Bankruptcy court treatment of foreclosures

An interesting editorial in yesterday’s New York Times.  The editorial recommends that the bankruptcy courts be used to bring some equity to treatment of second mortgage note holders and issuers. 

As a matter of equity, first and second mortgages should be treated the same in bankruptcy court.  If the property has to be sold while the consumer is in court, let the proceeds go to both lien holders.  If there is any redemption for the primary mortgage, redemption should be extended to the second mortgage as well.

What’s more important is why the administration felt it necessary to even try to abate the rising level of foreclosures.  Cloaking the effort as a way to stabilize the housing market goes against the definition of housing market.  People in foreclosure are not in the housing market.  The administration instead is trying to directly or indirectly modify contracts via its fiat.  Modifications should be voluntary.  The administration should have known better than to interfere with the autonomy of contract making.

Now the administration runs the risk of having egg on its face by being stuck with a failing program.  Try to appease the emotional sentiments of consumers is not the role of government.  Instead of helping, the administration now looks ineffective.

About Alton Drew

Alton Drew brings a straight forward and insightful brand of political market intelligence. Alton Drew graduated from the Florida State University with a Bachelor of Science in economics and political science (1984); a Master of Public Administration (1993); and a Juris Doctor (1999). You can also follow Alton Drew on Twitter @altondrew.
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