Need a mortgage? Call a judge
Today's Financial News - Posted January 13, 2009
Our elected officials appear to be working overtime to destroy the freedoms that make this nation great. This time they are messing with the real estate market.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): The federal government is doing everything it can to blur the lines between government and business.
Uncle Sam is now a shareholder at many of the nation’s top banks. He recently gained the authority to tell the nation’s largest manufacturers how to run their businesses. And now he is about to gain the ability to dictate your home’s value and how much you pay for it each month.
As you probably know, Congress is working on legislation that allows bankruptcy judges to rule on payment terms for distressed mortgages. If passed, judges will have the ability to reduce the amount of principal due on an existing mortgage. It is a scary and dangerous power.
Under current Chapter 13 bankruptcy laws (which force troubled borrowers to continue paying off their debts), judges have the power to modify credit card debt and car loans, but cannot touch first mortgages. Home lenders could stay out of court. But that may be changing.
Citigroup (NYSE:C) originally opposed the new legislation, saying it gives unfair power to courts. But after receiving more than $45 billion from Washington over the past few months, it has had a not-so-surprising turnaround. It is now officially in favor of the legislation that could force it to lose money on court-altered loans. Many of its competitors remain in opposition.
Don’t worry, we will save you
This is just the latest attempt from Washington to secure votes and ensure Americans remain addicted to its socialized teats. We “saved” the banks. We “saved” Detroit. Now we have to “save” the homeowners. How many votes are left to buy?
Borrowers made risky bets. Betting that home prices would continue to soar, they got themselves into loans they knew they could not afford. Now that their arrogance is working against them, they are expecting the government to come to their rescue.
A signed contract used to have a sacred obligation between two entities. Now it is viewed as little more than guidelines when it comes time to re-negotiate.
We all know the government’s short-term goals with this proposed legislation. Congress wants to get the economy back on track and look like a saving grace.
But what are yet to be seen are the long-term ramifications of our government’s constant meddling in the world of free markets. The Federal Reserve has hurriedly lowered interest rates in a last-ditch effort to spur the economy. It wants mortgage rates to reach as low as 4.5%.
If Congress expects lenders to expose themselves to the mercy of the bankruptcy courts, it cannot possibly demand them to do it without charging a premium. According to some mortgage-industry insiders, that premium will likely come in the form of interest rates at least 1% or even 1.5% higher.
By allowing the courts to write their own mortgage contracts, our elected officials are putting many more Americans at risk. Not only will the action slow the housing market even further (lenders won’t lend and buyers will not be able to afford to borrow), but it will drastically increase one of the nation’s most important industries exposure to political risk.
If the goal of the new administration truly is to redistribute the nation’s wealth, it is doing a fantastic job. It is destroying the American prosperity one bill at a time.
Next Article: Why won’t they just go away
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