The Foreclosure Mess

by Oly Mike

I work in bankruptcy. There was a basic fix to the mortgage crisis available with a change to the bankruptcy code. It's called cramdown in the bk practice.

Under existing statute in certain circumstances you can have the value of an asset and the terms of the contract set by the bankruptcy court. Through this process a debtor pays market value and can negotiate for a reduced interest rate as well. You can often use cramdown to change the terms of car loans, or boat loans, or airplane loans, or even second homes, but it's not available on your primary residence.

Cramdown, fixing interest rates on variable predatory loans would have stabilized the real estate market and the Obama folks thought about it briefly and then tossed the idea in favor of giving boatloads of money to the banks and encouraging the banks to do loan modifications. The loan modification business appears to be about as good as the loan making business practice was prior to the mortgage meltdown - which is to say, it's not very good.

So here we are. Two years into the mortgage meltdown and about to dive into the second recession dip with real estate property values continuing to plummet due to uncertainty and tight credit (that has the banks awash in cash for election advertisements?).

As if all that isn't enough there is the wild incompetence of the folks dealing with mortgages, loan modifications. Read this story from the Cleveland Plain Dealer for a hint of the incompetence that's out there.

Happy Thursday, everyone.