January 09, 2008

Dodd : Two issues, one right and one wrong

Sen. Dodd has two items coming up this year, one is a reform of the horrendous 2005 Bankruptcy Act that made it extremely easy for lenders to foreclose on the homes of ordinary people, not to mention the millions with medical collections who would be forced to give up their homes should they be forced to file bankruptcy.

Let me put it this way... when a banker tells you that a bill which makes it hard for a person to declare bankruptcy is bad, then it's pretty damn bad. This was a Republican kiss to the credit card companies and collection agencies, two groups that aren't exactly beloved in the US (from McClatchy via Somervell County Salon)

In 2005, Congress passed a new law aimed at making it harder for people to file for bankruptcy and walk away from their debts.

With the tougher requirements, the number of bankruptcies declined in 2006 but surged by nearly 40 percent in 2007, according to statistics released Thursday. And experts predict the numbers will go higher this year.

The issue is gaining plenty of attention on Capitol Hill, where leading Democrats are proposing to roll back the landmark bankruptcy law. As the number of foreclosures rise, backers of an overhaul say it's needed to prevent more Americans from losing their homes.

"You ought to never lose your home in a bankruptcy proceeding," Connecticut Democratic Sen. Chris Dodd said during a presidential debate in Iowa last month.

Here's a little illustration. Let's say you're married and your spouse catches something bad, but curable. They go in for very expensive treatment and are cured. Of course, you're left with massive medical bills, even if you have insurance. Normally, you'd declare bankruptcy if you're unable to work out a payment plan. Under the Republican law, the bankruptcy judge has very little leeway and can force you to liquidate your assets, including your home. See how much fun this is? Maybe you decide not to file BK but instead just ignore the bills. The collection company then decides to take you to court and they get a lien against your home, effectively giving them ownership. Needless to say, Dodd reworking this legislation is nothing but a good thing.

Unfortunately, we can't say the same for his version of the Home Ownership Protection and Preservation Act styled as S.2452. This legislation will, in effect, remove the majority of the originators from the market. Those that remain will either work for mega banks like BofA, JP Morgan Chase and Citibank OR they'll fold into mortgage banking companies. The fun part will be that what is transparent today, Yield Spread Premium, will be hidden forever since banks don't have to disclose what they make. This will, of course, make it more expensive for consumers AND remove capacity from the market at the precise time the market needs it. Click the link and see what I wrote about this mistake of a bill back in November. What I said then stands today and this thing, in it's current form, should be put in a drawer and forgotten.

Trust me, there are a few bad brokers and they are slowly but surely being removed from the marketplace. This bill won't accomplish the goal of cleaning up the origination market. All it will do is hide more from the consumer and increase their costs to buy a home. For those of you who think I'm self dealing (I'm a wholesale banker) more than half of my clients are banks. I'll just shift the rest over so this bill will have no impact on my business. It will be shitty deal for consumers.

And who's pushing this? Why none other than Wells Fargo, Bank of America and the other large banks who are tired of competing against the Third Party Originator (broker) market. Many of these banks have recently terminated their wholesale lending divisions in an effort to squeeze brokers and force consumers to their retail divisions. Further, they've been lobbying through community reinvestment groups for the elimination of brokers en masse. And the Democrats are actually falling for it.

Take a second, contact Senator Dodd today and let him know we love the Bankruptcy reform but hate the mortgage reform.

Posted by mcblogger at January 9, 2008 08:43 AM

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