Comments on: Home Mortgage Cramdown: Part Deux?

By: Dom Casas

Dom Casas — Tue, 05 Jul 2011 14:22:29 +0000

I thought it was going to be some boring old post, but it really compensated for my time. I will post a link to this page on my blog. I am sure my visitors will find that very useful. Hrmm that was weird, my comment got eaten. Anyway I wanted to say that it’s nice to know that someone else also mentioned this as I had trouble finding the same info elsewhere. This was the first place that told me the answer. Thanks.

By: Anonymous

Anonymous — Tue, 29 Jun 2010 16:44:59 +0000

A home loan cram-down happens when a bankruptcy judge has the power to or parties agree to decrease the value with the principal over a mortgage. This is commonly carried out without having the consent of the home finance loan holder.

By: Diane Thompson

Diane Thompson — Tue, 08 Jun 2010 17:27:52 +0000

Great read Florence. Even though this post is back from December, it still is relevant. I think it is ridiculous how many smart people out there that contribute actionable insights to obvious problems and our politicians still can’t execute a solution. Like the BP fiasco in the Gulf, just another example of poor leadership in key positions… it’s terrible.

By: Alex Uribe

Alex Uribe — Tue, 06 Apr 2010 22:39:30 +0000

Cramdowns do serve a useful purpose, however, they should be treated as a conditional cramdown. A temporary loan modification would work better with a cramdown available if the house will not sell for the balance. This would protect banks from sellers making off with a big fat profit should the market turn around.

Too bad it is only wishful thinking that the government would structure in a matter that made more sense.

By: Alicia

Alicia — Wed, 10 Mar 2010 10:01:43 +0000

Thanks for the information. I am a student looking out for some information on mortgage as am going to prepare a presentation on mortgage(mortgageloanbrokers.co.uk) at my college. This post had helped me alot to add some points on my presentation. Thank to Florence Foote, Bob Hedge, David, Tom, and Scarlett. Your discussion helped me.

By: Florence Foote

Florence Foote — Thu, 11 Feb 2010 22:02:52 +0000

you are correct that more people would likely default if cramdowns were a possibility. However, those defaults would not in many cases lead to foreclosures, because banks tend to renegotiate terms when faced with a cramdown. Avoiding foreclosures is in everyone’s best interests.

By: Bob Hedge

Bob Hedge — Thu, 11 Feb 2010 18:23:24 +0000

I can see both sides of the battle. Many homeowners are upside down their homes because of the sub-prime fallout, caused by “predatory” lending, and need a reasonable way out that won’t destroy their lives. The crap thing is that some homeowners are only upside down in their house because everyone else in their neighborhood defaulted which dropped the value of surrounding property. On the other side of the coin, if borrowers know that they can potentially have their loan “crammed down”, I see it leading to more defaulting people that don’t care because of the chance of said “cram down”. The frustrating thing for legitimate brokers is that chop shop brokers continue to operate which is forcing lenders to become more and more strict with their lending, and for the borrowers they will work with there is a ridiculous amount of conditions. Something needs to change.

By: David

David — Mon, 07 Dec 2009 23:58:27 +0000

I’m with Scarlett not with Florance Nightengale. Cramdown is a bad idea, it reward the clueless for bad decisions. Many people sat out the market because they couldn’t afford a home, unlike th clueless who jumbed in and bought more house than they could afford. Now they are under water and exepect everbody to help them. Poor choices should not be rewareded. Loan mods are not working now because the clueless can’t qualify for the lower payments either. If cram down goes through expect long lines a BK court. For a $400K discount on their loan people who are current on payments and played by the rules might consider going this route.

By: Tom Cullen

Tom Cullen — Mon, 07 Dec 2009 21:12:24 +0000

This pretty much sums it up:

By: Scarlett

Scarlett — Mon, 07 Dec 2009 16:57:42 +0000

Actually, this seems very unfair to me. Cramsdowns reduce the amount owed at a certain point in time because there is a dip in the market value, but when the market value goes back up, as it almost certainly will over time, the amount owed is never raised again. How is this fair to the person/entity that loaned the money? Making a TEMPORARY reduction in the mortgage payment is much more defensible in terms of fairness /practicality.

If I own the property I can decide to hold it and rent it until the market value comes back up and THEN sell it if the current mortgagees can’t pay the mortgage and I foreclose. A cramdown basically forces me to sell the property (which is my security for the loan) at a very low price. I believe that *I* should be able to decide when and if I sell my security interest and at what price. Asking me to temporarily take less interest is MUCH more palatable to me. I don’t like it, but it’s much much better than forcing me to accept a market price that is currently abysmally low due to a confluence of economic factors. I believe that market prices will rebound in 2-4 years and especially in places like Florida where many markets have prices that are 40-50% below market peaks, forcing people to sell right now is really unfair. Yes, some banks would have sold at that price anyway (their choice) because they don’t WANT to hold property, but those are NOT the only entities/people that make/made mortgage loans. The bank/entity/person should be allowed to hold the property until the price rebounds if that is their choice.

Yes, it’s efficient for detoxifying real estate, but it’s NOT fair. It’s almost like using eminent domain for a situation for which it was never intended. Frankly, I don’t agree with it for commercial or second homes either, but that’s a different article.