Amidst the swirling discussion of the "Cramdown Bill," [INSERT LINK to prior post] one of the fears often cited is that it will open the floodgates to wide-scale mortgage modification and cause considerable damage all of the mortgage lenders and in turn to the financial system.
However, perhaps these fears are overblown, as some bankruptcy judges have pointed out in this Reuters article titled "Judges see red herring in mortgage cramdown fear."
The main point made by judges is that they've been around for a while and they know what they're doing. The new law would give them more discretion to modify mortgages in various ways, but that doesn't mean they're going to start modifying mortgages willy-nilly. One judge in the article points out that bankruptcy judges have been valuing vacation, rental and farm property for decades and have always had access to industry experts to help them. Another judge in the article notes that in the mid-1980s as farmers suffered due to falling commodity prices, bankruptcy judges helped modify values of farmland and the market readjusted in a couple years.
Mortgage lenders do raise valid concerns that changing the law will essentially un-do their contracts with investors which potentially has the ability to undermine faith in our economic system since future investment (which we will need) will be deterred by the existence of uncertainty.
However, this claim also rings a little hollow since they didn't voice the same concern for our financial system when they were lending indiscriminately. So their comments tend to sound more like rhetoric simply aimed at shifting blame. They're essentially arguing, "If you pass this law, you're going to enable the borrowers and the judges to hurt the financial system." But the reality is that the lenders are confusing cause and effect and have already have done the damage to our financial system, loosening lending standards and using poor business judgment.
The proposed legislation at this point is merely a way of acknolwedging and addressing a problem that already exists. And it's more than reasonable to ask the mortgage lenders to shoulder some of the responsibility for righting the ship.
However, perhaps these fears are overblown, as some bankruptcy judges have pointed out in this Reuters article titled "Judges see red herring in mortgage cramdown fear."
The main point made by judges is that they've been around for a while and they know what they're doing. The new law would give them more discretion to modify mortgages in various ways, but that doesn't mean they're going to start modifying mortgages willy-nilly. One judge in the article points out that bankruptcy judges have been valuing vacation, rental and farm property for decades and have always had access to industry experts to help them. Another judge in the article notes that in the mid-1980s as farmers suffered due to falling commodity prices, bankruptcy judges helped modify values of farmland and the market readjusted in a couple years.
Mortgage lenders do raise valid concerns that changing the law will essentially un-do their contracts with investors which potentially has the ability to undermine faith in our economic system since future investment (which we will need) will be deterred by the existence of uncertainty.
However, this claim also rings a little hollow since they didn't voice the same concern for our financial system when they were lending indiscriminately. So their comments tend to sound more like rhetoric simply aimed at shifting blame. They're essentially arguing, "If you pass this law, you're going to enable the borrowers and the judges to hurt the financial system." But the reality is that the lenders are confusing cause and effect and have already have done the damage to our financial system, loosening lending standards and using poor business judgment.
The proposed legislation at this point is merely a way of acknolwedging and addressing a problem that already exists. And it's more than reasonable to ask the mortgage lenders to shoulder some of the responsibility for righting the ship.
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