House victory on mortgage relief

Ryan Grim at HufPo writes:

The bill, passed 234-191, largely along party lines, encourages lenders to renegotiate mortgages with troubled homeowners. If they can't, the bill allows bankruptcy judges to modify the mortgages, a reform that bankers have argued undermines the sanctity of a contract and rewards bad behavior.

This is the so-called cramdown legislation. As it stands, the Obama mortgage relief plans give lenders and incentive to alter the interest on existing mortgages. Some question the helpfulness of this. This legislation would allow judges, under certain circumstances, to alter the principal of existing mortgages. Setting aside the "bad behavior" misdirection, the logic of this is that the value of the housing units in question are lower than they were when the original loans were made. By lowering principal amounts, two things occur, 1. the debtor pays less, 2. the debtor does not walk away from the contract.

Anyhow, this wouls still need both Senate support and Obama's support, but it's an interesting development nonetheless.