Congressional Democrats should be pleased they are finally getting something from their support of TARP, with Citigroup's agreement to support allowing judges to reduce mortgage balances for people who have filed for bankruptcy.
Going forward, mortgage lenders and investors will now factor into their risk assessments the possibility of future bankruptcy modifications to mortgage balances - which will drive up the interest rate on mortgages and/or tighten underwriting standards to make it harder to get a mortgage.
When Congress in 1979 passed legislation preventing bankruptcy from being used to reduce mortgage debt, it did so specifically to reduce such risks and keep mortgage rates lower.
In effect, this is a new tax on mortgage - a hidden tax so Congress can avoid the blame for imposing this additional cost on homeowners.
No comments:
Post a Comment