BluefoxToday blog : Another mortgage relief effort about to become reality

Another mortgage relief effort about to become reality

This particular idea has been talked about in Washington for quite some time but has repeatedly failed to get the needed traction to get passed into law. The basic suggestion of it is that it would let judges alter mortgage terms for borrowers who are in bankruptcy court. The judges could tinker with the principal balance, the interest rate and the length of the loan, or any combination of the three. The major holdup has seemingly centered on the original "cramdown" provision that would allow the principal balance be brought down to the home's market value. That's what the financial community has been fighting against the most.

One of the major banks has now obviously changed its mind about that. Citigroup Inc. has reached a deal with key Democrats in the U.S. Senate to go along with this plan. What caused it to do so is at this point unclear, but Citi, among many other banks, has been criticized harshly by Congress for accepting federal bailout money by the billions and then doing practically nothing to help out homeowners in distress. That may have done it.

The cramdown proposal would cover every mortgage out there, from subprime to A paper, so long as they were underwritten before this bill goes into effect. If it indeed happens, bankruptcy courts are going to be busy for the foreseeable future. Borrowers are likely to get a more balanced hearing in the courts than trying to negotiate directly with their lenders, so they'll choose to go that route. Banks' real estate collateral is also going to take a beating, although that has already been going on for a year or two as housing values have kept on sinking. Either way, it hurts.

Citi is the first to do this. The overwhelming belief now is that others will soon follow. Had the banks that received federal tax dollars last years acted more responsibly with it, this may have been avoided. Anyway, when the bill is written, it ought to have very clear language about how it works. It should leave no room for misinterpretations and loopholes.



Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 8 commentsEsko Kiuru • January 08 2009 11:54PM


Citi knows it's coming & just wants to help write the details of the bill, to make it more palatable...

Posted by R Realty almost 10 years ago

I can't see this as a good thing why would banks want to loan money when they can have some judge adjust whats owed.  This was one of the glairing problems that I thought would happen.

Posted by Greg Dallaire, Green Bay Homes (Dallaire Realty) almost 10 years ago

Esko, I cannot even imagine how problematic this will all be. This would completely back up the courts, BUT, that said, I agree something needs to be done. Just figuring out a streamlined way is what needs to happen. Problem is, the right hand never knows what the left hand is doing. ;-)



Posted by Mesa, Arizona Real Estate Mesa Arizona Realtor, AzLadyInRed (Homes Arizona Real Estate LLC) almost 10 years ago

Esko, I agree with Patrick and I see this as adding more to the problem. 

This may legitimately help some home owners that are in trouble because of loss of job or illness, but at the same time it opens the flood gates for abuse by those who could not afford to purchase from day one and should have never been given the loan. This just seems to smell of another bailout at a cost to the tax payers and for those that handle their finances in a responsible manor.

I will be looking forward to further details that you are able to find out about this.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) almost 10 years ago


You just might be right.

Posted by Esko Kiuru almost 10 years ago


They are giving another idea a shot.

Posted by Esko Kiuru almost 10 years ago


Besides the courts, bankruptcy lawyers are already rubbing their hands together.

Posted by Esko Kiuru almost 10 years ago


It certainly adds to the confusion, but banks could've avoided this had they been more pro-active with the earlier relief programs.

Posted by Esko Kiuru almost 10 years ago