Video Summary
Bill Statistics
The Middle Class Position
The middle class supports.
How They Voted
54% with middle class
44% against middle class
2% did not vote
Grades
House
The House receives a grade of C for its support of the middle class on this piece of legislation.
234 Representatives voted for the middle-class position; 191 voted against.
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See how each member voted on this bill:
(H.R.1106) On passage of a bill designed to prevent mortgage foreclosures and increase the availability of mortgage credit.
Introduced:
02.23.2009 [House]
02.23.2009 [House]
Sponsor:
[-]
[-]
2009 House Roll Call #104:
Yea-234, Nay-191
The Legislation:
This was a vote on final passage of H.R. 1106, legislation that, among other things, gave bankruptcy judges the ability to modify mortgages on principal residences, allowed the Departments of Veterans Affairs and Agriculture and the Federal Housing Administration to guarantee and insure mortgage loans that are modified, protected companies servicing loans that engage in loan modifications against civil claims, and made permanent what had been a temporary increase in the level of FDIC deposit insurance. The primary disagreement regarding this measure focused on its provision allowing bankruptcy judges to modify mortgages on principal residences.
Rep. Conyers (D-MI), the chair of the House Judiciary Committee, was leading the effort on behalf of the bill. He said that the legislation would limit what he called “an anomaly in the Bankruptcy Code which prohibits judicial modifications of principal residences, even though every other class of asset . . . is eligible for such treatment.” Conyers said the change would protect “honest Americans struggling to keep their homes in the midst of a once in a lifetime economic calamity” and would also “limit the downward cycle of foreclosures that are now damaging our neighborhoods, while, at the same time, protecting financial intermediaries and ensuring that judicial modification is considered only after every reasonable effort has been taken to achieve voluntary modification outside of the bankruptcy.”
Rep Smith (R-TX), the Ranking Republican on the House Judiciary Committee and one of the leaders of the Republican opposition to the expanded bankruptcy provision, acknowledged that the “serious economic recession . . . is worsened by the foreclosure crisis. Until we address the rising number of foreclosures, it will be difficult for the economy to recover.” He also agreed that “some of what is in this bill will be helpful.” Smith then went on to summarize the reason the Republicans were opposing the bill by saying: “This bankruptcy provision not only will fail to solve the foreclosure crisis, but also will make the crisis deeper, longer and wider. Allowing bankruptcy judges to rewrite mortgages will increase the overall cost of lending. Lenders and investors will hesitate to put up capital in the future if they fear that judges will rewrite the terms of their mortgage contracts. Less available capital and increased risk means that borrowers will pay higher interest rates in the future. Allowing bankruptcy judges to rewrite mortgages will also encourage borrowers to file for bankruptcy. “
Rep. Wasserman-Schultz (D-FL) responded to Rep Smith by referring to the proposed change in the bankruptcy law as a “lifeline” that must be thrown to homeowners. She said the current system of “voluntary modification” of mortgages “is just not working, and our current bankruptcy laws fail our families.” She added that she knew “some well-meaning opponents believe families will rush headlong into filing for bankruptcy. We all know, however, that the grave consequences of filing for bankruptcy means it will always be a last resort.”
The bill passed by a vote of 234-191. Two hundred and twenty-seven Democrats and seven Republicans voted “aye”. One hundred and sixty-seven Republicans and twenty-four Democrats voted “nay”. As a result, the House passed and sent on to the Senate the bill designed to prevent mortgage foreclosures and increase the availability of mortgage credit.
The Middle-Class Position:
The Middle Class Supports. As the economy and the housing and job markets worsen, middle-class households continue to lose equity in their homes and are less able to afford abusive mortgages with exorbitant interest rates. The federal government and the mortgage industry’s continued failure to address the subprime mortgage and foreclosure crisis adequately could result in as many as 8.1 million foreclosures by 2012. Despite widespread calls for action to confront the crisis, foreclosures increased 81% in 2008. Voluntary mortgage modifications by lenders and banks, encouraged by policymakers in place of comprehensive federal action, have failed to make mortgages more affordable and prevent widespread foreclosures.
