Judicial mortgage modification, also known as mortgage cramdown, would NOT disrupt the residential mortgage lending market, but would prevent home foreclosures
Says who?
Says a Federal Reserve Bank of Cleveland study just released..
See the L. A. Times article by Lew Sichelman for a more readable explanation of mortgage cramdown.
Judicial mortgage modification, NACBA‘s euphemism for mortgage cramdown, costs taxpayers nothing and is a real solution for many homeowners who want to keep their homes.
Well, our politicians are not into win-win solutions. They are into earmarks and porkbarrel and their own careers, so this does not work for them.
It does have the advantage of being of real help, as opposed to every other government effort so far, including HAMP.
The residential real estate market has just continued to decline in the face of each government fix so far.
The Federal Reserve study looks at a law on the books since 1986, Chapter 12 bankruptcy.
That bankruptcy chapter is for mortgage cramdown for farmers, and was opposed by farm lenders then with the same hysteria being shown by home mortgage lenders now.
Farms, which may also be principal residences, can be crammed down by farmers (and fishermen and some other small groups) to the value of the farm, allowing the farmer to avoid the rest of the principal balance as an unsecured debt.
Same fiasco then on farms as on homes now; lenders went cuckoo lending against farm land, which they figured could only go up in value.
Does the farmer actually have the income to repay the loan?
Well, they did not look at that so much.
Sound familiar?
Angelo Mozilla and his fellow mortgage gangsters discarded any and all lending standards, because, home values could only increase, interest rates could only stay low, and the residential real estate bubble would inflate forever.
But, I digress.
Back to farm mortgage cramdown in Chapter 12 and the study.
So the agricultural lenders said passage of the Chapter 12 bill would ruin the farm lending market, there would be no commercial lenders participating, rates would go up to cover all the losses caused by the new law, crops would die in the field, little children and their pets would starve, the sky is falling, you get the picture.
So, what happened?
None of the dire predictions was born out by reality.
As I predict would happen if we get home mortgage cramdown, the banks started voluntarily writing down their loans, forgiving principal, agreeing to terms that were workable for the farmer.
The prediction was 32,000 Chapter 12 cases for the first year, actually, only 8,000 cases were filed in years one and two combined, with filings continuing to decline even now.
In this election year when they cannot even pass a budget, there is not much chance of Congress picking up this, or anything else new.
Though the House did pass a bill in March of 2009.
Congress should be getting a lot of new members come January, so let them know what you think about this.
And let me know, comments and questions always welcome.
Mortgage Cramdown – Yes!
