So we have finally flushed most of the bad debt out of our system in 2008. The bad lenders are disappearing and lenders are feeling good about making new loans.

The only problem on the horizon is that Congress is back in session today.

Instead of looking at 2009 these fine folks can only see 2008. They are proposing adding mortgage debt to a bankruptcy judges jurisdiction.

Great, that is just what we need when lenders are opening up, a new set of laws they have to analyze and price into loans. Instead of finding their balance, banks are now going to have to worry about laws that will hurt them if a loan goes south. And banks are not in the business to get hurt.

So lending may not recover as quickly as if Congress had just stayed out of it.

The legislation would change allow bankruptcy judges to modify home loans in the same way that they currently may modify other unsettled obligations, such as credit card debt.

While the housing market downswing continues, some in the housing industry have warned that it is the wrong time to write long-lasting mortgage rules.

“Credit markets move like a pendulum so if you accept that there was too much credit a few years ago, there is probably too little credit now,” said Francis Creighton, the top lobbyist for the Mortgage Bankers Association. “Cram-down would lock the pendulum at an overly restrictive point.”

Foes of the cram-down plan argue that it would wrongly invalidate mortgage contracts and raise future costs of borrowing, but that opposition is beginning to wilt in the face of a worsening crisis. via Reuters.

Related posts:

1. Frustration With Mortgage Servicers Enters The Courts
2. Mortgages May Be Safe From Bankruptcy Judges
3. Who Will Refinance All The Commercial Real Estate Debt