Extending the same bankruptcy protections to primary residences that currently apply to luxury yachts and vacation homes is not only fair, but will reduce foreclosures by about 20%, according to Credit Suisse, and benefit about 800,000 households, according to the Center for Responsible Lending. Strengthened bankruptcy protection is also beneficial to middle-class families who are not themselves facing foreclosure: the 2.4 million subprime foreclosures that the Center for Responsible Lending predicts will occur in 2009 will result in a $352 billion decline in property values for homes in neighborhoods surrounding those foreclosures, with an average decrease in property value per home of $8,667. Preventing foreclosures in those neighborhoods will keep property values up, benefiting all households. Indeed, an analysis by the Center for Responsible Lending found that similar legislation would avoid 600,000 foreclosures and thus maintain $72.5 billion in wealth for families not facing foreclosure. Modification of mortgages in bankruptcy will help maintain property values, while keeping middle-class families in their homes, limiting the self-reinforcing spiral of foreclosures and falling home prices.
Additionally, the bankruptcy provision provides a powerful incentive to banks to offer homeowners affordable loan modifications in order to avoid costly bankruptcy proceedings over which they have little control.
From the Experts:
“It is important also to provide a backstop to protect those homeowners whose lenders cannot or will not agree to voluntarily modify their loans, either through the TARP initiative or otherwise. The best and only solution in these cases – provided the homeowner could sustain a market rate mortgage – is to lift the ban on judicial modifications, and allow a bankruptcy court to implement an economically rational solution that otherwise would be lost. [The bankruptcy provision] would immediately help stem the tide of foreclosures at zero cost to the U.S. taxpayer.”
– Michael Calhoun, President and CEO, Center for Responsible Lending, January 13, 2009
“[B]ankruptcy law is wildly off-kilter in how it treats homeownership. Under current law, courts can lower unreasonably high interest rates on secured loans, reschedule secured loan payments to make them more affordable and adjust the secured portion of loans down to the fair market value of the underlying property -- all secured loans, that is, except those secured by the debtor's home. This gaping loophole threatens the most vulnerable with the loss of their most valuable assets -- their homes -- and leaves untouched their largest liabilities -- their mortgages.”
– Jack Kemp, President George H.W. Bush’s Secretary of Housing and Urban Development, January 29, 2008
Beyond this Bill:
Critics of modifying primary mortgages in bankruptcy worry that interest rates will rise as a result, that the federal government is bailing out irresponsible borrowers, and that the provision will encourage bankruptcy, overwhelming bankruptcy courts. None of the criticisms is valid. Restricting eligibility to current mortgages in danger of foreclosure means that future mortgages will not qualify for modification. Thus, lenders will not raise interest rates on future mortgages based on the risk of modification in bankruptcy. Indeed, research demonstrates that mortgage markets (and interest rates) are not, in fact, influenced by the risk of bankruptcy modification. Further, the bankruptcy modification provision will protect all homeowners from the current housing crisis by mitigating house price declines. Foreclosures affect not only the families who lose their homes but entire neighborhoods, as property values decline with the appearance of unkempt properties, abandoned homes, and increased crime. Finally, concerns that the modification provision will incentivize bankruptcy are exaggerated. Not only is the provision limited to current mortgages at risk of foreclosure, but bankruptcy itself is unpleasant, damaging credit and subjecting living expenses to court review.
Still, modification of mortgages in bankruptcy will not solve the housing crisis. Further action to address widespread foreclosures – including a moratorium on foreclosures and a mechanism to require modification of mortgages outside of bankruptcy – is necessary. President Obama’s Homeowner Affordability and Stability Plan is an important component of such a comprehensive approach.
The act restores some fairness to bankruptcy law, which was changed in 2005 to treat middle-class debtors more harshly. Further legislation is necessary to reform the worst provisions of that bill that make it harder for debtors to get a fresh start.
