Monday, May 04, 2009

An Obama flip flop (a subtle one)

Last week Senators (Democrats joined Republicans) and blocked a vote on an amendment that would have allowed bankruptcy judges to modify troubled mortgages for ailing homeowners. Obama as a candidate was for it. Obama as President does not seem to for it... (or at least that is what might be read from the deafening silence emanating from the White House after the amendment failed). Now the plan is to keep Americans with mortgage issues in their homes relying on lenders (read: vultures) to voluntarily rework bad loans. Yeah, right!!

From here: Even if lenders do agree to modify loans, many Americans will still be in trouble. That’s because nearly 14 million homeowners are “under water” — they owe more on their mortgages than their homes are worth. In a bankruptcy, such homeowners would likely have their loan principal reduced, lowering their payments and helping them to rebuild equity. In a typical voluntary loan modification, however, the monthly payment is reduced, but not the principal. That puts under-water borrowers at high risk of redefault, because there is no equity to fall back on if a financial setback leaves them unable to make mortgage payments. The negative feedback loop — foreclosures beget falling home prices, which beget foreclosures, further weakening the banks — is well under way.
Apartment in Chelsea

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