The Washington Independent
The Washington Independent

House Republicans Target Strategic Defaulters

Last updated: 07/31/2020 08:00 | 06/11/2010 01:45
news
Anderson Patterson

HuffPo’s Ryan Grim reports that House Republicans have introduced a motion to penalize strategic defaulters — underwater homeowners who simply stop paying their mortgages — by barring them from obtaining Federal Housing Administration-backed loans in the future. Grim explains the Republican maneuver:

The GOP offered its provision as “motion to recommit,” which is one of the minority party’s few ways to amend a bill on the floor. Known as an MTR, the motion is generally stripped out in the Senate if it is adopted in the House. Such measures are put forward more to score political points than to craft policy, but the mood of the House can sometimes be gleaned from the vote’s outcome. In this case, Democrats chose not to fight, and accepted the motion with a simple voice vote.

In a letter regarding the motion to recommit, a staffer in Minority Whip Eric Cantor’s (R-Va.) office says that strategic defaulters are stopping paying their mortgages, staying in their homes and using the money to buy trips to Disneyland and cruises. The tone is vituperative.

Of course, there is a kernel of truth there. Yes, some people are giving up on their mortgages and using the money to go on vacation. But, by and large, people who stop paying their mortgages — taking on the risk that they will at some point be evicted, and knowing it will ruin their credit scores — are economically distressed. The ones Republicans are complaining about are buying SUVs. Most are buying things like groceries.

Moreover, the Republican letter seems to imply that strategic default needs to be legislated away, and its perpetrators punished. But strategic defaulters are not committing some felony or crime. They are not even really breaching their contracts. Every mortgage contract spells out what happens if the homeowner does not pay: The bank evicts them and takes the home.

Furthermore, the Republican letter does not spell out *how *the government would designate someone as a strategic defaulter anyway. Strategic defaulters are people who *could *continue to pay their mortgages but choose not to. Defaulters are people who *cannot *continue to pay their mortgages. But does the government really want to stipulate that homeowners have to hand over, say, up to their last $2,000 of savings to the bank before they can walk away from their home? Up to their last five percent of annual income? What if those people need the money to move, or to pay medical bills, or to buy shoes for their kids? Since when have Republicans advocated telling Americans how they can and cannot spend their money?

Plus, does the Republican Party really want to prevent strategic defaulters, who now number in the hundreds of thousands, from accessing fair, reasonably priced mortgages in this sluggish housing market? The banks, given the credit scores and credit histories they have access to, have plenty of ways to determine whether a prospective borrower is mortgage-worthy. I would leave this up to the private sector.

Finally, the way to tackle this problem is to … lower the number of strategic defaults. The best way to do that is to make sure that the recovery is strong, employment is growing and that homeowners are not underwater. Improving the Home Affordable Modification Program and “cramdown” provisions would go a long way to reducing homeowners’ monthly payments and principal, helping to keep them in their homes.

Here is the full text of the letter, posted by HuffPo:

From: Vieson, Chris

Sent: Thursday, June 10, 2010 10:15 AM

Subject: WHIP LD Alert: Republican Motion to Recommit FHA Reform

The Republican Motion to Recommit H.R. 5072, the FHA Reform Act, would amend the bill to prohibit individuals who strategically default on their mortgage from accessing the FHA program and protect taxpayers from financing a bailout of FHA programs.

Strategic Defaults

A strategic default occurs when a borrower decides to stop paying their mortgage even though they can still afford their payments. It is usually undertaken by those who owe more on their mortgage than their home is currently worth.

The Wall Street Journal has reported on families that have chosen to stop paying their mortgage and instead use the extra money they are saving each month to “buy season tickets to Disneyland…take a Carnival cruise to Mexico…” and go out to dinner more often.

Companies have even sprung up to capitalize on the new trend with websites advising people (for a fee) on how to go about a strategic default. These companies actually advertise that after a few years an individual who chooses to default on their mortgage should be able to buy a home again, including through government loan agencies.

60 Minutes reported on individuals who defend their decision to strategically default saying, “…with the money savings that I will have in four to six years, I’m confident I’ll have money to buy my way into a house if I want to.”

