Paper | New York Fed Economists Say Bush-Era Bankruptcy Law Fueled Over 200,000 Foreclosures

New York Fed Economists Say Bush-Era Bankruptcy Law Fueled Over 200,000 Foreclosures

WASHINGTON — Economists at the New York Federal Reserve have concluded that a controversial 2005 law backed by banks and credit card companies pushed more than 200,000 people into foreclosure and exacerbated the subprime mortgage crisis.

Consumer advocates fought hard against the law, which made it much more difficult for individuals to alleviate credit card debt in bankruptcy. This inability of homeowners to eliminate other debts, the New York Fed economists conclude, in turn made borrowers unable to pay off their mortgages, spurring foreclosures.

Despite opposition from public interest groups, the 2005 law easily cleared both chambers of Congress and was signed into law by President George W. Bush. In a paper released Tuesday, New York Fed researchers Donald P. Morgan, Benjamin Iverson and Matthew Botsch determined that the law sparked about 116,000 additional subprime mortgage foreclosures a year after going into effect.

What’s more, they note, these foreclosures pushed home prices down, which may have lead to additional foreclosures. When the value of a home drops below what a borrower owes on the mortgage, it becomes nearly impossible to get out of the loan by selling the house or refinancing, making foreclosure more likely if they become unable to afford the monthly payment.

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Subprime Foreclosures and the 2005 Bankruptcy Reform

3 Responses to “Paper | New York Fed Economists Say Bush-Era Bankruptcy Law Fueled Over 200,000 Foreclosures”
  1. Randy Traveler says:

    War crimes, torture and financiallly ramming people into the ground is bi-partisan. Orin Hatch wouldn’t shut his mouth in 2005, and wanted to punish people after they’d been screwed by banks/credit card companies.
    In other words, he helped created the domestic terror we are seeing today. If you’re rich and own a yacht, a couple vacation homes and a lear jet and fall on “hard times” a judge can “cramdown” .
    If you’re living in a broken old postwar shack that’s 150K underwater you can go to hell. Obama apparently feels the same way, refusing to allow BK judges to end the crisis.

  2. l vent says:

    America’s hope is that Rome burns.

  3. l vent says:

    Everyone knows Bush and his cronies had alot to do with THE TERRORISM AND HOLOCAUST OF AMERICA, It began on 9/11. The whole Cabal should be brought up on charges, prosecuted, found guilty and sent down to Guananamo Bay for lifelong imprisonment and torture. He may be the most evil one of them all.

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