Washington, D.C. - Today Congressman Lungren (R-CA) addressed pending legislation before the House floor that would allow bankruptcy judges to judicially modify mortgage agreements.  This will increase risk premiums and increase interest rates for those seeking to finance the purchase of a new home.  His remarks were delivered as follows:

Thank you very much, Mr. Chairman.  Mr. Chairman, the suggestion has been made that it makes no sense to treat primary residences in the way that the current bankruptcy law does.  In fact Supreme Court Justice Stevens in the case of Nobleman vs. American Savings Bank explained why we have this.  When we said that at first blush it seems somewhat strange the bankruptcy code could provide less protection to an individual's interest in retaining possession of his or her home than of other assets.  The anomaly is, however, explained by the legislative history indicating that favorable treatment of residential mortgages was intended to encourage the flow of capital into home lending markets.  In other words, it is precisely because we want to promote homeownership that it is treated in this way.

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Now, we in the Judiciary Committee believe we can do a lot of things.  But one thing we have been unable to do but we are trying to do it once again is suspend the laws of economics.  This suggests that this change will have no impact whatsoever.  The change will have this impact: it will include higher risk premiums on all mortgages in the future because of the uncertainty now involved with respect to home mortgages.  That's what's going to happen.  I had a telephone town hall in my district with thousands of people on the line.  One person said to me how is that fair?  How is that fair to me?  How is that fair to my children and my grandchildren when this means this is going to increase the costs of home mortgages in the future across the board and maybe limit the accessibility to home mortgages in the future to those very people we say we are trying to help?  Sometimes it is more than just a sentiment that we have to act on here.  It is reality.  And unless we can suspend the laws of economics, this provision will actually undo what the bill is intended to do that is help people be able to have access to mortgages and help people get lower rates.

This is one of the reasons why you have lower rates for home mortgages than you do for second homes.  Some people have suggested, look, it's treated differently in all other aspects.  Interestingly enough, if you look at chapter 12 which has to do with agricultural loans, and you see the argument being made that well when they made that change there it had no impact, interestingly enough it was during the Clinton Administration that their Department of Agriculture concluded that chapter 12 may have substantially increased costs for farm businesses. That's not the Bush Administration.  That's not a Republican economist.  That's the Clinton Administration, their Department of Agriculture concluding that this type of a change in the agricultural setting actually substantially increased costs for home businesses.  If you want to substantially increase the cost for home mortgages in the future, across the board, for all Americans, then vote for this provision.  Go home and talk about how you felt good about it, but don't tell folks what it's really going to do.  It's going to hurt everybody in terms of their accessibility to home mortgages.