Seattle Bubble

Two good news stories on the national front that are worth sharing this morning.

Story 1: Senate Defeats Mortgage ‘Cram-Down’ as Democrats Balk

The U.S. Senate rejected a measure that would let bankruptcy judges cut mortgage terms to help borrowers avoid foreclosure, a victory for banks and credit unions that said the legislation would increase loan costs.

The proposed “cram-down” amendment to a housing bill was defeated today in a 51-45 vote, with 12 Democrats among the 51 opponents.
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Banks that refused to negotiate a compromise were “greedy, stubborn and unreasonable,” said Senator Sheldon Whitehouse, a Rhode Island Democrat.
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“The answer is not to incentivize bankruptcy by making it the means to save one’s home,” [Arizona Republican Senator Jon] Kyl said.

This is good news, in my opinion. Banks should be eating the losses on these homes in the open market, not by writing down the principal to help the home “owner” stay in a house they obviously simply cannot afford. So you lost “your” home—yeah it sucks, but go find a cheap rental and move on. Maybe next time you buy a house you’ll be more prudent.

Note, I am not saying that everyone who is being foreclosed on bought more house than they could afford, or used their home as an ATM. I figure that probably describes at least 70% of the current foreclosures, and such people are the primary reason for the “foreclosure crisis” we’re currently watching unfold.

[Update: As I mention in the comments below, I also believe we should be prosecuting the banks and the people at the banks for the massive fraud they willingly and knowingly perpetuated through these loans during the boom.]

Story 2: Realtors, Mtge Brokers Push For Delay In New Appraisal Rules

Realtors and mortgage brokers are in an 11th-hour push to delay by a year new Fannie Mae (FNM) and Freddie Mac (FRE) rules governing real-estate appraisals.

The rules, which take effect May 1, have sparked criticism from many corners of the real-estate industry.

The National Association of Realtors complained in a letter last week that the industry was given scant guidance and too little time to implement the rules. Appraisers worry the rules, which will put middlemen between loan originators and appraisers, will squeeze their fees. Meanwhile, mortgage brokers say the changes will make them uncompetitive.

“This is going to be devastating for everyone,” Marc Savitt, the president of the National Association of Mortgage Brokers, said Monday.

The rules arose from an investigation by New York Attorney General Andrew Cuomo into alleged collusion between mortgage lenders and appraisers to pump up home values. Fannie and Freddie, which became targets of probe, agreed in early 2008 to require all appraisers on mortgages they buy or guarantee to adhere to a new code of conduct.
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The rules are intended to reduce collusion and fraud in the appraisal industry, which has been blamed for generating wildly inflated home values during the housing boom. The new code requires lenders to go through third-parties, known as appraisal management companies, to order appraisals. Lenders with in-house appraisal staff must set up safeguards to ensure loan officers don’t influence the home appraisal process.

Oh yeah, that sounds really “devastating,” doesn’t it? Shouldn’t safeguards like this have been in place from the start? I can think of one reason that banks and real estate agents would not be on board with this: they like being able to influence appraisals.

It’s nice to read some good news for a change when it comes to all the meddling the government has been doing in the housing market lately.