Augustus

Cramming Down - On Whom?

Allowing cram downs will reduce mortgages to being the same risky loan that is the credit card debt. If cram down is allowed, lenders will only make these loans with at least 20% and maybe 25% down payment. Terms will be shorter to give the lender additional opportunities to evaluate the borrower credit condition. Rates will go quite a bit higher, reflecting the additional credit risk. Borrowers will simply have an optional "put" of the mortgage and the ability to exercise that "put" when it is most to the borrower's advantage. There will be no negative consequence to the borrower, they can keep the property that the lender will have bought for them at a sizeable discount. It is just nutty to believe that this can be a "solution". It will very much dry up mortgage credit and kill the securitization market. Who would invest their IRA money or money market funds in bonds backed by 95% LTV home loans subject to cram down discounts? House prices have to decline, no doubt. The owners will have to take the pain along with some lenders.

Suppose I don't have a home loan. My home value is decreasing along with all others. Who can I go to to get a cram down discount? It is just another way to screw the financially prudent and benefit the financially reckless.