On this day of new opportunities, it seems almost churlish to point out how large the gaps are sometimes between political viewpoints. The lead editorial in the New York Times today is, appropriately enough, on government’s promise. The Times focuses on a possible amendment to the bankruptcy code to allow mortgage modifications on primary residences in Chapter 13. With house prices dropping, many mortgages are underwater. Chapter 13 currently precludes the reduction of those mortgages to now-current market prices. The Times favors an amendment that would allow just that. As the Times puts it: “The bankruptcy amendment cannot stop all foreclosures. But it is the starting point. And it would be a prime example of government doing for individuals what they cannot do for themselves—opening a courthouse door that is closed to them by law.”
Now reframe this from a different political perspective. What individuals lack is the right to take property from others. Individuals facing foreclosure lack the ability to grab shares of New York Times stock from the Sulzbergers so that they can sell those shares to pay off their debts. Government indeed makes it impossible for individuals to do that on their own.
I am not sure whether I think mortgage stripdown should be generally permitted on a going forward basis for new mortgages. I have never thought through the question fully. But it is important to recognize the important difference between a going-forward regime and one that applies to pre-existing mortgages. Of course all the bite is in the latter—and indeed versions of the mortgage stripdown bill would apply only to past mortgages.
But the central question is whether the rights of the mortgage holder are sufficiently property like that they are entitled to constitutional protection from after-the-fact taking, just like presumably the stock held by the Sulzbergers in the New York Times. I don’t know that I know the answer to that question either, but in 1982, the Supreme Court regarded it as sufficiently difficult that it avoided it in U.S. v. Security Industrial Bank, 459 U.S. 70 (1982) (“no bankruptcy law shall be construed to eliminate property rights which existed before the law was enacted in the absence of an explicit command from Congress”).
What I think I can say with greater confidence is that it is hard to give much credence to a view of government’s promise that operates off of such an incomplete understanding of what property rights are and when they are contested.