[Congressional Record (Bound Edition), Volume 158 (2012), Part 4]
[Extensions of Remarks]
[Page 4801]
[From the U.S. Government Publishing Office, www.gpo.gov]




                  BANKRUPTCY EQUITY FOR HOMEOWNERS ACT

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                          HON. EARL BLUMENAUER

                               of oregon

                    in the house of representatives

                         Monday, April 16, 2012

  Mr. BLUMENAUER. Mr. Speaker, on February 16, 2012, I spoke on the 
House floor about the intrinsic unfairness of certain bankruptcy laws. 
In my statement, I inappropriately characterized the actions of the 
Mortgage Bankers Association. The following is my amended statement:
  This week, we watched the settlement unfold between the Department of 
Justice, the State attorneys general, and the major banks. Twenty-six 
billion dollars sounds like a lot of money, but given that almost one 
in four homeowners owe more on their mortgages than the values of their 
homes--overall losing some $700 billion in value. This is a step in the 
right direction that will help some people but is not really a major 
correction. There are still far too few real pressures to get the 
market right.
  There is a simple answer that won't cost the taxpayers a dime and 
which will stabilize the housing depression within a year. It would 
help reestablish home values and encourage banks to work with their 
customers whose mortgages are ``under water''.
  The recent decision of American Airlines to pursue bankruptcy is 
illustrative. This corporate giant could actually pay its bills. It had 
some $4 billion in cash and was still taking in revenue, but it made a 
strategic judgment to use the bankruptcy laws to reposition itself to 
win market rate loan terms, to modify its union contracts and the 
pension obligations to its employees because, under the law, a 
bankruptcy judge can adjust these business relationships to reflect 
current market conditions--for a business, that is. Curiously, 
homeowners are treated differently.
  A business speculator could buy 10 units in a condominium in south 
Florida when the housing bubble bursts and could get bankruptcy relief 
on all 10 units--but not Sally Six-Pack, who bought an identical unit 
to live in.
  What is it about homeowners that make them less worthy of relief of 
the fresh start of bankruptcy than the speculator or American Airlines? 
The answer is right here on the floor of the House of Representatives.
  Congress has decided to look out for business, not the homeowner. The 
daisy chain of profit we saw collapsing under the weight of colossal 
greed and bad judgment was protected at the expense of the homeowner, 
who was trapped, with limited options to renegotiate, with no leverage, 
who simply faced foreclosure, a short sale, or what is described as 
jingle mail: send the keys back and walk away.
  It's interesting that homeowners have been urged that it's their 
moral duty, their obligation to pay, even as the Mortgage Bankers 
Association, itself, reneged on the mortgage on its headquarters and 
cut a side deal with its financial partners to get out of its 
underwater mortgage. Not long before this happened, John Courson, the 
President and Chief Executive Officer of the Mortgage Bankers 
Association, was quoted in the press as asking defaulting homeowners, 
``What about the message they will send to their family and their kids 
and their friends?'' What message did the Mortgage Bankers Association 
send? The answer is clearly that they have one set of rules, while 
American families have another. This blatant hypocrisy enrages ordinary 
families and runs counter to democratic values of fairness and equal 
opportunity. Homeowners are expected to do the right thing, even if 
we're seeing a cavalcade of financial misdeeds, shortcuts, and, in some 
cases, outright fraud.
  I've been unable to find any good reason that homeowners should be 
discriminated against in bankruptcy. If it's good enough for business, 
it should be good enough for the homeowners.
  There are lots of reasons to change that policy. First, it's simple 
equity, the same treatment. In addition, making bankruptcy relief 
available to homeowners will make the system respond to reasonable 
requests for renegotiations, which would be cheaper, faster, and easier 
than the foreclosure process for everybody. The simple act will stem 
the flood of foreclosures and uncertainty, which will help stabilize 
home values currently in free fall, and it will make it harder for 
another speculative bubble to be created. Knowing that homeowners will 
be treated the same as business in bankruptcy will make people think 
twice about aggregating vast numbers of dicey mortgages, simply taking 
a profit, and passing the package on to others.
  I am introducing the Bankruptcy Equity Act to provide bankruptcy 
judges the power to align the homeowner's mortgage to its current value 
and terms and put ordinary homeowners on the same playing field as 
speculators and businesses. It makes sure private and federally insured 
mortgages are eligible for modification, allowing FHA, VA, and the 
Department of Agriculture to pay out claims on insured mortgages 
modified in bankruptcy.
  For an immediate solution to the foreclosure crisis, allowing 
families to stay in their homes, to be treated equitably, and prevent 
the next bubble from forming, I strongly urge my colleagues to examine 
the Bankruptcy Equity for Homeowners Act and join me in treating 
homeowners as fairly as we treat speculators and investors.

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