CT Blue

A while back I mentioned that, according to Firedoglake, John Larson had lined up behind a “New Democrat” push to water down Obama’s bankruptcy cramdown proposal. I got an email from one his staff people, and we had a brief email exchange. According to the staffer:

I wanted to inform you that Congressman Larson is supportive and voted in favor of The Helping Families Save Their Home Act. In fact, the Congressman has worked with the members of House Judiciary Committee and authors of the legislation on establishing an accurate and thorough message highlighting the overall importance of this legislation in stabilizing the housing market.

The legislation provides fairness to those families facing foreclosure through no fault of their own. By providing bankruptcy judges the chance to modify existing mortgages for families who file for Chapter 13, families will be afforded the ability to make their payments and stay in their homes. All of this will be accomplished without one federal dollar being spent. Rep. Larson understands the importance of this bill in stabilizing the housing market, restoring our economy, and keeping American families in their homes.

Unfortunately, Firedoglake misinterpreted and misrepresented Congressman Larson’s role and stance concerning this legislation. Below I have provided you with a press release by Congressman Larson after the House of Representatives passed the legislation on Thursday.

Here is the text of a press release from Larson’s office on the issue:

Washington, DC – Today, the House of Representatives passed fair legislation to help keep American families who are facing foreclosure in their homes. Without spending any taxpayer money, the legislation gives bankruptcy court judges the chance to modify existing mortgages for families who file for Chapter 13 bankruptcy. Chapter 13 is not an easy way out of debt. It is a cumbersome and invasive process that requires a family to open up their finances to the oversight and management of the courts for five years.

Congressman John B. Larson (CT-01), Chairman of the House Democratic Caucus, said:
“The American Dream has been bruised and damaged by the record level of home foreclosures we’ve seen in this country over the last year. Millions of Americans either have or are at risk of losing their homes. The legislation we passed in the House today is a fair response to this crisis. Without spending one federal dollar it could keep hundreds of thousands of families in their homes. The Helping Families Save Their Home Act gives average Americans who own one home the same rights to keep that home when they face bankruptcy as investors and speculators who own two, three or more houses. The aspirations of the American Dream should apply to everyone, not just the wealthy.

Stabilizing the housing market is an important piece of our economic recovery. As long as Americans are losing their homes, the foundation of our economy and our neighborhoods is shaky. This legislation, along with President Obama’s plan to keep 8-9 million families in their homes will go a long way to restoring our communities and keeping the American Dream intact.”

Okay, I diligently tried to untangle this. First, I believe that the bill as originally proposed can be found here, and the bill as eventually passed can be found here. If I’m wrong then all I can say is that there are no other versions at the Thomas website.

There are significant changes from the first bill, none of which are advantageous to the consumer. One fairly major change allows the creditor to share in the profit should the debtor sell the home after the mortgage is modified. As an example: Debtor files for bankruptcy. He has mortgage debt of $150,000.00. The judge determines that the house is only worth $100,000.00 so he modifies the principal amount of the mortgage to $100,000.00. A year later the debtor sells the house for $110,000.00. The bank gets $8,000.00 of the $10,000.00 difference. The proportion is lowered as time goes on. I don’t believe there is a similar requirement in other cramdown situations, but I could be wrong.

There is also a condition that the debtor prove that he or she attempted to modify the mortgage privately before filing, which is just an additional nuisance requirement at best, and at worst a source of confusion if creditors can then claim that the borrower unjustifiably refused a proferred modification less generous than that allowed by the new law. There is also the problem that it is sometimes impossible to identify anyone with whom one can talk about modifying a mortgage.

There is also a change in language regarding the interest rates to which loans can be modified, though it is unclear to me which way it cuts. However, since all the other changes to the original act are favorable to creditors, I’m going to assume that the interest rate change is similar.

Overall, the changes introduce impediments to this process, which is unfortunate, because if it worked efficiently and quickly it would probably benefit everyone, including the banks.

Of course none of the above tells us much about Larson’s position in all of this. The statement he released is not inconsistent with Firedoglake’s report that he was among the “New Democrats” that watered down the bill, nor does it establish that he was among that group. The fact that he supported the final bill also proves nothing either way. The bill is better than nothing, and were I in Congress I would have voted for it, given the status quo alternative.

So, at least from the vantage point of this blogger, on this issue, the Congressman gets a Scottish verdict of “not proven” on the charge of conspiracy with the “New Democrats”. I should add that whatever his role in this particular case, I think he’s an excellent Congressman overall. He opposed the Iraq war from the start and as I wrote a while back, he’s leading a probably futile campaign to impose a carbon tax rather than the more cumbersome, less workable cap and trade system.