Nice column to end the year on via WSJ: Mortgage ‘Cram-Downs’ Loom as Foreclosures Mount.

Excerpt:

“The banking industry hoped the mortgage “cram-down” measure died when Congress removed it from the $700 billion bailout bill that passed in October. But it has been gathering momentum in Democrat-controlled Washington, as evidence emerges that current voluntary foreclosure-prevention programs are falling short.

In a cram-down, a judge modifies a loan, often reducing principal so a borrower can afford it. Lenders hate it because they have to absorb the loss. Bankruptcy judges currently have the ability to modify certain personal loans and even mortgages on vacation homes, but they can not cram-down mortgages on primary residences.

Even staunch opponents acknowledge that mortgage cram-downs for primary residences are likely to be as part of Congress’s economic-stimulus package in early 2009. The National Association of Home Builders used to reject any bill with a cram-down provision outright. Now it is saying the measure is worth a look.”

I do not favor involuntary contract rewrites. Remember, a mortgage is a loan against the property — to an individual. The lender’s recourse should be to retake that property. If the creditor cannot be convinced a modification is in their own interest, well then, they must go through the expensive and time consuming process of foreclosure, REO, and resale.

You would think a modified loan is preferable, but its their choice. Rewriting a contract is not a desirable solution.

>

Source:
Mortgage ‘Cram-Downs’ Loom as Foreclosures Mount
MICHAEL CORKERY
WSJ, DECEMBER 31, 2008

http://online.wsj.com/article/SB123068005350543971.html

Category: Credit, Legal, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

50 Responses to “Here Come the Cram Downs!”

  1. wouldn’t be the first time..

    http://www.icerocket.com/search?tab=web&fr=h&q=Gold+abrogation+clause

    from our ol’ friend: Contracts as Good as Gold
    By AMITY SHLAES
    June 5, 2008

    “…The market rally in the spring of 1933 slowed as investors watched FDR fiddle with the dollar and commodities over the course of the fall. In 1934, FDR thought better of it all and fixed the dollar to gold again, albeit now at $35 dollars an ounce. But the abrogation of the gold clause suggested that Washington had no regard for property rights. The general uncertainty generated by government economic policies did not abate. Capital went on strike. The Great Depression endured to the end of the decade. The positive transparency that the Securities and Exchange Commission or the creation of deposit insurance brought to markets was offset by losses like that of the gold clause.

    And from then on, the federal government enjoyed wider license to inflate. Without the gold-clause option, citizens tried out other hedges – today a line about the CPI may stand where the old gold line once stood. In the 1970s, Sen. Jesse Helms pushed for repeal of the old abrogation, and eventually, with the support of Treasury Secretary William Simon, he won. But the average investor never used the clause to the same extent.

    Today, as in the last days of the gold clause, officials like Mr. Kroszner of the Fed’s Board of Governors are weighing a difficult choice between efficient crisis management and property rights. People don’t talk more about the damage of monetary uncertainty because that damage is so spread out – harder to discern than, say, a single giant event like the implosion of Bear Stearns. But the old gold clause footnote explains why we may see yet more angst over the Consumer Price Index, the TIPS bond, or even LIBOR, the London Interbank rate. We have lost our bearings and our confidence in money generally…”
    http://bobbarrforums.com/viewtopic.php?f=8&t=176

    “You would think a modified loan is preferable, but its their choice. Rewriting a contract is not a desirable solution.” –BR

    w/o Doubt.

  2. Steve Barry says:

    Still working Barry?…thanks for a great year on the blog.

    Remember…yesterday, today was tomorrow…and tomorrow, today will be yesterday

    Happy New Year All!

    http://www.youtube.com/watch?v=r61noMrx3qw&feature=related

  3. vic says:

    It’s not only “not desirable” it’s a blatant violation of property rights. Just another step on the road to fascism.

  4. DL says:

    This issue should be considered within the context of a situation in which the government cannot resist the idea of massive bailouts. Given that we are in that situation, I think that there is merit to the idea of giving TEMPORARY authority to judges (to change the terms of mortgages) provided that the homeowner declares bankruptcy first.

