Wednesday, February 9, 2011

Fed Economists Say Bush-Era Bankruptcy Law Fueled Over 200,000 Foreclosures

WASHINGTON -- Economists at the New York Federal Reserve have concluded that a controversial 2005 law backed by banks and credit card companies pushed more than 200,000 people into foreclosure and exacerbated the subprime mortgage crisis.

Consumer advocates fought hard against the law, which made it much more difficult for individuals to alleviate credit card debt in bankruptcy. This inability of homeowners to eliminate other debts, the New York Fed economists conclude, in turn made borrowers unable to pay off their mortgages, spurring foreclosures.

Despite opposition from public interest groups, the 2005 law easily cleared both chambers of Congress and was signed into law by President George W. Bush. In a paper released Tuesday, New York Fed researchers Donald P. Morgan, Benjamin Iverson and Matthew Botsch determined that the law sparked about 116,000 additional subprime mortgage foreclosures a year after going into effect.

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