Saturday, May 2, 2009

Cram down? Not so fast

Most people out there have a sense of fair play and when we see our neighbors in trouble wouldn't think twice about helping out. The current legislation to help homeowners facing foreclosure is a very sticky situation. Senator Dick Durbin wanted to put an ammendment to permit judges to change the valuations of mortgaged property as well as the interest rates on those mortgages. This is called "Cram Down". While this sounds like the fair thing to do considering our present economic situation nobody considered the other side of the equation here. That would be that money for mortgages comes from investments and where do those investments come from? A whole bunch comes from retirement and pension funds invested long term providing monthly checks to grandma and grandpa along with a lot of other retirees. Could you imagine the banks having to send a letter to grandma telling her that because mortgages had to be restructured and the interest rates lowered that her monthly pension check will now have to be less as well? You could just imagine the uproar.

Cram Down

So what's the solution. My guess if this works out even close to fair would be that homeowners can get a new mortgage yet the terms may be gradually changed. The banks will have to write off more of their losses and bondholders will have to take a bit of a bite and tax payers will need to wait for any return. Everyone will just have to give a little. The alternative? Foreclose on all the bad loans. Demo the house. Tell the investor he's lost. Close the bank and watch as the entire economy hits rock bottom.


BBC said...

I know a lady that has been trying to get refinanced, but so far all she has gotten is crap.

I haven't been following it all that close because I don't need it being as my place is free and clear, and I can't make it my problem if millions of others did stupid things and took on stupid loans because they wanted more home than they needed.

A hell of a lot of them asked to get screwed, and you know it.

Demeur said...

No the problem is that many loans were done at variable rates. And just when rates were dropping the storm hit. Most of the subprimes have already been written off. The second round of option mortgages will be coming due this fall. The banks have been sitting on the money they got (our tax dollars) that was ment to fix the problem.

If you get any money from a company pension then this will affect you.

BBC said...

I don't get any money from a company pension. I get $938,00 a month in SS money and that is it. It's all I need and I even have extra to help others with.

Together We Save said...

I don't know enough about any of it. I enjoyed reading your blog. I am new to it today.

Tom Harper said...

It's a sticky situation. I don't have a solution. I have problems with the double standard -- the financial industry gets trillions of dollars in taxpayer bailouts, and individual homeowners are told "sink or swim!" and "you should have read the contract, Stupid!"

And yet if we bail out homeowners, retirees and pensioners will suffer. And if we hadn't bailed out Wall Street, the global economy would have collapsed (supposedly).

What to do.

S.W. anderson said...

Letting as many as 1.7 million more homeowners facing foreclosure lose their homes is a sure way to make everything worse and nothing better. Adding that many more homes to the country's stock of empty, deteriorating homes will further depress housing prices and increase uncertainty. That's even bad for the banks and mortgage companies. It's certainly bad for the economy as a whole.

Court-ordered so-called cramdowns don't have to mean completely unqualified or irresponsible people get to keep their homes at others' expense. Mortgages can be responsibly restructured so lenders get most or all of what they're owed. They might have more paper work and complications than they want to bother with, but they can get all or nearly all their money back.

That unwillingness to do the dealing and paper work undoubtedly has a lot to do with the industry lobbying Durbin's amendment to death. But there's another possibility.

The banks, mortgage outfits and some big real estate interest may feel they can get more money with less hassle by keeping their industries on the brink of collapse — so Uncle Sam will come along with a few more multi-billion-dollar bailouts. No muss, no fuss. Also, no transparency and no accountability.

People all over the country are complaining that when they finally locate and contact whatever outfit holds their mortgage, hoping to work some kind of deal to keep their home, the banks and mortgage companies blow them off, fail to return their calls, send them form letters that tell them nothing helpful. There's a reason and it's not lack of money on the lenders' part.

Think white-collar criminals doing what white-collar criminals do so well.

S.W. anderson said...

I just got through reading a longish but excellent article on this. It's probably the definitive article on this and well worth its length.

Anyone interested — and we all should be because we're in this garbage barge together — should go to The Nation site and read "More Mortgage Madness."

Demeur said...

Thanks for stopping by Together I will reciprecate.

SW Thanks I'll check that out later.