Commentary: 'Cram down' mortgage bill needed for housing crisis

This editorial appeared in The (Tacoma) News Tribune.

When voluntary doesn't work, sometimes you've got to do mandatory. It's come to that with the nation's housing crisis.

The House of Representatives on Thursday approved a plan to lean on mortgage lenders to renegotiate loans on terms that would help keep borrowers in their homes.

This isn't the centerpiece of the Barack Obama's effort to slow foreclosure rates and stabilize the housing market. The rest of the plan is a bundle of costly carrots, including $200 billion to help distressed homeowners refinance and $75 billion in incentives to encourage financiers to reduce payments.

Thursday's bill is the stick, a big one. It would empower bankruptcy judges to "cram down" mortgage loans – order lenders to lower payments to affordable levels by cutting interest rates, lengthening terms or even reducing principal.

This move wouldn't make sense under normal circumstances. It's risky. It may well lead to higher interest rates as lenders anticipate losses from a stampede into bankruptcy. It will also bail out borrowers who don't deserve bailing out and penalize lenders who don't deserve penalizing. The House actually defeated an attempt to exclude borrowers who had lied on their original mortgage applications.

But these aren't normal circumstances.

To read the complete editorial, visit The (Tacoma) News Tribune.

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