Loan servicers hope non-binding deal with Bush will kill bankruptcy reform
By Chip Parker, Jacksonville Consumer Attorney on Dec 6, 2007 in Mortgage Reform
The Bush administration is on the verge of inking a non-binding “deal” with major lenders to freeze interest rates for five years, but while anything is better than nothing, this agreement will not be enough to put the economy back on track. According to analyst Guy Cecala of the trade publication Inside Mortgage Finance, less than 1/3 of the $1 trillion of outstanding subprime debt are likely to qualify for the plan.
I am sure the conversation went something like this:
“George, investors are suing us because we didn’t properly analyze risk when lending their money, and borrowers are suing us because we didn’t comply with federal disclosure requirements.”
“Well, boys, you’re good people. We all know that. There’s a butterfly! Heh heh.”
“Thanks, George. That means a lot to us. Anyway, some of those nasty Democrats are proposing a change in the bankruptcy laws that would allow borrowers to restructure their loans. Now, this would likely stop the foreclosure crisis and get income flowing back to the investors.”
“Gee, that just doesn’t seem fair. I mean, you paid good money for all those changes we made to the bankruptcy code back in 2005. We gotta stop it! Didn’t our GOP boys on Capitol Hill come up with their own fake bankruptcy reform? They even came up with this nifty acronym – the HOMES Act! Dick, can I have ice cream?”
“Dick’s busy running the country, George. Anyway, we agree. Bankruptcy reform is just too drastic, even the fake GOP version. Spreading this mess among the entire population is a much better answer for us.”
“Well, yeah. How did you like my boy, Bernanke, dropping interest rates? It was almost like Greenspan was still running the Fed!”
“Yes. That was great, but that didn’t stop the Wall Street slide. Some people are upset that the move devalued every wage in the country. They think it was short sighted, and their a tad embarrassed that the dollar is now on par with our Canadian neighbors.”
“Well, what are we gonna do? Is the military an option?”
“No, George. Martial law is not necessary at this time, but we do think that if we pretend to negotiate a deal to freeze mortgage interest rates, people will decide bankruptcy reform isn’t necessary. We propose a 7 year freeze on adjustable rate loans.”
“Seven years! No way! Let’s make it five, and you can get out of the deal whenever you want! And let’s make it available to only those borrowers that are current on their mortgages!”
“We like the way you think Mr. President! What about those borrowers that were approved for second mortgages to make their down payment?”
“Well, that’s a dumb idea! Even I know that. Who thought of that?”
“We did, George, and we also approved 100% financing to borrowers with no proof of income.”
“Well, those borrowers are just plain irresponsible for accepting your offer. Let’s leave those dummies out of the deal. There’s already enough here to distract attention from real reform.”
“You’re the man, Mr. Prez.! We could use a man like you on our payroll when you finish this gig. Give us a call.”
“Huh? Oh, yeah. No problem. My shoe’s untied. Dick!“
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