By a vote of 234 to 191 the House recently passed a bill for housing related initiatives, including the controversial issue of allowing judges at bankruptcy proceedings, to modify the terms of home mortgages.
Under the bill, bankruptcy judges would be empowered not only to cut the interest rate and extend mortgage terms, but to reduce the principle as well. These provisions, known as cramdowns are not popular with everybody, as many people who have kept their mortgage payments up to date, see themselves as bailing out those who have not managed their affairs so well. Representatives are aware of this and are wary about how it could affect voting patterns.
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It seems that the banks also opposed the cramdowns. Apparently, they anticipated increased losses, as a result of a stampede of homeowners taking advantage of favorable bankruptcy terms, to reduce their liabilities. But the Obama administration is staking $75 billion to stem foreclosures, including making the mortgages of troubled homeowners more affordable. There are proposals for the banks to receive government funding, to recompense them for the cost of mortgages, reduced at the bankruptcy proceedings.
The proposed cramdowns remain complicated as well as controversial with various proposals being suggested. For instance, it has been muted that if a beneficiary of a bankruptcy-reduced mortgage was later to dispose of the property at a profit, the gain should be shared with the lender.
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Vast sums of government, (taxpayers) money, are being allocated to reduce or contain the number of foreclosures, and give a much-needed boost to the housing market. The current recession is affecting just about everybody, and even the doubters may concede that drastic times need drastic measures.
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mortgage cramdowns and bankruptcy
mortgage cramdowns and bankruptcy
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