Obama foreclosure prevention program hangs up on squabbling banks

How many attempts have we had to provide a foreclosure prevention program that actually works?  Many of them have been described in previous BLOG entries on Foreclosure Prevention.   None of them have worked; for a variety of reasons.  But now we have the toughest hang-up of all.  About half of all mortgages in trouble have a second mortgage on the house, either a home equity loan, or a line of credit, or a down payment loan.

Under standard agreements, the first mortgage takes precedence over the second mortgage.  The second mortgage should be wiped out before the first mortgage takes a hit.

But holders of these second mortgages have decided to fight this.  They want the first mortgage holder to take a haircut  at the same time they do or they will not agree to stay out of court.

This has gummed up the whole works.  It is stupid.  One more reason for the government to change the bankruptcy law to allow bankruptcy courts to cram down the value of the house to current market value, and then to decide who gets what.

Right now you can go to bankruptcy court for a cram down of any mortgage on your second home, your investment property, even your yacht.  But you cannot get a cram down of  your residential mortgage.

Republicans and some “Blue Dog” Democrats are refusing to allow the bill that would change this to come to a vote in the Senate.

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