Mary Kladde
Cramdowns are an adjustment to a mortgagor’s/borrower’s principal balance. More simply put – If a borrower goes into foreclosure, the bankruptcy judge gets to make the determination that the principal balance of their loan can be lowered to “fair market value.”
“Fair Market Value” – what does that mean exactly? Right now, I would say it is a moving target and getting lower everyday due to this type of legislation.
So…..What have they won Bob? $25,000 off their mortgage and they’ve contributed to the lowering the “fair market value” of all their neighbor’s homes.
What are we thinking? Is the punishment of “Joe and Susy” homeowner who are struggling, but making their payment the answer. Why should 70-80% of the homeowners in this country have to take “hits” to their property values and pocket books due to the poor choices made by a select group of borrowers and lenders? Why do it for some and not all? Let’s write them all down. That’s only fair, right?!
If there weren’t a statute of limitations placed in the bill, many homeowners would seriously consider allowing their homes to go into default so they too can capitalize on this great opportunity.
In the rush to get legislation in place to prevent foreclosure, or maybe ensure talking points for the next election cycle, are we really thinking through the ramifications? Placing a bandaid on an open wound will not fix the problem.
Have we considered extending terms out 5, 10, 15 years to ensure a payment that can be met by the beleaguered borrower rather than letting both the lender and the borrower off the hook?
Common sense would dictate that rather than taking a loss, the lender could modify the terms of the loan to lower the interest rate and/or extend the payment terms to create a payment that can be met by the borrower. Instead, we are giving the lenders TARP money as incentive to do “write downs” so they can absorb the losses and letting them and the borrowers off the hook.
