November 10, 2007

One of my links in the previous post was to a Matt Stoller commentary entitled "Bush Dogs Move to Block Mortgage Reform." "Bush Dog," for those of you not hip to "netroots" lingo, is a term used by bloggers to describe the so-called "Blue Dog" Democrats whose opposition to the policies of the Bush Administration has been rather tepid, to say the least. However problematic I find the position of these conservative Democrats to be on its merits, Stoller's headline is misleading, at least based on the contents of the letter.

As I noted before, there are three provisions to the bill currently before the Judiciary Committee. The bill will permit the bankruptcy court to readjust home loans based on the actual value of the home, not on the total payoff balance of the outstanding mortgages, so that all loans which are above the current appraised value of the home are treated as "unsecured" debts, which can be forgiven in a Chapter 13 plan. It will also allow the payoff of the secured debt on homes to exceed five years, and it will waive the requirement that Chapter 13 filers who are seeking to save their home receive pre-petition credit counseling.

The first two provisions clearly involve a reform of the mortgage system as it has existed for hundreds of years, to reflect the modern reality of ARM's as well as to treat home mortgages the same way the bankruptcy courts treat second homes, investment and rental properties, commercial developments and family farms. The third provision, concerning credit counseling, is the only one that would overturn a portion of the controversial 2005 law (known as BACPA, or by the less elegant name my fellow practitioners have given it, BARF). I happen to believe that the requirement should be dumped altogether; I have yet to see a single instance, either in my practice or in the practice of a fellow attorney, where a credit counseling session led a prospective debtor away from filing bankruptcy. Obviously, a credit counseling service depends on the referrals from consumer attorneys to survive, and a service that actually proposed something that kept a debtor from using our services would cease to receive business from our end.

But opposition to ending that requirement is clearly not the same thing as "blocking" mortgage reform, since it isn't not a mortgage issue; it's a convenience issue for filers. Many people who file Chapter 13's do so at the last minute, so having to speak with a credit counselor before filing can be very difficult. But the courts are divided as to whether the failure to take a class before filing necessitates a dismissal, and even if the case is dismissed, a debtor can turn around and file a second time without too much trouble.

If the "Bush Dogs" are sincere that their only reason for opposition is to not tinker with the BARF Act so soon after passage, then I don't see this letter as problematic in the slightest. Certainly, there's no need to hold up the provisions that constitute real mortgage reform just to get rid of the silly debt counseling requirement.

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