Industry NewsMortgage

Cramdowns might raise borrowing costs

A cure worse than the disease?

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Legislation that would force lenders to restructure many loans through means including "cramdowns" by bankruptcy judges could raise the cost of borrowing and make loans harder to obtain, opponents say. Sen. Richard Durbin's Homeowner Assistance and Taxpayer Protection Act is aimed at forcing lenders and loan servicers to modify hundreds of thousands of mortgages they might otherwise foreclose on. Backers of the Illinois Democrat's bill say lenders and loan servicers aren't moving fast enough to head off preventable foreclosures -- in part because in many cases, the loans have been securitized and sold to investors. Durbin's bill would require restructuring of loans where federal regulators such as the FDIC hold a controlling interest, and also require loan servicers to restructure all loans that qualify for the Hope for Homeowners FHA loan guarantee program, which is currently voluntary. Another controversial provision of Durbin's bill is a proposal to allow ...