Cramdown

I keep thinking about Senator Tester’s hugely disappointing remarks against the bankruptcy bill and cramdown. He basically said to millions of homeowners: Tough shit. Later!

What he actually said was “a deal’s a deal.”

But what I’m still trying to figure out is this: Isn’t it better for both the homeowners and the mortgage banks if a judge is allowed to renegotiate the mortgage terms?

It seems to me as though the alternative is surely a foreclosure which hurts the homeowner of course, but then the bank is stuck trying to liquidate the house when values are dismal. Plus, it looks like the foreclosure crisis isn’t anywhere near being wrapped up.

This is potentially compounded by multiple foreclosures in a single neighborhood which also helps to drive values down even further. So the bank takes a big loss, no? Or the bank could let the homeowner continue to pay on modified terms until the market rebounds and the owner is able to sell at a more reasonable price/time. And there’s the added benefit of, you know, helping the broader economy.

I’m not a real estate expert, so maybe someone in the comments could shed some additional light on this. But common sense and nominal experience with real estate tells me that “a deal’s a deal” is stupid. In fact, it sounds like Tester may have been talking about his relationship with the banking lobby.

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