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  • Mortgage Cramdowns Will Hurt Consumers

    Just as the housing market is showing definite signs that it is stabilizing after a lengthy drop in housing prices, the House of Representatives is about to vote on proposal that would destabilize it once again while also raising the cost of mortgages for future home buyers.

    The proposal – to be offered by Rep. John Conyers (D-MI) as an amendment to the financial regulation bill now before the House -would allow bankruptcy judges to reduce the principal owed on a mortgage, a practice often referred to as a “cramdown.” Judges would also be able to reduce interest rates or lengthen the term of the mortgage.

    This is a huge policy mistake that would help only a few people while raising the cost of borrowing for thousands of moderate-income and first-time homebuyers. As we warned back in February, and expanded upon in April, when the Senate debated and ultimately defeated similar language that limited cramdowns to specific situations:

    …no matter how strict those limits seem, they do not alter the fundamental problems caused by mortgage cramdowns. Even with these limits, this proposal would still increase the cost of homeownership and especially hurt both first-time homebuyers and families with low to moderate incomes. It would also deal a blow to banks and other lenders at a time when many are faltering. Worst of all, allowing bankruptcy judges to rewrite mortgages would prevent few foreclosures while imposing high costs on many who tried this approach.

    Mortgage cramdowns were bad policy in both February and April. They are still bad policy, and would end up hurting the very people that supporters claim to want to help.

    Posted in Economics [slideshow_deploy]

    10 Responses to Mortgage Cramdowns Will Hurt Consumers

    1. Mark Hankins, Land O says:

      Banks could have easily avoided cramdown by making the HAMP program work for more than, oh, 4% of borrowers. Having failed to step up and help homeowners in the way they were expected to, they have only themselves to blame.

    2. Bill, Danville, VA says:

      Renters occupied our townhouse for two years and then asked about buying it. Due to the economic situation here and having had to change jobs, they could not get a loan from the bank. We offered to finance it and they have paid every month. If a judge could force me to rewrite the mortgage or lower the principal I would never have offered to finance and they would not have had the chance to be successful home owners. No one will loan money if they terms of the loan can be changed by someone who has no stake in the loan.

    3. Daver Ft. Worth says:

      The founders are rolling over in their graves!!

      The thought of judges arbitrarily adjusting the terms of a signed legal contract after years of enforcing the same agreement.

      Yes–the Obamites have changed the country for us.

      How's that Hopey Changey thing working out for you?

    4. Greg, Albuquerque, N says:

      It is unbelievably alarming to see comments justifying a judicial fiat as a means of altering a contract between private parties!!! Think people – hey I no longer like the deal you and I struck so I am going to court and will get a judge to change the conditions of our contract!

      Do people who "think" this way not see that they support a totalitarian form of government?

      The enitre reason we are in this mess is not just "bank greed" but the greed on the part of millions of individuals who bought houses they could not afford!

      Listen to our founding fathers – individual freedom, private property, and ENUMERATED government power.

    5. Tim Az says:

      I can see only one way to stop these vile bahaviors by these liberal elitists. We must treat them like children. That requires that we the people force consequences upon them through a constitutional cram down in a court of law. If we continue to allow these offenders to routinely break constitutional laws and then collect retirement and healthcare benefits along with all the bacroom deals as a reward. There will always be a line of like minded people waiting to take their turn and chip away at the constitution. We need to make examples of this vile behavior to the maximum amount the law will allow. Zero tolerance for unconstitutional actions. I hate to say it but maybe we need to organize constitutional associations for the express purpose of bringing these lawsuits as needed.

    6. Lynn B. DeSpain says:

      It is akin to drinking whiskey to cure alcoholism. Just keep chugging it down until you're well! The fact is, sooner or later, you have to face the hangover. The problem is we all have to suffer it together.

    7. Frank, Dallas, TX says:

      I agree with all of you regarding the 'cram down' and all of the other hoopla about the obamabots….HOWEVER, my wife and I are in a dire situation: 9.3%/40 years arm adjustable every 6 months….it cannot go any lower per the contract, but can go up based on the LIBOR. We have been trying to get Chase to modify it, but have been playing tag with them for 10 months …reapplying now for the third time. We cannot get a new mortgage due to low credit scores from being unemployed for six months…my wife and I are both severely underemployed but we aren't the type to sit around and gripe 'whoa is me'…so I hate to say it but the 'cram down' would work for us and we support it completely! I wish we could do the right thing from our conservative perspective but we are out of options!

    8. Perry OK says:

      I have quit loaning my bank my money. I am buying bare land and am starting to farm it. I am more wiling to work for my money than they are.

      Yeah they are breaking the spirit of the law at best. Quit enabling them by talking about them. Write it down and send it to all,yes I mean ALL of our senate and congressional officials. If nothing else you will feel better and the post office will use less of our money.

      Don't bother with the white house. They don't have a clue anyway.

      In all my days I have never seen so many well educated idiots in one small town. We will survive this period of stupidity and hopefully we will learn from it.

    9. JH, Cal. says:

      Cramdown of home mortgages was permitted until 1993, when the Supreme Ct. held that the statutory language of Sec. 1322 I(b)(2)did not allow it. Homeowner cramdowns were no big deal. Furthermore, Bankruptcy Judges do not "arbitrarily adjust the terms of a signed legal contract",nor rule by judicial fiat. They receive evidence and issue rulings based on the evidence before them. I concur with Mark of Land O Lakes…banks could avoid cramdown by working with homeowners. Regarding the sanctity of contract, the Bankrupcty Code has several provisions which allow contracts to be "rejected". Leases and collective bargaining agreements are two examples.

    10. Pingback: Why the mortgage cramdown bill would hurt consumers « Wintery Knight

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