Strategic defaults raise costs for responsible borrowers, many of whom may currently be struggling to make their mortgage payment themselves, but who take their obligations to pay their debts seriously. The MTR would ensure that no one who chooses to simply stop paying their mortgage, even though they can afford to do so, is able to benefit in the future from the government’s FHA program.

Future Bail-Outs

The Republican motion also protects American taxpayers from possible future bailouts of FHA programs. Washington currently has a bailout culture at the expense of hard-working Americans and this MTR puts into place protections against FHA receiving a taxpayer-backed bailout.

The Republican MTR is a vote to expose and prevent fraud and abuse from FHA and protect the American taxpayer from another Washington bailout.

Anderson Patterson | Anderson is a video editor and developer who believes in the power of visual organization. He recently graduated from the University of Washington, where he concentrated on post-production during his studies. He was first exposed to the mystical world of visual art creation while watching his father edit advertisements when he was a child, and he has been working towards his dream of becoming a video editor ever since.

Related

Exposing Domestic Intelligence “Fusion Centers” in Michigan

EPA Administrator Addresses Concerns About Oil Spill Waste Management

At a hearing of the national oil spill commission today, Environmental Protection Agency Administrator Lisa Jackson addressed concerns about waste disposal from

E-Verify Mandate Begins Today

The Obama administration today begins implementation of a new mandate to require all federal contractors to check the legal status of their employees to confirm

EPA administrator defends allowing Florida to write its own water pollution rules

The EPA seal (Pic via sentryjournal.com) The Environmental Protection Agency has come under fire for its decision to allow the state of Florida to write its own water pollution rules (known as “numeric nutrient criteria”). EPA Regional Administrator Gwendolyn Keyes Fleming is now firing back, writing that the Agency commends the state Department of Environmental Protection for its draft of a proposed standard. A host of environmental groups filed suit in 2008, seeking to compel the EPA to implement a strict set of water pollution standards in Florida, arguing that the state was in violation of the Clean Water Act.

EPA administrator fires back at critics in op-ed

EPA Administrator Lisa Jackson (Pic by USACEpublicaffairs, via Flickr) EPA Administrator Lisa Jackson penned a new op-ed for the Los Angeles Times , criticizing House Republicans desperately seeking to undermine the authority of the agency they have dubbed a “job killer.” Arguing that the environment affects red states and blue states alike, Jackson writes that “it is time for House Republicans to stop politicizing our air and water.” As head of the Environmental Protection Agency, Jackson has faced harsh criticism from House Republicans and GOP presidential candidates who say the agency’s regulations are an undue burden on businesses that have to cut jobs simply to comply with clean water and air rules. Presidential hopeful Michele Bachmann  has pledged to end the EPA if she takes office. “Since the beginning of this year, Republicans in the House have averaged roughly a vote every day the chamber has been in session to undermine the Environmental Protection Agency and our nation’s environmental laws,” writes Jackson.

EPA Analysis Says Climate Bill’s Cost for Households Would Be ‘Modest’

All the attention on the energy front today is going to the BP spill, but the Environmental Protection Agency quietly released its long-anticipated analysis of

EPA administrator says federal nutrient criteria is a ‘myth’

In testimony given late last week, EPA Administrator Lisa Jackson said that false accusations about her agency’s numeric nutrient criteria to govern Florida waterways are proving to be a detriment to their implementation. # Testifying before the House Agriculture Committee, Jackson said her agency’s work was often “mischaracterized” and addressed several myths surrounding its work

EPA: BP Has 24 Hours to Find a Less Toxic Chemical Dispersant

Thought the massive quantities of oil pouring into the Gulf of Mexico were the only major threat to the country’s southeast coastal waters right now? Think

EPA biologist says fracking may be partly to blame for West Virginia fish kill

New documents obtained by an environmental news service show that an EPA analyst believes that wastewater from fracking may be partly responsible for a fish kill in a West Virginia river. Scientific American reports : U.S

© Copyright 2021 The Washington Independent All Rights Reserved

Terms & Privacy | twi.news@washingtonindependent.com