Cramdown is a bad idea!

While many policy actions have positively impacted the financial markets, much of what has been gained will be lost with any form of Cramdown legislation. Cramdown proposals would allow the portion of someones mortgage debt to effectively be eliminated that is higher than the current value of the property in bankruptcy. There are many current and new programs in place to help struggling home owners such that the proposed Cramdown legislation is unnecessary and even dangerous. The Cramdown proposals are flawed in many ways. First of all, loan modifications currently allow the borrowers interest rate on their mortgage to be dropped to 4%, the lowest 30-year mortgage rate ever. This is a decent way to help struggling homeowners. However, if the homeowner cant afford their original mortgage at the lowest 30-year fixed rate in history, why should they still get to keep the house which is what the Cramdown provides? People are heavily incentivized to keep their homes for obvious reasons. As a result, they work overtime, pick up a second job and reduce spending to be able to keep themselves and their family in their home. The Cramdown proposals redirect peoples energy into reducing their income and increasing their debt burdens in order to keep their home. Essentially, the less you can afford, the more debt that will be written off. Secondly, another tough question is: Why should the rest of us that are working hard and paying taxes need to, effectively, give folks a pile of money in addition to a lower cost mortgage than anyone else can get? When mortgage debt is written off, there is an 80% chance that taxpayers are on the hook primarily through the government supporting the losses incurred by Fannie Mae, Freddie Mac, Ginnie Mae (government agencies that guarantee mortgages) and to a lesser degree the governments support of most banks in the country. The other 20% hits folks like those that have saved money in a mutual fund, 401K plan, or are relying on pension plans for retirement. There are huge public pension funds already underfunded compared to the target amount of money they are saving for workers retirements due to losses on stock and bond investments. Eliminating mortgage debt in addition to having the lowest possible 30-year mortgage rate and getting to stay in the house while the workers in the country shoulder the burden is a bad idea.

Category:

News & Politics

Tags:

• Cramdown
• bankruptcy
• flawed
• mortgage
• legislation
• financial markets
• cramdown proposals
• obama
• home owners
• loan
• interest
• cant afford
• stickman
• stick-man
• cram down
• AM 1400
• Bryce Doty
• TDTK

[113mendoza1]

for which bank firm do yuo work. the banks make abailable this crapy loans to people fully knowingly tha,t there were no way on earth that they could posible pay the money back. That is the real problem. they made and disign those loans to sale them and profit.they try to shift the bleme to the cosumers.

[rasm0130]

you mean the guy in the cartoon with the 2 cars, the boat, and the 42" plasma? Thats not me, I spent the last 3 years living within my means....Yea, he sounds like he's got it really rough

[hucklberrydoc]

If the banks sell the homes on foreclosure, they will get less than fair market value. Cram down assumes fair market for the home. At least a "cram down" saves the rest of the neighborhood from the adverse effects of foreclosure. There should be future equity sharing for the bank though.

[angelcruzpr]

Obviously you are not a home owner in risk of foreclosure!