"Cram Down" The Wrong Solution To Our Foreclosure Crisis

Then senate is going to have an accelerated hearing on this Tuesday.  The ramifications for our industry are huge.

A cram down is where a judge can literally "cram down" new terms on an existing mortgage.  The investor or owner of the mortgage has to live with it.  The bankruptcy judge can force this upon the investor. During the Saving and Loan crisis of 1990 and 1991 this was done with some commercial loans in various parts of the country.  The bankruptcy cram down bill S2636 is being put forth by Democrat Harry Reid.

I have to write this today to warn us all about the repercussions of America's willingness of not allowing people to fail.  It is with much dismay and consternation that I see bills like this being proposed in congress that allow judges to determine the interest rate and repayment amount on a mortgage.  This is simply WRONG.  I don't want anybody to lose their house.  At the same time, a contract was made between and investor and borrower.  That contract has remedies for non payment.  If the lender wants to do their own modification to the note, let it be their decision.  If they want to take the property back in foreclosure, let it be their decision. 

Put yourself in the shoes of the lender or investor.  If any bankruptcy judge could modify a mortgage note and deprive you of your rights as an investor, would you EVER buy or invest in a pool of mortgages again?  The answer is NO you wouldn't.  If the investors completely leave the mortgage market, rates will need to rise to attract them back, and high loan to value mortgages will become non existent.  This will worsen the housing crisis because the cost for everyone will be higher and options will be fewer.

We need more mortgage programs, not less.  We can't deprive the investors of their rights.  Remember there is plenty of blame to go around in this mortgage foreclosure crisis mess of today.  It is easy to pass the buck and blame the investors and banks as that relieves people of any personal responsibility.  

We must let the free market work.  If we change the rules during game, we have a new game, and nobody will play in that game.  The recent Mortgage Debt Forgiveness Act was supposed to help people work out payment solutions with their lender and not incur a 1099c for debt relief.  Instead, I have witnessed in the last week alone, four individuals make the decision to go into foreclosure and live 6 months free during their redemption period.  Instead of stem foreclosures, it actually encourages it by making it penalty free. 

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