The Future of Bankruptcy Cramdowns to Prevent Foreclosure
Already, Dick Durbin is backpedalling on his plans to allow mortgage cramdowns in bankruptcy to prevent foreclosure. Today, Housing Wire reports that “Durbin said he may limit the bill to existing subprime loans.”
So what the dear congressman is REALLY saying is that he wants private investors to face bankruptcy cramdowns, while government-backed loans will face no such challenge.
As I mentioned in a previous post on Fannie Mae’s loan modification hypocrisy, the government is doing FAR less than the private investors in offering delinquent homeowners options to prevent foreclosure (if you know what you’re doing, of course).
Again, for all the finger-pointing that our federal legislators (I’m no longer calling them leaders) are doing, the problem is facing them in the mirror.
He went on to say, “If we don’t include it [mortgage cramdowns], we’ll be stuck in the same mess we’re in today.”
There are no details included in the story to justify his position. Obviously, he is either ignorant of, or actively ignoring, the bankruptcy failure statistics. It’s generally accepted in the bankruptcy community that only one-third of Chapter 13 filers reaches a discharge.
That’s a 66% FAILURE rate!
Perhaps this is yet another “kick the can down the road” strategy, designed to further draw out the decline in real estate prices.
Another factor: Durbin receives more campaign contributions from lawyers and law firms than any other source. With a 33% success rate, it’s clear that the Chapter 13 system mainly benefits the lawyers who “practice” (?) this type of law… and the candidates whom they support.
My prediction: if this bill is passed and is signed into law, the failure rate for Chapter 13 filers will INCREASE. The mortgage cramdown only sticks if you make all of your plan payments and reach a discharge. Three parties will benefit: mortgage servicers, bankruptcy attorneys, and those who shill for them (Durbin would be a good example).
This approach will only serve to magnify losses for mortgage investors and give false hope to homeowners trying to prevent foreclosure.
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Tags: bankrupcty, cram down, cramdown, Dick Durbin