Lamh Foistenach Abu!Take care...............pilgrim
“The American people will never knowingly adopt socialism, but under the name of liberalism, they will adopt every fragment of the socialist program until one day America will be a socialist nation without ever knowing how it happened.” Norman Thomas, a socialist and member of the American Civil Liberties Union
Lamh Foistenach Abu!There’s another danger to allowing bankruptcy judges to modify mortgages: it violates all the principles of contract interpretation and will make people uncertain as to the enforceability of their contracts. Judges can’t rewrite contracts; they can only interpret the provisions of the contract. People can enter into any contract they want - as long as it’s not against public policy - and there’s no public policy prohibiting people from entering into contracts they can’t perform.
Having the Government maintain the Bubble prices at taxpayer's expense only prolongs the idiocy and prices out of the market the responsible buyers that can actually afford to pay a fair market price.
I’m only in partial agreement w/Heritage here.
If this problem is to be disappeared, either mortgage principals, home values, or bank stock prices will have to be crammed down. (Or some combo) I seriously dislike the judicial approach because (as posted later) it trashes contract law and is such a wide open invitation to judicial fraud that it’s ridiculous. Plus it has to happen case-by-case which will be infinitely tedious. Plus it has a tendency to not work in a significant fraction of cases. Thus it has limited “finalization” value.
As for home prices, if they tank further (and IMO they should) then it’s inarguable that MBS will be harmed. But these are crappy deals, and I don’t see a mathematical solution. I am in the camp that says home prices have been 3x gross incomes for 75+ years, there’s a reason why, and the market will force those elements into alignment no matter what artifice may be used or tried or temporarily propped up. I can’t see a good argument for bankrupting the system for individual errors, no matter how widespread those errors were. (Although the system, ironically, appears to favor this approach) If the deal made is impossible to maintain, the deal, not the system, should be dismantled, the home(s) foreclosed, and the market cleared. There is ample precedent for “impossibility” in current law.
The banks are the ones getting taxpayer funds to clean up their acts. They are the ones whose stock prices should be crunched. “Cleaning up their acts” means getting rid of off-balance sheet black-hole debt. We’re already stressing the system to the brink of implosion bailing out the banks, for better or for worse. So, I would prefer the banks to get the benefits of taxpayer largesse and suffer the pain of cramdowns, as the best of these several unpleasant options. At least there would be the idea of confining the damage with this approach.
Next, they will “cram down” lower payments for car loans, student loans, and credit card payments then transfer the debt to taxpayers. This country is turning [blank].
Hell....the District of Oregon essentially erased the lease provisions of the code with Miller v. GMAC.
Cramdowns are perfectly appropriate for mortgage loans that lenders knowingly made on completely irresponsible terms. We WANT to discourage lenders from resuming that practice. There are a huge number of mortgages out there that were made with ridiculously low down payments on what was obviously a bubble-market price to begin with. Many lenders weren’t taking the slightest interest in borrowers’ ability to repay, but just assuming the housing bubble would keep bubbling, and either the borrower would sell the house at a profit or the lender would foreclose, and either way the lender would get all their money back.
heard Judge Nepalitano on the radio yesterday discussing the strings that congress it trying to attach to the bank bailouts-limiting compensation etc. He said that to do such things would be unconstituional-the govt injecting itself into “contracts”. If that is the case I would expect these mortgage cramdowns to be viewed the same way-the govt is interferring with contracts that have been entered into legally by the parties.
obvioulsy knows nothing about the market.
1. cram down is available RIGHT NOW for investment property.
2. short sales are allowed to everyone BUT the person in the house due to self dealing rules.
3. a foreclose still results in a loss.
4. the cram down is AT CURRENT MARKET VALUE to the person in the house.
If people would just focus and understand what this does is put the asset back into commerce it is not a bad thing.
The argument centers on WHAT IS THIS HOUSE WORTH?
THEN and only then, can the home owner pay it?
I believe that before the creditor-friendly 2005 reform of the bankruptcy laws, cramdowns were permitted. This merely returns the law to the status quo ante 2005.
I don’t see this doing much to mortgage rates on conforming mortgages with income documentation, income falling within traditional guidelines, and where the buyers make a 20% downpayment.
This will probably increase the price of mortgage insurance for buyers who finance more than 80% of their purchase, and will also increase the cost of second mortgages that go beyond 80% LTV.
But if that discourages some people from borrowing more than 80% of the value of their house, that’s not necessarily a bad thing, either.