A cramdown plan is introduced

In order to help control the surge in mortgage foreclosures across the nation, Citibank reached an agreement with lawmakers to support a bill giving bankruptcy judges the ability to cram down mortgage balances for homeowners in bankruptcy proceedings.

Having fought to get cramdown of loan balance removed from relief available in bankruptcy proceedings in 2005, real estate trade organizations and the majority of banks are opposed to restoring the power of the cramdown to bankruptcy judges. Yet, the reestablishment of loan cramdowns is one of the first glimmers of smart thinking the powers-that-be have had during this housing crisis. There’s no wisdom in lenders trying to enforce upside-down mortgages by reducing interest and payment schedules; it just results in homeowners re-defaulting (60% of them do within 6 months!) and walking away, leaving the lenders holding empty properties which then further clog up the already congested housing inventory.

Permalink: http://money.cnn.com/2009/01/09/news/companies/citigroup_legislation/index.htm#