Cramdown (SP?)
From Politco:
The most controversial change would allow bankruptcy judges to modify mortgages for a homeowner’s primary residence. Republicans, along with their allies in the lending industry, oppose the measure because it would reduce the amount of money owed on the house. These reductions will result in higher mortgage costs for all homeowners, opponents argue.
A primary home mortgage is the only type of debt that can’t be changed by a bankruptcy judge. That is because the mortgage company lobbyists have worked over Tom Carper and Mike Castle for years.
So if you owe …say $3 million on a beach house, a bankruptcy judge can say “That beach house is only worth $900k” and work out a payment schedule. But if you bought your fmaily house at the top of the bubble for $300k and it is only worth $150k now – tough shit.
The mortgage companies have argued that if cram-downs are allowed, the “risk premium” that lenders will have to apply to mortgages will radiate out into the market and they will have to make better lending decisions.
Somehow the “risk premium” created by $3 million beach house mortgage defaults doesn’t impact the market. (?)
Let’s be clear about this: in the event that this becomes law, the people who get the shaft are not the ones who sold the house for an inflated price, because they already have their money. The people who get the shaft are the ones who hold the mortgage at the time such a “cramdown” occurs. The way mortgages got traded around — mine went through at least three companies in the first two years — the current mortgage holder may well not be the one who initially approved the loan.
The people who get the shaft are the ones who hold the mortgage at the time such a “cramdown” occurs.
When a Ponzi scheme is busted it is perfectly legitimate to get the money back from the early investors who profited, even if they were innocent.
If the mortgage is crammed down to a level where they get the value of the house plus a modest profit, they are hardly getting the shaft; they are damned lucky not to be saddled with the house.
Jason is worried about spelling? The end days have come…
Basically Dana is asking who will be left holding the bag when the bill comes due? That’s a good question. I think it should be the mortgage companies and banks that spent a lot of time selling people fraudulent mortgages.
Has anybody been paying attention to the housing market and mortgages for the last year or so? They are already pricing in some risk premium (and part of the price is reducing the availability of mortgages). Bankruptcies by default raise costs for all of the rest of us — whether it is houses, credit cards, banks or car companies.
Other economic news, the 4Q08 revised GDP number came in at -6.2%. That’s a terrible number, worse than predicted.
Dana, if the mortgages foreclose, the current holders will REALLY get the shaft. This is partially for their benefit. They did, after all, fail to do due dilligence on the worthless paper they picked up, so it’s natural that they’re going to lose a little value on it.
And would it be nice if the Bush administration had given the FBI resources it needed to prosecute these fraudulent fly-by-night liar lenders back in 2004 when they requested it? I guarantee you those businesses are gone now, but unfortunately the people who made their millions off them are probably going to be very hard to track down.