  5. cfish says:

    It’s spooky that a judge has full authority to mark down your mortgage to $1… expect to see judges driving Porche’ s and investing in offshore hedge funds.

  6. Boomer says:

    The judges can cram down everything else except the primary home (AFAIK, they are already allowed to cram down second/vacation home mortgages) so the primary homes are the exception not the rule.

    I am kind of in favor of cram downs. It will make lenders be careful who they lend (a refreshing change!) to and I don’t think the bankruptcy option is nearly as attractive as people make it out to be for borrowers.

  7. JustinTheSkeptic says:

    Who’s the dumb ass that argued with me when I sugggested that, “the government should not be trying to support anything,” oh about four or five months ago? This is all bull-shit, Schumpeter wins! The heck with listening to these financial and government gurus who get on the boob-tub and tote the group-think line. Where have all the free-thinkers gone? If they would have let this thing sink, and picked up the pieces it would have been a hard road but it is going to be an equally hard road and a lot longer road now…

    HAPPY NEW YEAR. Don’t let the problems facing the world ruin the things that mean the most – family, friends, and an enjoyable landscape out the window. It looks like a winter wonderland out mine…wow is it beautiful.

  8. wunsacon says:

    Justin,

    I’m probably one of those dumb asses. I believe in bailing out people — not private institutions — because:
    * companies are replaceable (reorg thru bankruptcy) without losing whatever productive capacity really exists therein
    * most of these payouts disproportionately benefit the negligent upper class investors/managers to the detriment of the middle class (whereas “the rich” — relatively or absolutely — must be allowed to fail)
    * savers should be rewarded for not contributing to the knowingly reckless decisions that led us to this point.

    What’s an alternative to “doing nothing”? If we were to simply give money away to each individual, non-failing and/or new businesses would work on ways to obtain that money by providing a service people *want*. That would be a meaningful recovery.

  9. constantnormal says:

    @ Boomer — “… and I don’t think the bankruptcy option is nearly as attractive as people make it out to be for borrowers.”

    I agree. While stiffing the lenders via cram-downs is not fair, neither is having the lenders get all the bail-outs, while allowing the borrowers to fail and dumping millions of homes onto an overflowing housing market, punishing every home owner. Nether approach works to the betterment of the overall economy.

    A “more balanced” cram-down would be a uniform, unilateral (if both parties want to separately re-negotiate or continue under the existing arrangements, they should be able to sign a waiver to that effect) restructuring of all mortgages, maintaining the same total amounts to be paid back to the lender, but stretching it out over a MUCH longer period of time, in order to reduce payments to what the borrower can manage.

    So a pair of doofuses (lender and borrower) who work themselves into an arrangement where the borrower cannot pay the loan back, should take a turn on the re-structuring railroad, converting whatever kind of crazy whacked-out mortgage they have into a fixed-rate, however-long-it-takes loan. If the amount is more than the home is worth, then both parties are pretty much stuck with that arrangement until they either find a buyer willing to purchase it for the remaining loan balance, or until the loan is paid off, or until the borrower either defaults (in which case they do go the bankruptcy route) or dies (in which case the lender gets the house or an amount equal to the outstanding mortgage balance from the estate).

    THAT’s the kind of cram-down that I would like to see. Having judges adjudicate these sort of arrangements is nonsense.

  10. DL says:

    vic @ 4:12

    Bear in mind that the Fed is going to devalue the currency in an effort to prop up housing. At the same time, the administration and Congress are happy to extract money from taxpayers in an effort to prop up housing.

    Pick your poison.

  11. Mannwich says:

    I just read that article why sweatin’ to the oldies at the gym. My first thought is how stupid of me and my wife to do the responsible thing and put down 20% and not buy a home beyond our means in ’05. Looks like we should have just played the game with zero $ down, bought more house than we can afford (or need) and sat/waited until some higher authority marked down our principal for us. I’ll be sure to not make that mistake again. I’m sure others are thinking the same thing.

