CHOKING ON THIS CRAMDOWN BILL 

The Heritage Foundation has issued a report on Obama's mortgage cramdown bill, officially known as The Helping Families Save Their Homes Act. This is the one that would allow bankruptcy judges to reduce the principal owed on a mortgage. Just call this a wealth transfer from mortgage lenders to irresponsible home buyers. Irresponsible home buyers, it seems, vote Democrat. You know this is a lousy idea, I know it's a lousy idea, Rick Santelli knows it's a lousy idea .. and here comes the Heritage Foundation to assure us that .. yes .. it is a lousy idea. Here are just a few ways they believe this cramdown bill is going to actually hurt the housing market:

Raise mortgage costs. Cramdowns would add additional risk that mortgages will not be repaid as the contract requires. Lenders must charge for that added risk, and experts estimate that the additional costs would raise mortgage rates by as much as two full percentage points or substantially increase required down payments. (This, by the way, is exactly what I was telling you earlier this week). These added costs would fall hardest on moderate-income and first-time homebuyers, who have a higher risk of defaulting on a mortgage. This will price many families out of the housing market. Obama will blame the lenders, and the people who can't buy homes will continue to vote Democrat.

Further undermine the value of mortgage-backed securities. Banks and other investors are already facing heavy losses because mortgage-backed securities have lost much of their value because of uncertainties about whether the mortgages will be paid. The language in H.R. 1106 increases this uncertainty. Investors will be at risk of both foreclosure and cramdowns that reduce the earnings of these securities. Many (if not most) cramdown mortgages will later go into foreclosure. Since investors have no idea what this new provision will do to the value of their securities, prices will drop further.

Fail to help many homeowners. Only one-third of all Chapter 13 filers complete the process successfully and get the fresh start that bankruptcy promises. The other two-thirds "pay court fees, pay attorney's fees, pay fees to the bankruptcy trustee, invest time and money to restructure their financial affairs, and then wind up with nothing more than temporary relief. It is therefore not surprising that a substantial number of Chapter 13 filers--nearly one-third--go on to file for bankruptcy again." Once a deadbeat always a deadbeat. But .. and this is important ... they will continue to vote Democrat. That's because they're ignorant.