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New York Times Again Calls for Mortgage Cramdowns in Consumer Bankruptcies

January 7, 2010

As Rancho Cucamonga loan modification lawyers, we have long supported laws that would allow bankruptcy judges to "cram down," or lower, principal owed on a primary home during a bankruptcy. In a Jan. 5 editorial, the New York Times reiterated its agreement. The editorial said the housing market may be weakening again, after some signs of recovery. It also repeated predictions from many housing experts who see the market worsening or staying flat thanks to predicted interest rate increases, high unemployment and the end of the homebuyer tax credit. Under these circumstances, the editorial said the Obama administration should put new emphasis on mortgage cramdowns, which it said was the best way to modify an underwater loan.

In a cramdown, the principal owed on the loan is simply reduced. This means an immediate loss for the lender, but it also reduces defaults and foreclosures by restoring equity and lowering mortgage payments. Last year, Congress considered allowing bankruptcy judges to cram down principal on a primary home loan as part of a Chapter 13 bankruptcy. Despite the fact that judges may already cram down principal on any other loan, the measure died because of fierce opposition from the financial industry. The Times did not call for more efforts to pass this bill, but suggested that the White House could simply change its policies to encourage voluntary cramdowns through the Home Affordable Modification Program.

Our Whittier loan modification attorneys don't believe this would be enough to make a difference on its own. As the article itself notes, HAMP has been largely unsuccessful, with borrowers complaining about bureaucratic delays, seeming incompetence from lenders and mistake that threaten their homes. We believe this is partly because the program is entirely voluntary, with public shaming the only tool available for the Treasury Department to compel compliance. Lenders who believe they will make more money by foreclosing have no real incentive to grant loan modifications, although they do have an incentive to look like they will. More toothless policies from the federal government, however well-intentioned, are unlikely to change the behavior of lenders who fought hard against bankruptcy cramdown legislation.

Howard Law LLP has an active practice helping California homeowners win new deals that keep them in their homes. We have represented people at risk of default or foreclosure throughout the housing crisis. Our San Diego County loan modification lawyers have had strong successes negotiating changes to loan structures, lowered interest rates and other changes, even when the lender has been less than helpful. We believe we get results even when our clients have had no luck because lenders understand that we can and will file lawsuits if they violate our clients' rights. In fact, we start our loan modification cases by reviewing the client's loan history for signs of predatory lending or gross negligence by the lender, and file lawsuits to stop them whenever appropriate.

Howard Law offers free, confidential case evaluations, so there's no risk in talking to us about your legal options. To set up a meeting, please contact us through the Internet or call 1-800-872-5925 toll-free.