Although riding herd on the Wall Street Journal is one of our favorite forms of recreation, we missed a couple of misstatements that were noticed by more alert eyes.
Katie Porter at Credit Slips, caught two instances in two days in which the Journal mischaracterized bankruptcy practices, first pending legislation, and second, an unproven assertion about bankruptcy filers’ behavior. In both cases, the Journal suggested that lenders were getting a raw deal; Porter begs to differ.
From Credit Slips:
In recent days, however, the Wall Street Journal has published pieces about bankruptcy that contain inaccuracies. An editorial on October 24th, The Mortgage Meltdown, grossly mischaracterizes pending bankruptcy legislation. The bill, the Emergency Home Ownership and Mortgage Equity Protection Act of 2007(HR 3609), would reverse the existing preferential treatment in Chapter 13 bankruptcy law for home mortgages and permit debtors to modify their home loans in certain ways. The Wall Street Journal says that the legislation will “allow bankruptcy filers to treat home loans as similar to unsecured credit-card debt.” The editorial then sarcastically posits “Guess how eager lenders will be to offer low mortgage rates if they have no better chance of collecting on a mortgage than they do on a credit card?” This characterization isn’t mere alarmist hyperbole. It’s flatly wrong. Mortgages are liens; they give the lender a security interest in the debtor’s real property. Absent unusual circumstances, secured creditors retain their property interestsin the collateral. If they aren’t paid–inside or outside of bankruptcy–they can foreclose on the property. In contrast, credit cards are normally unsecured debt. The lenders have no collateral. Unsecured debt and secured debt are treated differently in bankruptcy law, just as they are in state law. The apt comparison for HR 3609’s proposal is that home mortgage lenders would be treated just like lenders whose collateral are vacation homes, or commercial property, or rental houses, or whose collateral are cars, motorcycles, or appliances. The Wall Street Journal should print a correction, making clear that the bill would not put mortgage lenders on par with credit card companies, and retracting its suggestion that the legislation would thereby cause mortgages to have the same interest rates as credit cards. Perhaps some would excuse the Journal because these statements were in an editorial. But a recent news article on bankruptcy as a home-saving device was also misleading.
The article appeared on October 23 as a front page story. The problems began right away–the article’s very title, More Debtors Use Bankruptcy to Keep Their Homes, does not appear to be squarely supported by any evidence in the story. The truth is that the government does not track how many people who file bankruptcy are homeowners. These data simply don’t exist. In an apparent remedy to this problem, the article offers the rise in Chapter 13 bankruptcy cases as evidence that bankruptcy is increasingly the refuge of choice for families facing foreclosure. While studies do show that the proportion of homeowners in Chapter 13 is higher than in Chapter 7, the article’s statement that “an increasing number of homeowners have filed for bankruptcy in Chapter 13” doesn’t actually show that foreclosures are driving bankruptcies. As absolute numbers, both Chapter 7 and Chapter 13 bankruptcies are higher last quarter than in the same quarter in 2006. So while there are an increasing number of Chapter 13 cases, that same statement is true for Chapter 7 bankruptcy. Indeed, the percentage growth in Chapter 7 cases is actually higher than Chapter 13. Using the very figures in the Journal’s graphic in the article, one can see that the share of cases that are Chapter 13 filings has actually fallen from 39% in 2006 to 37% in 2007. How is this credible evidence that “Chapter 13 Filings Gain in Popularity?” As most law students will tell you, bankruptcy isn’t an easy subject. The law is hard to understand, and the policy tensions in the statute are complex. I’m glad to see journalism on bankruptcy and foreclosure, but inaccuracies or unsupported assertions create obstacles to informed policymaking.