Amy Traub

Don’t Back Down on Bankruptcy

Congress is reportedly close to a deal on a bailout package for the nation's financial sector. But according to the New York Times lawmakers may be dropping the single most effective provision to help struggling homeowners. The measure, which would enable bankruptcy judges to modify the terms of unpayable mortgages, is "heavily opposed by the financial industry."

Instead of worrying about the sensibilities of the folks we're about to hand a $700 billion check to -- and who got us into this mess in the first place -- let's consider everyone else's interests. At the heart of the current crisis are mortgage loans borrowers never had a chance of repaying. Experts now estimate that enabling bankruptcy judges to change mortgage terms so borrowers can stay in their homes (and continue to make reasonable payments) could save as many as two million homes and help to keep the crisis from spreading.

The bankruptcy provision is not only excellent policy, it's good politics. DMI's recent poll of self-identified middle-class Americans found that 62% of middle-class adults support the policy. That includes 55% of those who identify as Republicans. Congress should not back down on bankruptcy.

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Posted at 12:50 PM, Sep 25, 2008 in Economy
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