Washington Mutual Inc. got what it wanted in 2005: A revised bankruptcy code that no longer lets people walk away from credit card bills… “Be careful what you wish for,” Westbrook said. “They wanted to make sure that people kept paying their credit cards, and what they’re getting is more foreclosures.”

The 2005 Bankruptcy Reform didn’t create the foreclosure problem, it just made it worse.

Even as [foreclosure] losses have mounted, banks have seen their credit card businesses improve.

The 2005 Bankruptcy Reform was intended to protect credit card companies and it succeeded very well.

People are putting their credit card payments ahead of their mortgages, said Richard Fairbank, chief executive officer of Capital One Financial Corp., the largest independent U.S. credit card issuer. Of customers who are at least three months late on their mortgage payments, 70 percent are current on their credit cards, he said.

I never understood why the banks pushed so hard on bankruptcy reform. It’s not like the banks were losing money. And they certainly didn’t lower their card card rates after the reform.

Oh, hold on! I guess I understand it. They wanted to make even more money.

The new bankruptcy code makes it harder for debtors to qualify for Chapter 7…

Lenders began the process of seizing properties on 0.65 percent of U.S. mortgages in the second quarter, a record in a quarterly Mortgage Bankers study that goes back 35 years.

People are losing their homes but at least the banks are making a bundle on credit cards.

Bad mortgages slashed Washington Mutual’s profit by 72 percent in the third quarter from a year earlier, the Seattle-based thrift said Oct. 17. Income from credit card interest rose 8.8 percent to $689 million in the period, helping to offset a loss the bank warned on Oct. 5 would be 75 percent.

What! The banks might be involved in fraud, mortgage fraud!

Washington Mutual shares tumbled the most in 20 years yesterday after New York Attorney General Andrew Cuomo said the thrift had pressured real estate appraisers to assign inflated values to properties. Its dividend yield fell to 11 percent and the company traded at 0.74 price-to-book value.

I thought the purpose of the bankruptcy reform was to stop fraud and abuse, after all it was called the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. I guess they meant abuse by consumers, not banks.

And oh yeah, thanks for protecting the consumers with the Act. I’m sure that was the driving force behind the banks’ multi-million dollar lobbying.

“The law had an unintended consequence of taking away a relief valve that mortgage borrowers used to have,” said Rod Dubitsky, head of asset-backed research for Credit Suisse Holdings USA Inc. in New York. “It’s bad for the mortgage borrowers and bad for subprime investors because it means more losses.”

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was the biggest overhaul to the code in more than a quarter of a century.

My earlier post on the effect of the 2005 Bankruptcy Reform on current foreclosures here.