  12. Mannwich says:

    …..that’s “while” sweatin’ to the oldies (I miss the preview screen).

  13. Tom K says:

    “property rights”? What are those?

    @wunsacon say “What’s an alternative to “doing nothing”?”

    And constantnormal answers:

    “So a pair of doofuses (lender and borrower) who work themselves into an arrangement where the borrower cannot pay the loan back, should take a turn on the re-structuring railroad, converting whatever kind of crazy whacked-out mortgage they have into a fixed-rate, however-long-it-takes loan. If the amount is more than the home is worth, then both parties are pretty much stuck with that arrangement until they either find a buyer willing to purchase it for the remaining loan balance, or until the loan is paid off, or until the borrower either defaults (in which case they do go the bankruptcy route) or dies (in which case the lender gets the house or an amount equal to the outstanding mortgage balance from the estate).”

    I call it liberty to be a doofus.

  14. bondjel says:

    How do you argue vociferously that there was a significant amount of “predatory lending” as I recall you having done, and then stand so firm on the sacredness of contracts that those who were bilked can’t get relief? And where do you draw the line, if at all, on the inviolabilty of contracts? Is it OK for a corporation to contract with its employees to fully vest a pension fund and then turn around and say “sorry about that” we haven’t got the money we contracted to pay you? Is it OK for a corporation to make a contract with a union of its employees and then break the contract before it comes up for renegotiation? I suspect corporations get away with murder breaking contracts but since they are so favored by those who also stand for the inviolability of contracts they aren’t called on it. Sounds like a double standard to me. Do you have a proposal in your book for how people who were the targets of predatory lending can be made right some how? I’ve got Bailout Nation on order and I’ll be looking for answer.

  15. wunsacon says:

    Maybe the only way to end the gravy train is for everyone to get on it — the “Moral Huzzah! Express”.

    With that in mind, would it be crazy to:
    - start a new bank (RGCB – Rube Goldberg Community Banc),
    - give local, underwater homeowners the opportunity to invest in the bank provided they take out junior mortgages on their properties,
    - apply for TARP funds to cover the mark-to-market losses on any loans that go into default (*that’s IF there are any defaults!* – hahahaha), and then
    - pay homeowners dividends on the TARP returns, which are paid at face value
    ?

  16. JustinTheSkeptic says:

    I’m thinking the general good for the over-all, world, country, and individual. What happens now after the moves that the different governments and central banks around the world have taken and will take is sloooooowwwwwwly, move toward protectionism. Somewhere in somebodies lifetime, we have to get past the polar thinking that wrecks havoc on economic thinking – life and all its construts are all about a continuously moving pendelum, back and fourth, in and out over and under….nowhere will the answer be found in static thought. If things would have been left at managable levels, where nothing become too big to fail – kind of like the construct of the internet where if one hub fails there are thousands of others to take its place, we wouldn’t be in this mess. Perhaps small micro economic systems should be allowed to exist and only if there is a true advantage from outside the system should it be adopted and tried. Otherwise who really needs it? Now we have the idiots in Washington and New York City, telling us how to kiss there asses…only because they can. Its bull-shit…and sure to hit the fan!

  17. danm says:

    Anyway. If big inflation hits, whether your net worth is 200K or 2 million, it won’t make much of a difference. We’re all going to be squished together.

    That’s why we should be cooperating instead of competing…. our kleptocracy has us where they want us, wrapped around their little fingers, brainwashed into believing that if we just do the right investment moves, we’ll be in the top 1%.

    What a farce!

  18. wunsacon says:

    I wonder if that would make for good reality TV.

    …and gambling! You folks could place bets on Intrade whether or not the scheme works and even whether or not I’d go to jail trying. (Mind you, recent history says I’d walk. Remember: “Don’t bet against the Fed!!!” hahahaha)

  19. wunsacon says:

    Alright…I’m getting silly. Happy New Year, y’all.

    I really enjoy reading everyone’s comments here. I got no one to talk with at work about this cr@p and my job is ~~boar~~ring~~. You people keep me sane. (I suppose.)

