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Say Hello to "Cramdowns" and Goodbye to Retirement Funds

By
Real Estate Agent with SeattleHome.com -Coldwell Banker Danforth

 

Mortgage "cramdowns" are being pushed in government legislation as we speak.  For borrowers who are in Chapter 13 bankrupcty, a cramdown is when a bankruptcy judge is allowed to lower the actual balance of the insolvent borrower's mortgage.

This is the peak of a number of homeowner-rescue tactics.  While there have been plenty of options for borrowers to have their interest rates lowered or late penalties removed from their loans, never before has the government allowed a judge to choose the balance of a loan and force a bank to accept it.

Have a 401k?  IRA?  Pension?  Plan on retiring any time soon?  You should be worried.  Much of the current turmoil in the markets is based on financial institutions' instability.  Cramdowns will amplify those problems, and the markets will suffer increasingly.  When banks' assets are on the line, so are yours.

There isn't a lot of sympathy for banks right now, but the banks are losing their shirts, too.  Have you seen the stock prices, layoffs, and government takeovers?  This has all happened before the actual instrument of these banks' assets becomes dependent on bankruptcy judges' opinions of "appropriateness".

We all want to be sympathetic to those who are having trouble paying their mortgages, and our government is putting out a lot of options for those folks.  Cramdowns are only going to bring down a lot more people at a faster pace.

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