CRAM DOWN Mortgages

By
Real Estate Agent with Coldwell Banker Select Professionals

Please, please, please contact your senators and congress reps to stop the CRAM Down Mortgages.  These legislation would allow a home owner who is default on their mortgage to file for Chapter 13 Bankruptcy and then the judge would have the authority to dictate new terms for the mortgage.  The principle and interest rate could be set by the judge.

While on the surface, that sounds like a good deal, but think about it.  What's that going to do to mortgage rates?  Investors would have to really tighten who they lend money to in order to make up for the loses they would incur from all the BK filings and mortgage changes that would forced upon them.

36% of all morgage loan modifications are already in default again.  What makes Congress think that statistic would change?  People will begin to default on purpose just so that they can qualify for the new mortgage.  The only people who will come out ahead with this will be the attorneys who work the BK market.

Comments (11)

Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

I couldn't possibly disagree more. 

If the system were not broken, we wouldn't need to fix it. 

It's broken.  The loans that defaulted following modification were hardly helpful.  Folks still can't sell if they still owe more than market value.  Modifying an interest rate won't help a home owner who has been transferred and can't sell his house. 

I doubt that this legislation will pass because the banking lobby will fight it with lots of heavy contributions to Barney Frank, et al. 

We'll just have more foreclosures.  Not a good alternative.

Jan 06, 2009 05:59 AM
Mark MacKenzie
Phoenix, AZ

Paul,

I'm still not certain what to make of this proposal as I don't have enough information about it.

I do know that I'm not an advocate of bankruptcies.

I also know a lot of Americans are hurting right now.

 

Jan 06, 2009 06:03 AM
Paul Chase
Coldwell Banker Select Professionals - Lancaster, PA

Thanks for the comments.

The part of the system that's broken is government intervention.   Go back in history all the way to the Carter adminstration and their goal of increasing home ownership.  They put pressure on lenders to make loans to people who couldn't afford them.  Just to make it more enticing for the investors, the government guaranteed the loans.  How could the lenders lose?  Bad loans were guaranteed by the tax payer!

Next thing you know, all the mortgage loan officers and brokers were saying "We finance anyone" and the Realtors were right there with them, "We can get into the home of your dreams".

I'm a firm believer that the market, like nature, as mechanisms in place to heal itself.  If the government would stay out of the market, it would repair itself.  Will people get hurt? Yes.  In broad, general terms, these are the people who enjoyed the benefits of this free money.  Now that it's time to pay the piper, they can't pay.

I'm suddenly reminded of the scene in the movie Pinochio where the boys are having a grand time partying.  Once they turn into donkeys, all of a sudden it's not so fun anymore.

Don't get me wrong, I don't want people to get hurt.  But I do know that there are consequences to every decision we make.

Jan 06, 2009 06:26 AM
Anonymous
Colonel Orson Swindle

As a future borrower,

I am fairly certain that I will end up paying for this program via higher fees and interest spreads.

So if you support this program, I've gotta ask: what do you have against me?

Col Swindle

Jan 06, 2009 06:54 AM
#4
Anonymous
john baradell

Just heard about this today, so I'm seeking more info.  When the loan is split into secured and unsecured (interest-only) loans, who gets the property lien?  Thanks--I'm hoping that the banks won't be getting a huge gift of property sans forclosure via this bill, as most lendees will likely bail.

Jan 09, 2009 01:57 AM
#5
Paul Chase
Coldwell Banker Select Professionals - Lancaster, PA

I'm not sure about the details.  I'm learning more and more about BK every day.  I'm having lunch with an attorney today and I hope to be able to discuss it with him more indepth.  Sounds to me like Realtors stand to lose and BK attorney's will make out like bandits, again.  Alas, nothing has changed.

I've got to find out how to make money from this.

One thing is for sure, right now everything is speculation.  We won't know for sure until the final passage of the bill if and when that happens.

