Yoski

Citi's Flip-Flop on Mortgage Cramdowns: A Really Bad Idea

You left something out. The judge can only reduce the loan amount ABOVE the appraisal which would be treated as unsecured debt. Of course that all depends on who does the appraisal. Let's assume for a second that the appraisal reflects true market value (I know, big assumption) then it is in the banks interest to have the principal reduced and keep the borrower paying a reduced rate. The alternative is foreclosure where the banks is pretty much guaranteed to recover less than true market value. The difference for the banks is made up by the tax payer through various bailout packages.