Do you think Bankruptcy judges should cram-down mortgages?
Cram down is when the a loan principal is reduced because of the value of the home is worth less than what is owed. The theory is that if a mortgage is foreclosed, the lender will only be able to sell the property for its value, if best. By using cram-down, home owners will pay a lower payment, saving their home.
Tags: Bankruptcy, cramdown, Judges, Mortgages, Should, think
No, I think it’s a terrible idea.
NO
But the way things are going, I am sure that is what is next.
Buy a house in 2005-2007 for 300k, will 100% financing, 2 or 3 years later, get the government to say we need an even playing field…and reset the value and loan to current market value…
Silly
Yes, I think bankruptcy judges should have that OPTION (of course they shouldn’t be REQUIRED to do this in all cases). Right now, loans secured by the debtor’s principal residence are the ONLY loans for which this option is NOT available in bankruptcy. Loans secured by 2nd homes, rental properties, boats, RVs, semitractor-trailers, and anything else under the sun ALREADY CAN be crammed down in bankruptcy – the ONLY kind of loan that cannot be is a mortgage secured by the debtor’s primary residence. This lone EXCEPTION to the general rule makes absolutely no sense, and should be repealed, in my opinion. The mortgage lender won’t come out any worse off, and might come out better off (won’t have the cost of sale, will have a borrower with which it already has a history, and who is committed to keeping the house, etc), and individuals and neighborhoods will definitely be better off (I’d rather live in a neighborhood with several houses owned by homeowners who filed bankruptcy and crammed down their mortgages, than those same several house owned by banks or absentee real estate speculators, which often do a terrible job of upkeep. The overgrown lawns, grafitti on garages, etc. bring down everybody’s property values, including mine).