Experts say hundreds of thousands of Americans may have lost their homes due to a bill championed by Sen. Joseph Biden, D-Del., Barack Obama's vice-presidential running mate.
At least two studies have concluded that the United States' foreclosure crisis was exacerbated by a 2005 law that overhauled the nation's bankruptcy law. That conclusion is echoed by other experts, although the banking and credit industry disputes it.
From a political perspective only, you have to wonder if this will be played up as something Biden did because his son was associated with the credit card industry (a *gasp* lobbyist) and whether it will have any legs.
The bill was backed by banks and credit card companies including MBNA, which is headquartered in Delaware, Biden's home state. They wanted the bill because it would make it harder for Americans to use bankruptcy to avoid repaying credit card debt. MBNA executives had been Biden's single largest source of campaign donations, and MBNA has employed Biden's son Hunter as a company executive, lobbyist and consultant. The Obama campaign has said Hunter Biden did no work for MBNA on the bankruptcy bill. MBNA has since been bought by Bank of America.
According to some who've studied the home foreclosure situation, they see this bill as one of the contributors to the high numbers of foreclosures:
BAPCPA "is directly responsible for the rising foreclosure rate since the end of 2005," concluded a 2007 study by Credit Suisse. The law "increased foreclosures and the number of homes for sale," echoed a July 2008 study by U.S. Treasury researcher David Bernstein. That study estimated the law had pushed foreclosures or forced sales on 200,000 homeowners since it went into effect, but noted that was a rough, "back-of-the-envelope" calculation.
Others call the study "junk" and "not worth the paper it's written on".
But the logic train seems to lead back to BAPCPA:
But the 2005 law Biden championed made it more expensive and more difficult to declare bankruptcy, experts conclude. That forced hundreds of thousands of distressed homeowners to sell their homes, or default on their mortgages, after which the bank would sell their former home, according to the studies. That flood of homes going up for sale in an already-weakening market further depressed home prices, according to the two reports, snowballing into the current crisis.
BAPCPA "increased home foreclosures, increased the dollar value of financial assets in default, and put additional downward price pressure on real estate markets," concluded the Bernstein report. Bernstein conducted the report as an individual, not as a representative the Treasury Department.
Of course the bill was also touted by Republicans - Biden was a key sponsor and rallied enough Democratic support to get the bill passed.
However, the fact that he had such a large role in its passage and it has had the effect it has had is going to make it a little more difficult for him to claim it is those mean old Republicans who are the reason people have lost their homes.
I suspect that McCain also had some part in promoting the bill, although I have not done any research on the question. Regardless, there are two many Republicans with their fingers in that pie for it to have much effect.
Count me as someone who calls the study "junk." Having dealt with BAPCPA on the foreclosing creditors’ side for two years, my opinion has been that the housing lenders needed a better lobbying effort on that bill.
The ways that BAPCPA made it more difficult for people to file bankruptcy petitions are now prospective debtors have to undergo credit counseling, pass a means test to determine under which Chapter they may be eligible to file, and produce a number of additional documents prior to the filing of the petition. Aside from that, it gave creditors a bit more protection from people who think filing bankruptcies is fun and do it more than once in any given year. Under the old Bankruptcy Code mortgage holders on a debtor’s primary residence were just about king of the hill. Now mortgage holders get paid a share of whatever’s left from the debtor’s income after the bankruptcy trustee, the debtor’s lawyer and any holders of auto notes are paid.
What really freaked people out was the torrent of ads from bankruptcy lawyers telling them to file before the law changed because they wouldn’t be able to anymore. After that, there was a period when lawyers and judges were trying to figure out how that poorly-written law operates. Now, in the Northern District of Illinois at least, bankruptcy filings are returning to close to pre-change levels.
Not that I wouldn’t take a chance to throw a shot at Joe Biden’s resume, but I don’t think BAPCPA exacerbated the foreclosure "crisis."