Federal housing policy, we now know, has caused catastrophic
economic failures. Programs designed to expand homeownership did so at the expense of sound lending and borrowing, to the ultimate detriment of economic stability and many families' finances.
But one federal housing policy worked to reduce the price of
housing credit and to extend its availability without
contributing to the mortgage mess: denying bankruptcy judges the power to modify home mortgages, a practice known as "strip-down" or "cram-down." This added certainty allowed lenders to accept smaller down payments and offer lower interest rates to millions of American homeowners without providing any incentive to make irresponsible loans.
Now Congress is considering snuffing out this one bright spot by giving judges the power to discharge mortgage debt in bankruptcy and rewrite repayment terms. If enacted, these proposals would increase the cost of homeownership and put it out of reach for many Americans, especially those of lesser means. They would also deal a blow to banks and other lenders at a time when many are faltering, thereby undermining government efforts to increase stability in that sector. Worst of all, allowing bankruptcy judges to rewrite mortgages would prevent few foreclosures while causing harm to those it is intended to protect.
Read the full article at The Heritage Foundation