Bankruptcy "Cram Downs"

Posted on Friday, March 6, 2009

House Democrats have agreed to limitations on the pending bankruptcy empowerments to homeowners who sought modification before filing bankruptcy and people who can't afford to pay their mortgage. Judges will be required to consider whether the bank offered a reasonable restructuring before they can cram down a rewrite. The phrase "qualified loan workout" is coming to mean on in which the payment will be reduced to about 1/3 of monthly income in accordance with traditonal underwriting standards. Of concern is the cost cram downs and fighting them might add for lenders and eventually to our loan costs. Conversely, if cram downs are limited to mortgages originated during the bubble, the impact would not be long term.

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