Relief for Borrowers
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interest rates, lenders, relief March 3rd, 2008Time is running out to avoid a wider housing bailout.
IT’S MUCH easier to identify well-intentioned housing policy proposals that might make the situation worse than to craft ones that will help. An example is the Democratic plan — stymied, for now, by the threat of a Republican filibuster in the Senate — to let federal bankruptcy judges rewrite mortgages for distressed homeowners. If enacted, the law might spur lenders to do more of what they should already be doing: voluntary loan modifications to keep financially capable subprime borrowers out of foreclosure.
But lenders would also price the risk of bankruptcy litigation into interest rates, making it harder for everyone to afford a house. Yes, it seems odd that creditors’ claims to primary residences should be sacrosanct, when debtors can often protect yachts and second houses. Congress wrote the law that way, however, to keep home loan rates down.
Tags: interest rates, lenders, relief
