U.S Department of Housing and Urban Development secretary Steve Preston said Monday evening that he had serious concerns with Republican presidential candidate John McCain’s proposal that the U.S. government directly buy up troubled mortgages and pay the difference between principal balance and what the home’s current value really is. “I have a very grave concern about that,” Preston said during a town hall meeting in Seattle, the Seattle Post-Intelligencer reported Tuesday. He said that asking the government to take a direct loss, rather the the financial institution, that held the loan was a risky proposition for mortgage markets. “I don’t think we can suffer that big of a loss. … That is not invested money. That is just a loss,” he was quoted as saying. See coverage of McCain’s mortgage buyout proposal. Against cram-down legislation Preston also signaled his opposition to so-called “cram-downs,” where a judge would have the ability to reduce loan balances on a bankrupt borrower’s primary residence. Current federal bankruptcy law prohibits such modification of mortgage debt. “It sort of violates a contract between a lender and an individual, and I think we all get concerned about the precedent it would set,” he said, according to the Post-Intelligencer story. He also expressed a concern about the burden that allowing cram-downs would have on the nation’s court system, echoing a concern many attorneys that spoke with HousingWire have had in recent weeks. “If they want to allow this, they’d better be ready with new courtrooms and judges, because otherwise the caseload will be so thick, no court on the planet will be able to process it all,” said one attorney, on condition of anonymity. The issue of bankruptcy reform around cram-downs has been front-and-center in the political debate over how to address the nation’s housing crisis. Supporters, including many consumer groups, say that allowing judges to modify loans in bankruptcy is a critical facet of helping the nation’s housing markets recover. Detractors, including the Mortgage Bankers Association, argue that allowing cramdowns would increase mortgage costs. Senate Democrats tried and failed to get cram-down provisions included in the Economic Stimulus Act signed by President Bush in April; and they tried again in the recent negotiations to pass a wide-ranging bank bailout package. Democratic presidential nominee Barack Obama has said he would actively support legislation that looks to allow cram-downs, should he win the upcoming election.
McCain’s Mortgage Plan a “Concern” for HUD Chief
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