Shiller: cramdowns are the cure

does the stupidity NEVER end?

eminent domain to confiscate PERFORMING loans? for the benefit of private investors? this is the most retarded thing we’ll hear of this week.

allowing bankruptcy judges leeway to chop balances as part of a formal process? no problem. letting the elected hacks WHO ALREADY BANKRUPTED san bernardino force holders of performing loans to take a haircut? hell no!

We as a Nation need a minimum $ 15.000 a yer.per person income for the POOR paid for by the by any enitity making over $100,000.000 by taking 1% of the TOP of the 100,000,000 for the POOR

1 % of 100,000,000 = 1,000,000

And cramdowns should be madatory to actual value …With a Maximum 3% interest Rate

Would revive Jobs & Ecomony

Shiller: cramdowns are the cure
By Carrie B. Reyes • Jul 13th, 2012 • Category: Bankruptcy, Default and Foreclosure, July 2012, real estate
Offering cramdowns to underwater homeowners is the solution for the struggling housing industry, according to the firm, long-standing conviction of economist, Robert J. Shiller.

Shiller claims writing down a home’s loan balance to reflect its fair market value (FMVThe price a reasonable, unpressured buyer would pay for property on the open market) would decrease default potential, revive homeowner optimism, increase home values and revitalize neighborhoods.

Shiller presents two routes for the U.S. to arrive in cramdown land.

The first road: the government creates an Office of Mortgage Modification, and gives it the authority to impose cramdowns if it is more cost effective for a lender’s balance sheet than the alternative foreclosure or loan modification. This plan was proposed by three economists as the Mortgage and Securities Stabilization, Recovery and Modification Program Act of 2009, and has yet to be sponsored by anyone in Congress.

The second road: the government seizes home loans through its eminent domain authority, using investor cash to pay the lender the home’s FMVThe price a reasonable, unpressured buyer would pay for property on the open market, and then reduce the home loan’s principal balance. Only homeowners current on their home loans can participate, as they are able to continue making payments to those new investors, keeping the program soluble.

California’s own San Bernardino County has volunteered to be the guinea pig for this second idea, recently having unanimously voted to explore this eminent domain cramdown project as a viable practice for their county.

first tuesday take

Shiller demands a collective movement toward cramdowns from the entire housing industry. This would be ideal. However, it’s already been five years since the housing crisis hit (and two attempts in Congress to reinstate judicial cramdown authority). Worse,many of the powers-that-be are still hung up on punishing underwater homeowners as the sinners instead of fixing the damage done by an entire industry’s profligate boom-time lending and sales standards.

In other words, it’s more likely we’ll see a sudden era of political compromise and bountiful efficiency in Congress than see the real estate players agree to get along to “solve” the housing problem. Instead, the simplest solution is to return cramdown authority to bankruptcy courts. This competition is what the lenders need to act on their own behalf. Surprising how that works.

Until 2005, bankruptcy courts had the authority to institute cramdowns on debt secured by singlefamily residences (SFRs) as part of bankruptcy proceedings. In the 1980s, when bankruptcy courts were given this authority, lenders responded with eager willingness to cramdown home loans for distressed homeowners to avoid the more expensive judicial hammer (which went largely unused). This has worked in the past, so why reinvent the wheel with more government programs and roundabout government encouragement?

Related article:

In praise of cramdowns

Allowing judges the power to decide what is best, and fair, for underwater homeowners will alleviate the moral hazard cramdown critics rest on, while awakening lender morality in conduct toward the public they view as serfs – the 99%.

Lenders are never going to realize cramdowns are in their best interest on their own, but they might somehow get the point with a little encouragement from bankruptcy courts.

So many homeowner rescue plans have been instituted in the past several years and yet none has really worked on the broad scale expected.

Why is that? Could it be that each and every one was predetermined to fail? Could it be that each was offered only to assuage the public fear and anger against the system as millions began losing their homes and never really meant to solve the problem?

Could it be that at intervals in the economic history of a nation, the economy is purposely allowed to become depressed sufficiently to ruin the common man while the elite then “cherry pick” over the carcasses at pennies on the dollar, after which they can resell the properties in vast numbers or rent them to the very victims they caused to become so diminished in the first place, as they then revive the economy at a later time?

If this sounds like a preposterous supposition, then study history. You might be shocked to learn that the same technique has been used time and again to transfer massive amounts of wealth and property from the common man to the privileged elite.

And, at the center of such actions has always been one sinister group—the bankers.

A cramdown is an effective tool to stabilize the distressed market. However, politics being what they are it makes to much sense to be fair to everyone underwater.