An economist at The Heritage Foundation says the failed "mortgage cramdown" bill supported by President Obama would have made it much harder for low-income homebuyers or new homebuyers to find mortgages.
The Senate recently voted down a bill that would have allowed bankruptcy judges to change the terms of a mortgage, giving debt-ridden homeowners the ability to file for Chapter 13 bankruptcy and have a portion of their mortgage debt forgiven. Senator Dick Durbin (D-Illinois) blamed the bill's defeat on the banking industry and its lobbyists, who he says are unwilling to help out the eight-million Americans facing home foreclosure. David John, a senior research fellow in retirement security and financial institutions at The Heritage Foundation, says although the bill's sponsors tried to limit its coverage, the legislation would have been a disaster for the people they most wanted to help. "The mortgage cramdown bill would have increased the risk that any and all mortgages would not be paid as they were written," he explains. "That would require the financial firms to deal with that added risk, and they would deal with it either by increasing interest rates or by increasing the amount of down payment that an individual would have to make." John points out that because all borrowers do not have the same level of risk, the highest change in both interest rates and down payments would be for people with low to moderate incomes, first-time home buyers, and people who are trying to recover from past financial problems -- the very people the bill was designed to help.
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