Cram Down On Your Primary Mortgage

This post was written by jd on January 13, 2009
Posted Under: Real Estate

The Federal Government is modifying the bankruptcy code to allow cram downs for primary home mortgages. After meeting with lawmakers, Citigroup has agreed to back legislation that would allow bankruptcy judges to alter the amount due on primary mortgage principals, so called cram-downs. (I guess if we want banks to change we have to cram it down their throats)

Quoting Buiness Week

“As it stands, Durbin’s Bill (SB 61) would essentially give judges the authority to rewrite the terms of a home mortgage — a so-called “cramdown,” something possible already for every other kind of debt, mortgages on vacation homes and any real-estate other than a primary residence. It would also extend Truth in Lending Act protections to bankruptcy court, meaning predatory loans — made in violation of TILA — would be wiped.”

If the bill passes, a home owner who is facing foreclosure would have the option of filing for bankruptcy and have the mortgage reduced to a level where future payments would be manageable. As we said, every other kind of mortgage can be reduced except for a person’s personal residence. Doesn’t make sense, but the banks have fought this change forever

This would help save millions of homes from foreclosure, which some people may not agree with, but somehow we have to stop the foreclosure rate. Until we do that, the economy is not going to come back and more unemployment will result.

Of course, the rest of the mortgage industry opposes this, since it feels that it would hurt their bottom line.

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