Don’t Let Judges Fix Loans

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In his housing plan, President Obama has asked Congress to give bankruptcy judges the authority to rework the terms of mortgages and allow more people to stay in their homes. Though the president’s idea sounds appealing, there are at least three reasons it is misguided.

First, the proposal would swamp bankruptcy courts. There are only about 300 bankruptcy judges, and they are already busy with an increasing number of bankruptcies. Clearing millions of new mortgage cases will take a long time and thus have little immediate effect on the foreclosure crisis. In addition, the flood of new cases would delay the resolution of business bankruptcies, to the detriment of the economy.

First, the proposal would swamp bankruptcy courts. There are only about 300 bankruptcy judges, and they are already busy with an increasing number of bankruptcies. Clearing millions of new mortgage cases will take a long time and thus have little immediate effect on the foreclosure crisis. In addition, the flood of new cases would delay the resolution of business bankruptcies, to the detriment of the economy.

Finally, the proposal worsens economic uncertainty. A major cause of the financial crisis is that many banks do not know what their assets — and particularly home mortgages — are worth. Valuing homes is simple when prices are stable. An appraiser can look at prices in a neighborhood and plausibly infer that a particular house is worth about as much as similar houses there.

Read the full article at the New York Times Op-Ed section

Date published: Feb 27, 2009

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