Homeowners may have a better chance of saving their homes using the bankruptcy code thanks to Citigroup's (NYSE: C) turnaround on a process called cram-down. If cram-down becomes an option for bankruptcy judges, they can alter the terms of mortgages (often reducing the amount of principal due) to make it affordable for someone to stay in their home. Other changes could include reducing a loan's interest rate or extending its length.Democrats have called for adding cram-downs to the bankruptcy code since 2007, but the banking industry has fought it. Now with banks taking so much bailout money, it's time to pay the piper. Senators Dick Durbin (D-Ill), Chris Dodd (D-Conn) and Charles Schumer (D-NY) have led the fight for change in the bankruptcy code. Since Citigroup agreed to the bankruptcy law change with certain conditions other banks have called Schumer promising to jump on board.
Now that there appears to be an agreement with the banks, the Democrats plan to add a cram-down provision to the economic stimulus plan moving through Congress. There will be some limits though. If the law passes, only mortgages entered into prior to the date of enactment of the bill will be eligible for cram-down. Homeowners also will need the show that they tried to negotiate with their mortgage holder. They must contact their banker at least 10 days before filing for bankruptcy to give the bank an opportunity to negotiate.
The Mortgage Bankers Association still opposes cram-downs. It told the Washington Post, ""We were surprised by the suddenness of the announcement and are still evaluating the proposed deal, but we believe there remain a number of crucial issues that need to be addressed." The MBA wants the provision to be limited to subprime loans and opposes any attempt to bypass the legislative process, including full hearings. The MBA believes that adding cram-down provisions to the bankruptcy law will result in higher interest rates and more points and fees.
When you hear stories about banks selling homes for $1,000, I have a hard time believing that cram-down provisions could be any more damaging to the mortgage market. Finding ways to keep people in their homes rather than add to the growing number of foreclosures seems to make good business sense to me. If banks would negotiate reasonable terms and avoid the bankruptcy process completely, the entire mortgage mess could end much sooner. We won't see a real estate turnaround until we stop the mounting number of foreclosures.
Yes people took on more than they could afford, but the banks share the blame. The banks were the ones that allowed liar loans. It's clear from reports that many people did not understand the terms of their loans, especially when it came to interest rate changes or the fact that they were not paying enough money to even cover the interest charges on their mortgage, so their mortgage's principal balance kept getting higher. These non-traditional loans were products developed and sold by the banks. The banks should have been certain that people understood the risks they were taking before making the loan.
Now that the banks have been bailed out, it's time to use some of those bailout funds to help Main Street as well. Hopefully, knowing that cram-downs are an option for bankruptcy judges, banks will start negotiating with homeowners to modify loans rather than just twiddle their thumbs and wait until they can foreclose.
Lita Epstein has written more 25 books including "The 250 Questions You Should Ask to Avoid Foreclosure" and "Surviving a Layoff: A Week by Week Guide to Getting Your Life Back Together.
When you hear stories about banks selling homes for $1,000, I have a hard time believing that cram-down provisions could be any more damaging to the mortgage market. Finding ways to keep people in their homes rather than add to the growing number of foreclosures seems to make good business sense to me. If banks would negotiate reasonable terms and avoid the bankruptcy process completely, the entire mortgage mess could end much sooner. We won't see a real estate turnaround until we stop the mounting number of foreclosures.
Yes people took on more than they could afford, but the banks share the blame. The banks were the ones that allowed liar loans. It's clear from reports that many people did not understand the terms of their loans, especially when it came to interest rate changes or the fact that they were not paying enough money to even cover the interest charges on their mortgage, so their mortgage's principal balance kept getting higher. These non-traditional loans were products developed and sold by the banks. The banks should have been certain that people understood the risks they were taking before making the loan.
Now that the banks have been bailed out, it's time to use some of those bailout funds to help Main Street as well. Hopefully, knowing that cram-downs are an option for bankruptcy judges, banks will start negotiating with homeowners to modify loans rather than just twiddle their thumbs and wait until they can foreclose.
Lita Epstein has written more 25 books including "The 250 Questions You Should Ask to Avoid Foreclosure" and "Surviving a Layoff: A Week by Week Guide to Getting Your Life Back Together.
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Reader Comments (Page 1 of 1)
1-09-2009 @ 2:59PM
bennie l easter jr. said...
i don't understant how , we can call giveing.the people money to the banks and call it a bailout for who not the people.
1-27-2009 @ 9:37AM
bob65mybp said...
As usual, we seem to be rewarding bad behavior and punishing good. Helping out people who took bad loans that they couldn't repay and using money from responsible people to do it.
2-22-2009 @ 9:53AM
maawm said...
My family and I are going to lose our home. We did not take out a loan we couldn't afford. I was injured on the job & sustained permanent injuries which left me unable to lift anything. I had chosen nursing as a career & am no longer employable within the field. I can't even get a job in fast food because the jobs require an ability to at least lift something & workers comp insurance will not cover me. Then, my husband was forced to take a pay cut to keep his job. I am 99% certain he will be laid-off within the next few months. No matter what happens we are going to lose our home. HOWEVER, I do not want any mortgage bail-out package. There are government programs in place to help truly needy people to get back on their feet & if we must get help to TEMPORARILY feed our children & put a roof over their heads, we will have to go through (in my opinion) the humiliation of asking for help. We have been responsible & the situation we are in is due to circumstances beyond our control. Yet, we are Americans: We have opportunities- if we work hard- to change our circumstances & better our lives. So we may have to live somewhere we don't want to for a while & go on a Ramen Noodle diet while we work to reach our goals, at least we have the opportunity to try. If someone else doesn't want to make sacrifices & hard choices to realize (or re-realize) their dreams, why should they get to keep their house on the taxpayers dime? I prefer to take RESPONSIBILITY for myself.....I also want my FREEDOM & LIBERTY thank you very much!!!