Of course banks are against the bill. But the banks are shooting themselves in the foot.
By forcing homeowners into foreclosure by refusing reasonable loan modifications and rejecting a cramdown will only serve to glut the housing market with an endless supply of REO houses. When supply goes up, and few borrowers can qualify to purchase it will only drive the price of homes down even further. This will make put more and more homes in the category of being tremendously upside down. As a bankruptcy attorney if the homes get too far upside down, I strongly urge homeowners to walk away and let the banks have it. Why. . . because in three to four years, they will have saved up enough of a downpayment and their credit will have healed enough to buy their own home, or the equivalent home for 40% less than what they would have paid had they stayed in their own home. With rents going down substantially its a much better plan in the face of there being absolutely no remedy available for these upside down loans. The cramdown would have fixed that problem.
A cramdown modification basically achieves a much better result for the investors than foreclosure. With a cramdown, the borrower gets the house at fair market value and continues paying the loan based on the new value. The investors now get paid and the homeowner is motivated to keep his or her home. In a foreclosure, the investors end up losing 9% to 12% of what they would have gotten because now they have to pay the cost of foreclosure AND they have to pay the cost of reselling the home. Not only that, the investors have to pay the cost of maintaining the home until it is resold.
It makes no sense that banks would not want to try to keep people in their homes with reasonable loan modifications. But I see it daily. There has been a decided trend among many banks to absolutely refuse to give much by way of modification plans. Many have only offer special forbearance agreements which most homeowners will breach when they cannot afford the balloon payment at the end of the agreement.
It is ridiculous that the Banks are opposed to allowing a cramdown for a limited period of time for a limited number of loans. How is that going to drive up risk in the future if future loans would not be subject to a cramdown?!?!
Please call you senator today. Demand a cramdown!
If you senator failed to vote in favor of the cramdown, please remember them at election time.
Thanks
R. Grace Rodriguez, Esq. - LORGR.COM