    Best of luck to you in the new year. May we all live in “slightly less interesting times” than these.

  20. danm says:

    I started reading this blog and a couple of others while I was still managing a financial fund… it helped me stay sane while me and my credit bubble thesis were being ridiculed.

    Happy New Year Everyone!

  21. just doug says:

    Regardless of the other issues cram downs will absolutely not rescue the housing market as intended. It’s hard to imagine anything more likely to dissuade creditors from making loans than the prospect of losing all recourse if they aren’t paid.

    No doubt that will be the excuse for full nationalization of the banking industry. Silly me thinking the lesson of the 20th century was that central planning failed not just in theory but also in practice.

  22. Bruce in Tn says:

    That is merely a sissy cram down …you have to get judges, go to court, etc. …… how mundane……now Mr. Paulson, he knows how to cram down….especially to congress and the US taxpayer….first you ask for 350 billion, it is approved, then you spend all of it and more…that is what I’d call a cram down.

    http://www.washingtonpost.com/wp-dyn/content/article/2008/12/30/AR2008123001133.html

    Treasury’s Bailout Promises Runneth Over
    Commitments Exceed $350 Billion Congress Has Allocated So Far

    (But don’t forget, the taxpayer is going to make money on this………………………………..)

  23. Transor Z says:

    Farmers have had cram-down mortgages in bankruptcy for 30 years under Chapter 12. Mortgage industry has bitched about it ever since, with the net result being some unwillingness to write agricultural mortgages and higher rates.

    For individuals, cram-down is pretty much limited to Chapter 13 bankruptcies (wage earner’s plan). More than 2/3 of consumer bankruptcies are still in Chapter 7, even after the 2005 reforms.

    I’d have to see the specifics of this legislation. The devil will be in the details.

    Happy New Year from snowy Boston!

  24. DL says:

    Maybe they should call it a “cram-up” instead.

  25. Ny Stock Guy says:

    I’d imagine that as this crisis continues, there will be a lot of things happening that fall under the category of “not a desirable solution”.

  26. Ny Stock Guy says:

    And Happy New Year from Westchester. BP has been very helpful this year!

  27. JohnnyVee says:

    This is a great subject to discuss. What about this:

    (1) I would argue that there is no obligation for a lender to modify a loan that was obtained by a bwr that committed fraud to get the loan. Also, fraud is not dischargeable in Bankruptcy–that right.

    (2) In California, a new law effective 7/08 states that a lender must modify a loan if the modification would be more than the foreclosure value of the home. Civil Code S 2923.6. Again, if bwr committed fraud, then I would argue that this would not apply.

    (3) In California, predatory lending is defined by case law to be when a lender makes a loan to someone that cannot pay it back. [Oakland v. .....Citation is at my office] This would be any option arm loan because bwrs were qualified on the lowest possible payment not on the fully adjusted payment…these are not subprime loans. They are full doc loans. So, get bwr fraud out of your mind. At there inception, bwrs were unable to repay. By definition, they are predatory. People that argue that Gv’t doesn’t have authority to modify contracts to conform with the law doesn’t have a firm grip on reality.

  28. Mike in Nola says:

    Right on bondjel! The Republican’s have allowed bankruptcy judges to screw over labor unions for years, so it’s about time the financial crowd got screwed.

    The basic problem here is that the mortgage holders continue their dishonest ways and are doing everything in their power to avoid writing down mortgages everyone knows are not worth what they claim to be. This keeps the books looking good. They are trying to avoid the writedowns by refusing to renegotiate the debt and by trying not to foreclose and selling the property, either of which will force the write downs.

    Instead, they are trying to get the debtors to sign onerous contracts that will saddle them with payments for life without ever paying off the mortgage.

    http://mrmortgage.ml-implode.com/2008/12/17/fanniefreddie-come-get-your-loan-mod-pay-for-life/

    Maybe this will put the fear of God into them. They certainly have no fear of law enforcement or the courts.

