Daily Archives: September 20, 2010

Judicial Mortgage Modification Will Work!

Mortgage cramdown, or judicial mortgage modification, will help prevent home foreclosures and will NOT disrupt the residential mortgage lending market.

So says a new study by the Federal Reserve Bank of Cleveland.

For a less scholarly explanation of Chapter 13 judicial mortgage modification, see the L. A. Times article by Lew Sichelman.

Perhaps my favorite rant, judicial mortgage modification, NACBA’s polite name for mortgage cramdown, is a real solution for many homeowners that costs taxpayers nothing.

Yeah, what chance does THAT have in Congress.  No earmarking potential.  No group that supports it with money to shake down for campaign contributions.

Well, it does have the advantage of actually working, as opposed to HAMP and every other government effort so far.

Which have pounded us deeper into recession, especially the residential real estate market.

The study looks at Chapter 12 bankruptcy, which became law in 1986.

That bankruptcy chapter is for farmers, and was opposed by farm lenders then with the same hysteria being displayed home lenders now.

Chapter 12 allows farmers to cram down loans on their farms, which may also be their principal residences, to the value of the collateral.

Same scenario then, lenders went wild lending on farm land, which could only go up in value.

They disregarded whether the farmer actually had the income to repay the loan.

Sound familiar?

It should. Angelo Mozilla and his ilk threw out any and all lending standards because home values could only go up, interest could only stay low, and the bubble would inflate forever.

Back to Chapter 12 mortgage cramdown.

So the lenders said passage of the bill would ruin farm lending, there would be no market, rates would go up to cover all the losses caused by the legislation, crops would not be planted, little children would starve, the sky is falling, you get the picture.

What happened?

None of the above.

As I predict would happen if we get Chapter 13 home mortgage cramdown, the lenders started voluntarily writing down their loans, letting the farmers stay in their farms on terms that were workable for the farmer.

The predicted 32,000 cases for year one turned out to be 8,000 cases for years one and two of Chapter 12, with filings declining through today.

Not much chance of Congress picking up this, or anything else new, this election year when they cannot even pass a budget.

We should be getting a lot of new members come January, so let them know what you think about this.

And let me know, comments and questions always welcome.

Judicial Mortgage Modification Will Work!

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One Response to Judicial Mortgage Modification Will Work!

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