What is a cram down? It’s a forced mortgage balance reduction. Bankruptcy judges today can only cram down second mortgages, but pending legislation will allow cram downs or reductions of first mortgage balances. The cram down legislation has been supported by President Obama, and it may soon become law.
If it happens, most individuals who have filed for bankruptcy will be back to re-file to take advantage of the change. They are already bankrupt, so why not re-file and put yourself in a position where you can keep your home with a reduced mortgage balance? It is likely that the bankruptcy route with a first mortgage cram down provision will appeal to a much larger group of individuals. If an individual can save their home via the cram down, why not file for bankruptcy rather than lose it all?
Is cram down legislation a good thing, in light of the current banking crisis? Maybe not, but it will save the homes of thousand of people who might otherwise end up on the street, maybe it’s not such a bad thing.
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I agree it would be a good thing to the extent that it keeps people in their homes. I’d also expect it would have a positive trickle-down effect on the businesses providing the products associated with home ownership, like perhaps building supplies, for example.
I assume these households would still purchase supplies for a significant amount of routine home maintenance, if not elective renovations.
I agree also. It may good for people that are really in bankruptcy. They would have the chance to make their things very responsible and an opportunity to lighten up their shadows.