  29. TimmyB says:

    Actually, we need cram-downs for primary residences. Currently, in bankruptcy, every other type of property which is used as collateral for a loan, other than a primary residence, was subject to a “cram- down.” The only reason I can figure that primary residences were recently excluded from cram-down was so that average Americans could be taken advantage of by creditors. (This proves once again that our Congress is owned by the finance industry.)

    If you don’t like cram-downs for primary residences because contracts are sacred, then why are cram-downs allowed for every other type of property. You name it, private jets, vacation homes, luxury yachts, machine tools, ect. are all CURRENTLY subject to the cram-down. Its absurd that only home mortgage contracts are sacred. Simply put, screwing the little guy is what the cram-down exception on primary residences is all about. There is simply no reason to allow primary residences to be treated differently than every other type of property.

    Furthermore, cram-downs for primary residences are good for both the lender and society. Whenever there is a cram-down in bankruptcy, the borrower is required to pay the fair market value for the property. Now, because many home loans are for more than current value of the property, crammed-down home loans would be written down to the fair market value of the property.

    The lender would be better off under a cram-down because the fair market value of an occupied home is more than what the lender could get for same home if it were vacant. Even if the value of a home did not decrease simply because it was vacant, the lender would have to pay for eviction costs to make the home vacant, and then for taxes and upkeep once it took over the property. Then the lender would need to pay auction costs or sales commisions to sell the house. Rather than paying these costs, getting fair market value is the better deal for the lender. For society, vacant homes are a liability. Among other things, they lower property values for the surrounding community. Cram-downs would actually prop up property valuse. Thus, we should have residential property cram-downs.

  30. usphoenix says:

    There’s a slight trace of a thread here I find incredibly encouraging.

    “We are family”.

    When we can sort out the profits, motives and power structures, and get back to what people do best, enjoy most, we will make it past this. And if we don’t then we’ll join the ranks of all the species that proceeded us into extinction. Except none of the previous ones destroyed the planet quite like we did. Well, perhaps if they consumed all the oxygen or CO2.

    Tainter. Complexity. Power . Hayek. Our federal government solving all our problems when they absorbed the problem for their own personal gain.

    COMMUNITY. What exactly happened to community? Does anyone really understand the expense and overhead of GLOBAL? And how concentrated the situation becomes?????? Hayek. It does not have to be a government. Why exactly is Wall Street such an important focal point?

  31. Bob the unemployed says:

    Happy New Year to all!

    (and Barry, many thanks for a most excellent and educational blog)

  32. philipat says:

    That’s just the lawyer in you Barry, don’t give me all this “sanctity of contract” B/S. The US is fast becoming a banana republic and has to behave accordingly. Actually, this is just a dry run for the US Dollar?

  33. jonhendry says:

    JohnnyVee wrote: “(1) I would argue that there is no obligation for a lender to modify a loan that was obtained by a bwr that committed fraud to get the loan. Also, fraud is not dischargeable in Bankruptcy–that right.”

    I would agree, UNLESS the loan originator involved was one where a lot of fraud took place. If a particular originator seems to have a high number of borrowers who committed fraud, then chances are high that the originator was encouraging it, and thus should bear the responsibility.

    Consider a guy who goes in to get a loan. The broker determines the customer doesn’t make enough money to qualify. So the broker suggests he do a stated income loan. The broker knows that if the customer uses the same income number, it’ll be the same result, so the very act of *suggesting* a stated income loan is knowingly enabling the commission of fraud, because for there to be any point in a stated income loan, the stated income has to be a lie.

    If the customer comes in and asks for a no-doc loan, then yeah, that’s clearly a fraud on the customer’s part. But if the broker suggests the no-doc because the customer’s income won’t qualify, then I think the broker is essentially selling fraud as a service.

  34. dunnage says:

    Is Cram Down part of Supply-Side? OH, my mistake, I’m thinking of Up Yours — not working for one of the nation’s institutions of finance the lingo seems like Greenspeak to me.

    357 people signed up for Hope for Homeowners.

    4,100 delinquent borrowers use FHASecure.

