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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

Mixed Opinions On Modified Mortgage 'Cramdown' Plan

Legislation under consideration in Congress that would allow bankruptcy judges to modify troubled mortgages could lower foreclosures by 20 percent, according to a Credit Suisse report released today, The Post's Renae Merle reports.

“Overall we think the bankruptcy reform will be a net positive in terms of foreclosure reduction, as it may be an effective way to improve both home equity and affordability,” Rod Dubitsky, a Credit Suisse analyst, said in a research note. “It has several attractive features relative to other loss mitigation alternatives, such as comprehensive debt restructuring, less moral hazard.”

Credit Suisse is just the latest to weigh in on the provision, which would allow bankruptcy judges to change the terms of a mortgage by reducing its interest rate, extending its length or lowering the loan balance.

Colloquially, the process is known as a "cramdown:" a judge enforces terms of a bankruptcy over the objections of at least one creditor.

The provision received a boost earlier this month when Citigroup announced it would support it, but efforts to attach it to the economic stimulus package is facing some resistance.

Opponents say cramdowns could lead to huge bank losses.

It was a day of dueling reports with FBR Capital Markets taking the opposite position.

Such a program “will create long-term problems for the housing market through higher mortgage rates and reduced affordability, which will likely further destabilize home values and wreak havoc on second-lien and consumer lenders,” Paul J. Miller, an analyst with FBR Capital Markets, said in a note released today. “We expect cram-down legislation will cause a substantial surge in bankruptcy filings as delinquent, and possibly current, mortgagees seek relief.”

-- Frank Ahrens
The Ticker is Twittering!

By Frank Ahrens  |  January 26, 2009; 6:11 PM ET
Categories:  The Ticker  | Tags: cramdown', mortgage workouts  
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