The past few months have seen story after story about fraud in the mortgage industry. Now we’re seeing a new type of fraud–mortgage lobbying fraud. The Mortgage Bankers Association has been claiming the proposed bankruptcy reform legislation that would significantly roll back the special treatment given to mortgage lenders in chapter 13 bankruptcies would result in residential mortgage interest rates rising 1.5 to 2 percent. (Somehow this number started at 2% and has drifted down to 1.5% without any explanation.) The MBA’s number is pure and demonstrable hokum. As Joshua Goodman, a Columbia University economist and I show in a new working paper, permitting bankruptcy modification is likely to have little or no impact on mortgage interest rates or origination volumes. Keep reading below the break for the proof.