    Tough eligibility, high cost just don’t seem to work like it should. Don’t know why. Hell, they should just foreclose and save a reduction in principal. If someone won’t pay on a $300,000 mortgage when the house is worth $210,000 — the bank should have it back so they can utilize the asset.

  35. masaccio says:

    It would be just great if lender and borrower would just sit down an sing kumbayah together. Right now, no one knows who their lender is. I represent a Chapter 7 Trustee. We have two orders right now saying that the amount secured by properly perfected mortgages is $0. That happened because no one can find the actual note.

    Second, something like 80% of loans made in the last three years were securitized. No one can find anyone to negotiate with, even if the paper trail is right.

    The bankruptcy amendment will fix the second problem, and should fix the first, if properly done.

    The constant repetition of the importance of contracts is irrelevant in the context of failure. The point of reorganization is to change the terms of contracts so that the business can survive. This is a policy decision, and the authority for it is enshrined in the Constitution.

  36. mangler says:

    Bankruptcy process results in rewritten contracts all the time. In fact, without rewritten contracts bankruptcy would not be viable for anyone. The fact that mortgages can’t be crammed down is the exception to the norm.

    I have no problem with cram downs, particularly as it relates to mortgages on a primary residence as opposed to investment property.

  37. callawar says:

    I am surprised you would suggest not altering the contract. In normal circumstances that would be OK but we are not in normal circumstances. This blog has identified numerous criminals involved with mortgage writing — lending to people who were not in a position to handle the loan. Who’s fault was this? That is why a judge is the best option to settle, “cram down” these contracts.

  38. jonhendry says:

    dunnage wrote: “If someone won’t pay on a $300,000 mortgage when the house is worth $210,000 — the bank should have it back so they can utilize the asset.”

    That might make sense in normal times, but right now that just adds to the glut and the bank gets stuck with an empty house that they need to maintain. An empty house with water damage from frozen pipes, an unkept yard, and broken windows isn’t going to be very appealing to buyers, and the price is going to drop even further.

    If rich peoples’ toys (yachts, sports cars, tour buses, non-primary residences) can be crammed down, what’s the principled justification for not extending that to primary residence mortgages?

    As far as I can see, the only justification is that cramdowns for primary residences are inconvenient for the banks because there are so many.

    Rich peoples’ toys can get crammed down because there are relatively few of them, and because banks want to keep the rich folks’ business, again because there are relatively few of them.

    Does financing for vacation homes and yachts carry a higher interest rate than a primary residence loan, because of the possibility of a cram down? If not – if the banks aren’t pricing that risk in, and if primary residence mortgages aren’t cheaper because they can’t be crammed down, then I see no reason not to allow primary residence cramdowns.

  39. Mike in Nola says:

    jonhendry: I think dunnage was being sarcastic :)

    Happy GNU Year to everyone from Houston. Just turned midnight.

    You know you’re getting old when you spend New Years Eve going to Walgreens to stock up on over the counter meds because you have a few bucks left in the flexible spending accout.

  40. Marcus Aurelius says:

    Haven’t read all of the comments (it’s Jan. 1, 2009, 2 am, and I’m a little lit), so if it’s been covered, sue me.

    The right to contract within the law existing at the ratification of the contract, is the mark of a free society. Government has no right to modify any lawful contract it is not a party to.

  41. dunnage says:

    Well, a contract is as good as your legal team. Chapter 11 is pretty cool with contracts: Shred it. Thought you had a deal, a labor agreement, a pension — well you did. Management gets a bonus as they enter the market again, cleansed of all their sins. The government encouraged commercial banks to hold preferred in F and F, and what happens?

    And as far as “mark of a free society”, maybe you’ll be able to appreciate your situation . I’m one of those conservatives that figures all societies are feudal — despite disguises. Notice the King has opened the grain stores for the chosen.

  42. Neil C Denver says:

    Stealing is stealing regardless of the finer demarcations of the word, e.g. thief, mob, Mafia or in this case . . . government.

