Here Come the Cram Downs!

Nice column to end the year on via WSJ: Mortgage ‘Cram-Downs’ Loom as Foreclosures Mount.


“The banking industry hoped the mortgage “cram-down” measure died when Congress removed it from the $700 billion bailout bill that passed in October. But it has been gathering momentum in Democrat-controlled Washington, as evidence emerges that current voluntary foreclosure-prevention programs are falling short.

In a cram-down, a judge modifies a loan, often reducing principal so a borrower can afford it. Lenders hate it because they have to absorb the loss. Bankruptcy judges currently have the ability to modify certain personal loans and even mortgages on vacation homes, but they can not cram-down mortgages on primary residences.

Even staunch opponents acknowledge that mortgage cram-downs for primary residences are likely to be as part of Congress’s economic-stimulus package in early 2009. The National Association of Home Builders used to reject any bill with a cram-down provision outright. Now it is saying the measure is worth a look.”

I do not favor involuntary contract rewrites. Remember, a mortgage is a loan against the property — to an individual. The lender’s recourse should be to retake that property. If the creditor cannot be convinced a modification is in their own interest, well then, they must go through the expensive and time consuming process of foreclosure, REO, and resale.

You would think a modified loan is preferable, but its their choice. Rewriting a contract is not a desirable solution.


Mortgage ‘Cram-Downs’ Loom as Foreclosures Mount
WSJ, DECEMBER 31, 2008

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