We recently wrote a post describing a MERS defeat in Oregon Bankruptcy Court, and MERS (an acronym for Mortgage Electronic Services, Inc., an electronic registry) is in the news once again. This has not only been a hot topic in Oregon, but people around the nation have been attacking MERS as foreclosures mount and banks turn defaulting homeowners out into the streets.
The 2005 bankruptcy “reform” law was really about abuse of consumers and protection of banks. Its lofty name “The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005” was no vehicle for consumer protection. I have long felt that this effort to make consumers more “responsible” financially has contributed to the dramatic economic downturn we have experienced. The negative publicity surrounding passage of the bill in April of 2005 caused a rush to the courthouse for many consumers. The abrupt dropoff in filings after the effective date in October 2005, made it clear this legislation had a significant impact on the economy.
If scaring consumers by taking away some of the protection afforded by the bankruptcy laws makes them more responsible, it also seems to have contributed significantly to home loan defaults. It makes sense. Consumers have limited resources. When they must dedicate more to payment of credit card debt, they have less money to pay their home loans. Now, there is a study that documents that result.
A new paper written by three economists, Wenli Li of the Federal Reserve Bank of Philadelphia, Michelle White of the University of California San Diego, and Ning Zhu of the University of California, Davis, takes the position the 2005 bankruptcy legislation is a significant factor in the mortgage crisis and the recession it caused. The abstract of this article is published by the National Bureau of Economic Research under the title Did Bankruptcy Reform Cause Mortgage Default to Rise? It promotes the paper as arguing that “an unintended consequence of the reform was to cause mortgage default rates to rise.”
After looking at a large number of individual mortgages, the authors conclude that default rates increased by 14% in prime mortgages and 16% in subprime mortgages after enactment of the new law. They find that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 caused an increase in home loan defaults of approximately 200,000 per year.
You can thank those corrupt senators and congressmen who took millions in campaign contributions from banks, credit unions and other consumer lenders for bringing on the recession we struggle with today. However, in all honesty, it is the live for today attitude of most first world consumers that is the root of our problems. The voters elect politicians who promise to lower taxes and increase spending. These same voters expect public benefits to increase but are unwilling to pay the price for this largess.
Buried within most of the variants of President Obama’s proposal for extending health care to 47 million uninsured Americans is the notion that tax credits will somehow provide the financing. Tax credits have become popular with politicians in recent years because they look, superficially, revenue neutral. They are not. A tax credit is money the Treasury never receives, which otherwise would have gone into the government’s general operating fund. If that operating fund could not have underwritten a given subsidy after tax collection, it will experience a budgetary shortfall if it never receives the taxes in the first place.
Until passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), private student loans were treated as ordinary unsecured consumer debt. That badly misnamed piece of legislation made private education loans nondischargeable in bankruptcy except in cases of undue hardship.
Several measures to relieve private student loan debtors have been introduced in Congress in the last two years, but none has been enacted. One measure, S 1541 also called the private Student Loan Debt Swap Act of 2009, looks like an attempt to relieve debtors. When analyzed closely this bill proves to be more about bailing out lenders than helping students. It would allow students to refinance private student loans under the Federal Direct Loan Program under the same terms as consolidation loans.
Unfortunately, the proposed legislation would only be available if the student had been eligible for an unsubsidized Stafford Loan under the Federal Family Education Loan Program (FFEL) when the debt was incurred, and did not exceed debt ceilings established for that progran. If enacted, the borrower would benefit from a lower interest rate and more flexible repayment terms but would now have the entire debt collection arsenal of the Federal Government arrayed against her.
In the unlikely event Congress restores bankruptcy protection for private student loan debtors, this debtor would be out of luck, while the lender would have collected its full claim from the Federal Government. As the bill is written, it applies mainly to people who never worked with the financial aid office of a reputable educational institution and were steered directly into private loan arrangements with unfavorable terms.
It would not apply to the much larger body of debtors who resorted to private loans after exceeding FFEL limits, to cosigners (mainly parents), or to people who enrolled in programs that did not qualify for FFELP but are nonetheless considered to have educational loans for purposes of the bankruptcy laws. In short, it does essentially nothing for struggling debtors, since, even for those who qualify for refinancing, reducing interest rates and extending the repayment period will fail to make many obligations affordable.
Bankruptcy in many ways is a Christian concept. American bankruptcy laws have Biblical roots. The seven-year waiting period between personal bankruptcies that was the law until 2005, for example, is based upon Deuteronomy 15:1-2
At the end of every seven-year period you shall have a relaxation of debts, which shall be observed as follows. Every creditor shall relax his claim on what he has loaned his neighbor; he must not press his neighbor, his kinsman, because a relaxation in honor of the LORD has been proclaimed“
and Leviticus 25, which describes the regulations both for a seventh year Sabbath and a fiftieth year of jubilee.
As explained in Dana Wilkinson’s article arguing in favor of a federal exemption for the Earned Income Credit, the federal credit, created by 26 U.S.C. §32 (1994), is a refundable tax credit provided for low income workers who have dependent children and who maintain a household. A low income taxpayer can get the credit, in the form of a check or automatic deposit into a bank account, even if the amount of the refund is larger than the amount of tax paid that year.
In Oregon we have an exemption specifically protecting the Earned Income Credit and keeping it entirely exempt from exectution by a debt collector with a judgment. This exemption also applies to the trustee in a bankruptcy case.