    Unintended consequences of the theft from banks by the United States government include the little old lady whose only source of income has been from waiting on tables for her entire life. Her life-long savings have been 1) a money market account at a local bank, and 2) a small equities investment in The Bank of America.

    During the past two years, her stock investment has shrunk by 74% and her Money Market is now earning 1.8%. Yet, our government is not contemplating providing no relief for her, but is contemplating tens of thousands of dollars relief for people who have ‘lived up to the Jones’.

    If this old lady were to lose her cool, and took an form of extreme action against her government, and if I were sitting on a jury, I would be morally obliged to acquit her of any action that she had taken.

  43. mknowles says:

    If the lender committed fraud, and/or encouraged the borrower to commit fraud, or if the borrower committed fraud, doesn’t that void a contract?

  44. DeDude says:

    Those who lend money out to someone who could not afford it deserve to loose money; and they will one way or another. In this case there is no doubt that the lender had all the needed expertise to know where things would end if house prices stopped increasing. The question is to what extend we will allow the just punishmentn of these gready fools to become destructive to the rest of society. A bancrupcy and repossession of the home is a lot more destructive to the rest of us, than a sustainable cram down. Reposession is also a lot more costly to the lender. As I understand it, the problem is that mortgage ownership and legal responsibility is so complicated that in many cases it becomes almost impossible to work things out in time – even though a work-out is in the best interest of all parties. We have always had judges cancel contracts and responsibilities when someone could not live up to the terms they signed. Why should it only be the rich pigs and corporations that get those types of benefits, not regular home owners.

    For those who are so worried that their “irresponsible” naboers get something out of these arrangements remember that it’s your home value that is being saved on those peoples back. It would be a heck of a lot better for people who are “under water” to simply stop paying and wait to be kicked out of the house. By the time they finally get kicked out, they could have saved enough money for a 3 month deposit on renting the same house for half the monthly payment. After a couple of years renting the house they could save up enough money to make a 20% downpayment on the house which by then would be selling for half of what they originally payed for it the first time. By saying yes to all these draconian “work-outs”, rather than just making use of the applicable contract laws, they are saving your a$$ and home value – not their own.

    All of these “bail-outs” of “irresponsible” or “predatory” borrowers are for the benefit of the rich and the investors. One way or another they all seem to cram the victims of predatory lending into the shitter, with the government sitting on the lid so they can’t get out. All of it of course being sold as a bleading heart liberal “tax-me-and-give-my-money-to-the-immoral-poor” scheme by our neo-con corporate media machine. Unfortunately the poor are not smart enough to look through all this neo-con propaganda, or they would be revolting.

  45. willid3 says:

    not sure why the financial companies are fighting it. if they don’t when the borrowers fail to pay, they end up in court. and end up owning the house. which has less value. i guess they are just playing for time, hoping (against hope) that the economy will turn before they have to take the loss. it the end it won’t matter they will take a loss as the housing market has tanked. and values of homes are still falling, and will until they match wages. which are also falling. doesn’t sound like a good plan to wait for that rebound does it?

  46. inthewoods says:

    Seems to me that all this ends up in court. The people that bought the CDOs based on these mortgages are going to sue the companies that issued them to stop modification whether a judge ordered it or not. Or they will challenge the judge’s modification outright.

    So what happens when a judge modifies a mortgage that is rolled into a CDO? My guess is a lawsuit all to the way to the Supreme Court over that modification. As usual, the lawyers will make out. A while back I remember hearing an NPR story where they interviewed someone who owned some of these assets, and he made it clear he would fight any modification and that the contracts specifically forbid modification.

  47. DeDude,

    w/this: “Those who lend money out to someone who could not afford it, deserve to lose money..”

    While I hear your intended meaning, you/we should understand that No Money was ever lent to the ‘home-debtor’.

