California Cramdowns Coming 2009!

There were only 800,000 bankruptcy filings in the United States in 2007, according to the National Bankruptcy Research Center.

And while there is little hard data as to how many of these involve homeowners, some evidence suggests that about half the cases do. In one metro area, Riverside, Calif., 62% of 2007 bankruptcies involved home owners with outstanding balances. And not all of these would qualify for cram downs.

“These bills have means tests,” Harnick said. “If you can afford to pay your mortgage, you don’t qualify. If you can’t afford to pay even after the mortgage balance is reduced, you’re not eligible.”

And Adam Levitin, a law professor at Georgetown University contends that cram-downs would add little to the costs of new mortgages.

He examined historical mortgage rates during periods when judges were allowed to reduce mortgage balances, and concluded that the impact on interest rates would probably come to less than 15 basis points – 0.15 of a percentage point.

“The MBA numbers are just baloney,” said Levitin.

However, even though the direct impact on borrowers would be limited, permitting cram-downs could indirectly give borrowers more leverage in dealing with lenders, according to Bruce Marks, founder and CEO of the Neighborhood Assistance Corporation of America (NACA).

Mortgage borrowers could force lenders to negotiate loan restructurings by threatening to file for bankruptcy and have the judges do it for them.

Some people with credit-card debt already win concessions from credit card lenders by threatening bankruptcy, where the debt may be discharged.

“I consider this one of the most important pieces of legislation before Congress right now,” said Marks.

Will it become law?

As to the previous attempt to pass cramdown legislation the conventional wisdom was “We believe it will be very difficult to stop this legislation and we put the initial odds of enactment at 60%,” said Jaret Seiberg of the Stanford Group, a policy research company, in a press release assessing the new bills.

Now that it is being reintroduced in a “New Congress” and “New President” I believe Cramdowns will become law.

This will allow borrowers the leverage they need to negotiate with their own predator.

The Cramdown legislation was reintroduced in Congress on monday Jan 5,2009

Author: timothymccandless

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