'Cramdowns' on tap in 2009?
Report: Dems to renew push for loan mods in bankruptcy
By Inman News, Monday, January 5, 2009.Democrats are planning to reintroduce legislation that would allow bankruptcy judges to modify the terms of troubled borrowers' loans -- a move that industry opponents say will lead to higher interest rates and down payments for all borrowers.
Rep. Brad Miller, D-N.C., said he plans to introduce a bill today allowing bankruptcy "cramdowns" of mortgage loan principal, the Wall Street Journal reported. Sen. Richard Durbin, D-Ill., plans to sponsor similar legislation in the Senate, the paper said.
Miller said it's clear that voluntary efforts by lenders to modify the loans of troubled borrowers are "just not working" to prevent foreclosures.
Mortgage Bankers Association chief lobbyist Francis Creighton told the Wall Street Journal that its members have modified 2.8 million loans. The MBA has opposed cramdowns because the group says they could lead to higher losses for lenders and undermine the confidence of investors who buy mortgage-backed securities that fund most loans (see story).
But critics say that so far, loan modification efforts have largely been focused on reducing monthly payments rather than forgiving loan principal -- the only way to restore equity for the one in six homes now worth less than its mortgage. While the National Association of Home Builders has opposed cramdowns in the past, the trade group now says the idea is worth considering, according to the Journal.
President-elect Barack Obama expressed support for cramdowns during his campaign, and the Journal said changes to the bankruptcy code could be included in the economic stimulus package Congress is expected to put forward early in the new year.
The stimulus package is also likely to include a proposal by FDIC Chairwoman Sheila Bair that the government partially insure lenders who agree to modify loans under criteria developed the FDIC, the Journal said. The $24 billion program could prevent up to 1.5 million foreclosures, the FDIC estimates, by guaranteeing up to 50 percent of participating lenders' losses when they agree to modify troubled borrowers loans (see story).
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Submitted by Lenn Harley on January 5, 2009 - 11:13am.
AT LAST!!
I've been waiting for someone on the Hill to take this on again since the last time it was presented and killed off by the banking lobby.
Lets see if there are a sufficient number of representatives to do something for the American consumer this time.
Lenn Harley
Broker
Homefinders.com
http://homefinders.com
Submitted by John Rakoci on January 5, 2009 - 11:18am.
obama and the democrats seem to have a lot of plans for change. Sadly, very little, if any, of it sounds good so far. Raising taxes is at the top of the list. Who pays all taxes- the consumer. Add to McDonalds taxes and Big Macs go up. Severl companies have left the US in the past couple months for other countries with less tax bite. Many have gone to Switzerland or Dubai (Halliburton). Maybe if Exxon goes they will wake up? The financial sector is in sad shape now. To follow through on these silly ideas indicate the dems want to be hurt the banking industry so badly nationalization is the only way for banking to survive in the US. Another agency of cronies for the taxpayers to support? 2012 and a new president is a long way off.
Submitted by Bruce Hahn on January 5, 2009 - 4:41pm.
American Homeowners Grassroots Alliance
Democrats Miller and Durbin are doing the lenders a favor. Foreclosure sales tell the truth - lenders have already lost much of the market value of their mortgage-based assets, and what we're doing now is exploring alternatives to minimize their losses.
As Representative Miller pointed out, voluntary efforts by lenders to modify the loans of troubled borrowers are "just not working" to prevent foreclosures. Nearly half of restructurings fail, and the lender then gets to put the home in the MLS find out what the REO is really worth.
Anything that yields the lender more than open market prices is therefor an improvement. Bankruptcy judges are required to look after the creditors' interests. If the homeowners can't cover the current market value (and hopefully more if they can afford it), bankruptcy judges should and will turn the homes back to the lender.
If the judge finds the homeowner can pay more to the lender, its a good deal for the lender because it will be more than the lender would get after expenses when they resell the REO.
Submitted by Bruno Skopinich on January 5, 2009 - 6:35pm.
This will cause mortgage money to DRY-UP! And the rates will INCREASE!
Why...
Because if the principle amount is at risk to be cut by a bankruptcy court... then this investment will carry a higher risk... resulting in higher rates and less investment money available for mortgages.
Solution: create incentives for investors to invest in this market ... not scare them off!
Or the Govt will have to use taxpayers money to replace the investor money. We all know the guys and gals in DC stink are making a profit, almost all their ideas LOSE Money! They are only clever in figuring how to tax us more.