    That Fact is a huge part of the Reason that this ‘problem’, RE Bubble, Bubbles previous, even exists, in the first place.

    and, this: “Unfortunately the poor are not smart enough to look through all this neo-con propaganda”–I’m not sure that the ‘neocons’ were alone in this, though it shorter than ‘neo-lib/con’, even that may be a misdirection.
    I think we need to recall: “Good evening, my fellow Americans: First, I should like to express my gratitude to the radio and television networks for the opportunity they have given me over the years to bring reports and messages to our nation. My special thanks go to them for the opportunity of addressing you this evening.
    Three days from now, after a half century of service of our country, I shall lay down the responsibilities of office as, in traditional and solemn ceremony, the authority of the Presidency is vested in my successor.

    This evening I come to you with a message of leave-taking and farewell, and to share a few final thoughts with you, my countrymen.

    Until the latest of our world conflicts, the United States had no armaments industry. American makers of plowshares could, with time and as required, make swords as well. But now we can no longer risk emergency improvisation of national defense; we have been compelled to create a permanent armaments industry of vast proportions. Added to this, three and a half million men and women are directly engaged in the defense establishment. We annually spend on military security more than the net income of all United States corporations. American makers of plowshares could, with time and as required, make swords as well. But now we can no longer risk emergency improvisation of national defense; we have been compelled to create a permanent armaments industry of vast proportions.

    This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence – economic, political, even spiritual – is felt in every city, every Statehouse, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society.

    In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.

    We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.

    Akin to, and largely responsible for the sweeping changes in our industrial-military posture, has been the technological revolution during recent decades.

    In this revolution, research has become central, it also becomes more formalized, complex, and costly. A steadily increasing share is conducted for, by, or at the direction of, the Federal government.

    Today, the solitary inventor, tinkering in his shop, has been overshadowed by task forces of scientists in laboratories and testing fields. In the same fashion, the free university, historically the fountainhead of free ideas and scientific discovery, has experienced a revolution in the conduct of research. Partly because of the huge costs involved, a government contract becomes virtually a substitute for intellectual curiosity. For every old blackboard there are now hundreds of new electronic computers.

    The prospect of domination of the nation’s scholars by Federal employment, project allocations, and the power of money is ever present – and is gravely to be regarded.

    Yet, in holding scientific research and discovery in respect, as we should, we must also be alert to the equal and opposite danger that public policy could itself become the captive of a scientific-technological elite.

    It is the task of statesmanship to mold, to balance, and to integrate these and other forces, new and old, within the principles of our democratic system – ever aiming toward the supreme goals of our free society.

    Another factor in maintaining balance involves the element of time. As we peer into society’s future, we – you and I, and our government – must avoid the impulse to live only for today, plundering for, for our own ease and convenience, the precious resources of tomorrow. We cannot mortgage the material assets of our grandchildren without asking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow.
    …”
    Eisenhower’s Farewell Address to the Nation
    January 17, 1961
    http://mcadams.posc.mu.edu/ike.htm

    Past that, nice take~

  48. @ Boomer Says: December 31st, 2008 at 4:30 pm

    I don’t think the bankruptcy option is nearly as attractive as people make it out to be for borrowers.

    I’m not sure who it hurts more the borrowers or the lenders. What would happen if a flood of Americans all went bankrupt at the same time. I can see why the bankers are panicking and trying to bail the nation out of that situation. The credit game would come to a dead stop for a lot of people. No borrowing and no lending to these folks for a while. How would the bankers keep ahead of the rest of us ‘regular’ investors without a crop to regularly harvest? They’d have to trade for a living like the rest of us. Good luck with that. Next you’ll be telling me MSFT will start coming up with it’s own software ideas. (;

  49. rackgen says:

    why punish the banks for peoples’ stupidity? are people that dumb?
    next we will be punishing walmart for using their knives to kill each other.. duh!!

  50. msaroff says:

    It’s only mortgages for principal residences that currently cannot be modified by a bankruptcy judge.

    For rental properties and 2nd homes, you already can.

    What’s more, this was changed around 30 years ago, before that, you could do cram downs, and the argument of the mortgage bankers was that because MORTGAGES WERE SO TIGHTLY REGULATED, the benefit of cram-downs were minimal.

    Also, note that many of the mortgages in the US are sliced and diced among so many people that a modification by any other way is essentially impossible.