CitiGroup Agrees To Mortgage Cramdowns
This is a pretty big reversal, but I can understand why the big banks are starting to figure out that helping people adjust their debt is preferable to foreclosure.
Until now, banks have been ardently opposed to the proposal, which key Democratic lawmakers hope to attach to President-elect Obama’s economic stimulus legislation.
The so-called “cramdown” proposal has been backed by Democrats over the past year as a potential solution to the foreclosure crisis.
Under the change, bankruptcy courts could alter the terms of mortgages, subject to certain conditions:
1) Only mortgages entered into prior to the date of enactment of the bill would be eligible for the treatment. All loans, and not just subprime, are eligible.
2) Borrowers have to show they made a â€œgood faithâ€ attempt to work with the lender before considering this bankruptcy provision. Bankruptcy cannot be the first option, and borrowers have to prove it wasnâ€™t.
3) Bankruptcy judges can strip away a lenderâ€™s credit or rights if they violated the Truth in Lending Act or other state and federal laws.
this is the type of idea that can get housing prices back to the levels they need to be so a recovery can happen sooner rather than later. The last thing we need is another massive mortgage failure and with higher priced homes and business real estate starting to default, this legislation needs to pass immediately.