Tuesday, January 27, 2009

House Panel Approves Cram Downs

by Calculated Risk on 1/27/2009 07:08:00 PM

From the WSJ: U.S. House Panel Approves Mortgage Measure (hat tip Ken)

A measure to allow judges to reduce the principal amounts of mortgages for troubled borrowers in bankruptcy cleared a key hurdle Tuesday when it was approved by a U.S. House panel.
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Under the legislation, borrowers would be eligible to have a bankruptcy judge reduce the principal balance on their home loan -- a move known as a "cram down."
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In key concessions to the banking industry, Mr. Conyers agreed to alter the legislation to allow court-ordered modifications only for existing mortgages and to require that borrowers contact their lender at least 15 days before filing bankruptcy.
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In another change, the legislation will now require recipients of cram downs who resell their home within five years to share the proceeds with their lender.
Tanta argued that cram downs would help discipline lenders in the future. So I think she'd consider the concession to make the legislation applicable to only existing mortgages significant. Excerpting from Tanta's Just Say Yes To Cram Downs
I am fully in favor of removing restrictions on modifications of mortgage loans in Chapter 13, but not necessarily because that helps current borrowers out of a jam. I'm in favor of it because I think it will be part of a range of regulatory and legal changes that will help prevent future borrowers from getting into a lot of jams, which is to say that it will, contra MBA, actually help "stabilize" the residential mortgage market in the long term. Any industry that wants special treatment under the law because of the socially vital nature of its services needs to offer socially viable services, and since the industry has displayed no ability or willingness to quit partying on its own, then treat it like any other partier under BK law.