Jan 09, 2009 02:07 AM
Anonymous
VERITAS

I have seen a lot of people hurt by the economic slow down.  Paul obviously this has not happend to you yet.  It will and I hope soon.  People like you hide behide pompous words.  When you personaly are affected I hope you remember your own words.

Jan 09, 2009 03:36 AM
#7
Anonymous
Anonymous

Veritas,

I find it interesting that you would choose to launch into personal attachs and wish ill on somebody you do not know.  For what it's worth, I have been hurt by the recession.  I decided that I had a choice.  I could respond by crying "Woe is me, there is a recession" or I could seek the opportunity in the economy and prosper from it.  To paraphrase the words of a great thinker: I chose not to participate in the recession and seek the opportunity.

I see on a housingwire.com article that Barney Frank is going to meddle some more with the financial markets.  When will people learn that the market will correct itself.  Intervention only serves to delay, not hasten the recovery. 

This was proven in the 1930's and early 40's.  It wasn't the WPA that pulled America out of the recession, it was World War II.  Hopefully it won't take another world war to stop this one.  Our industrial complex has been so weakened, we couldn't possilby win, but that's another thread altogether.

For the record, I see the misery everyday and I do what I can to help those affected.  I return the grace that God has shown me by helping other people where I can.

Jan 09, 2009 09:29 PM
#8
Anonymous
jerry

I don't have any 401ks or any other retirement and at almost 50 with all my equity gone I have nothing. The bank hired the apprazer. the bank proffitted every step of the way, everyone in the loan prossess knew these numbers were fake. But they road that horse  as long as they could with no regrets.banks were making money hand over fist on the way up and now they're making money on the way down.

Mar 02, 2009 10:39 PM
#9
Anonymous
Brad

Paul,

Not sure what you mean by "Will people get hurt? Yes.  In broad, general terms, these are the people who enjoyed the benefits of this free money.  Now that it's time to pay the piper, they can't pay."  I bought a house for $420k at the peak in Virginia, a small house.  Now this house is worth $250k.  I moved out of Virginia (due to job loss) 2 years ago, and due to the value already dropping and being upside down on a huge mortgage, I opted to lease it for what I could get.  The rent paid to me does not cover the mortgage.  Today, I am looking at paying $250k out of my pocket for the "benefit" of a home over my head during the boom, I don't even live in this house any more.  My tennant has found a bargain house (lots of foreclosures in the area) and is moving out.

Where is the benefit to me?

Apr 20, 2009 09:26 PM
#10
Anonymous
Paul In Arizona

So if I understand this a "cram down" price is based on the true market value of real estate today, not what it WAS worth a few years ago when the bankers and Wall Street were inflating prices and buying the short side at the same time- the credit default swaps, hedge funds, etc.   Even Moodys and Standard and Poores were in on the scam. They rated the bonds that were worthless that were sold to pension funds, foreign governments, individuals, whomever as AAA without any thought of who would be hurt or displaced by their operations. . They were paid to do so by the Wall Streeters and the bankers that scammed the taxpayers and left us holding the proverbial bag. Now its being disclosed the US Federal government was even paying the regulators and "watchdogs" whose job it was to prevent problems like this millions in bonuses for doing such a good job.

So who does the American taxpayer trust? Are there any penalties for the bond raters that were fraudulent or the scammers that paid them off? How about the feds that bailed them out and still allows them millions in bonuses for getting us into this mess.

So a cram down is a good thing. It is the "self correction" ( as if there weren't any manipulations and schemes that caused this meltdown) device that re-aligns the market to reality. This is the reality. The sooner we stop whining about the past,(not forgetting it) and fire the folks that got us in to this mess( not forgetting them either) we can start to move on.  

So yeah- new interest rates and mortgage principals are a good idea.  Maybe it'll help some people keep their homes and send some messages to the bankers and Wall Streeters and the Feds that are working together to screw them out of them that says they aren't gonna operate with impugnity anymore. I'm pretty sure they'll just find another way to operate and do the same stuff again so what does it matter if a few more Joe Taxpayers get to keep their homes?

Mar 23, 2010 11:17 AM
#11