Still the Party of No: Why Republicans Rejected Cramdown
Bankruptcy cramdown isn’t a particularly conservative or liberal idea, it’s just an excellent solution to a difficult problem. It allows a bankruptcy judge to value a residence, and rewrite the mortgage to that level on terms that might be workable for the debtor. It doesn’t cost the Treasury anything, and it leaves money for unsecured creditors. So, why did the Republicans vote "no" as a block? If you ask them, they spout talking points from the Mortgage Bankers Association–like this one: It will raise mortgage rates for everybody. That according to Minority Whip Jon Kyl (R-AZ), a claim that is demonstratively untrue.
So, why? I think there are two reasons: First, the point of cramdown is that it improves the bargaining position of the debtor. Right now, when the homeowner tries to renegotiate the loan, the bank tries to grab every last nickel the family has, leaving them helpless if something else happens–job loss, illness or a sick kid. In the process, they destroy the ability of the family to pay its unsecured creditors. With the cramdown, the family has some bargaining power. They don’t have to pay more than the house is worth; they have enough left over to take care of at least a part of their unsecured debt.
The Republicans–and the renegade Democrats–are content to leave the bankster foot on the necks of the citizenry. How else will the banks recover if they can’t screw the workers?
Second, under the Obama plan, mortgage servicers get paid to rework mortgages. Many mortgage servicers are owned by financial institutions. It just shoves more money at the banksters. The cramdown will seriously reduce those payments.
And we can’t have that, now can we?