that number is expected to climb to six million before the bust is over. By tweaking the bankruptcy law slightly, Durbin’s bill could keep an estimated 600,000 homeowners from losing their properties. That number would surely grow if delinquencies rise.
The Hill notes that at one point last year, Durbin spoke about the proposal—which was shot down by the Senate on three different occasions—for seven hours on the Senate floor. Keep talking, Senator. It’s crucial to keep the provision on the table, as it’s one well worth fighting for.
Prof. Samuel D. Bornstein (not verified) on Tue, 01/20/2009 - 22:33
Senator Durbin's proposed legislation is estimated to help save the homes of 600,000 borrowers. I would like to provide evidence that the "cramdown" concept may be the only "cure" to save millions of " Small Business Owners" who fell prey to the ALT-A , Option ARMs, Interest-Only mortgages commonly known as the "Toxic" Mortgages. The reason that they are "toxic" is due to the fact that 80-90% of these Mortgages are not only "underwater" but their Principle balance far exceeds the original loan. The only solution is Principle Cramdown. Any interest modification will not work because the Principle is the problem.
The expected "resets" will result in the 2nd “Tsunami” Wave of Foreclosures that will dwarf the Subprime Mortgage Foreclosures.
According to a recent National Association for the Self-Employed (NASE) survey, which I authored,
there are millions of Small Business owners who ,at "reset", will not only lose their homes, but they may fail and the result will be JOB LOSS. Keep in mind that each small business employs from 1-10 people. Their foreclosure will result in JOB LOSS.
See the NASE Survey at this link:
http://advocacy.nase.org/research.asp
Here are some shocking results of the NASE Survey:
1) 3,709,800 small business owners hold Alt-A and other toxic mortgages
2) 2,980,800 small business owners are "very worried" about the monthly mortgage payment due at “Reset”.
3) 1,279,800 are already delinquent as they have missed one to three or more monthly mortgage payments by mid-November, 2008, before the expected Resets that are scheduled to begin in 2009 through 2012.
This survey underscores the fact that millions of Small Business owners, employing from 1-10 employees, will be at-risk of default on their Alt-A , Option ARMs , Interest-Only, etc. Congress is now addressing Economic Stimulus legislation. Washington should recognize that these Small Business owners hold the key to a solution. By addressing these small business owners, we may be able to save jobs. “JOB RETENTION IS AS IMPORTANT AS JOB CREATION”.
Senator Durbin should bring this NASE Survey to the attention of those in the Senate who are against his bill. They may change their minds once they see the magnitude of the upcoming catastrophe.
In summary, the NASE Survey results impact the two most critical elements in the economic crisis: Foreclosures and Job Loss.
I welcome further discussion and hope that this will be brought to the attention of Senator Durbin.
Prof. Samuel D. Bornstein
Kean University School of Business
732-493-4799