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Negative Equity Mortgage Modifications vs Cram Downs – Which is Worse?

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The mortgage market is such a mess that it is being covered on 60 minutes.

Some of the mortgage loan modification “fix” programs are pretty crappy, trying to turn underwater homeowners into indentured slaves:

Home owners! Accepting this ’solution’ means you:

  • acknowledge the full debt regardless of the value of the home;
  • waive all rights to fraudulent or predatory lending claims in the future;
  • turn your loan into a full recourse loan that could follow you for life even if you choose foreclosure down the road;
  • remain underwater, full-leveraged, renter for the rest of your life (in most cases);
  • will save no money at 38% housing debt-to-income ratio plus all other debts;
  • may not discharge any of this mortgage debt through any bankruptcy even after foreclosure;

If widely accepted by home owners, this will ruin the American consumer and make housing a dead asset class for decades. If you are in a serious negative equity position when signing these forms, as most are, remember that you will:

  • never be able to sell your home
  • never be able to buy a new home
  • never be able to rent your home due to owner occupant provisions
  • be responsible for the full loan amount even if the value of your home keeps dropping for the next 10-years.

The 38% debt-to-income ratio on top of all of your other debt means you will save no money and live hand to mouth to keep this underwater roof over your head.

The alternative to the never-ending mortgage loan would be to cram down the mortgage principals to an amount that could actually be paid back. The blog post linked to had a couple great comments about why cram downs would be just in this case. Not only were many home buyers duped into these loans by criminals, but cram downs exist on virtually every type of loan except for primary residence loans:

Currently, in bankruptcy, every other type of property which is used as collateral for a loan, other than a primary residence, was subject to a “cram- down.” The only reason I can figure that primary residences were recently excluded from cram-down was so that average Americans could be taken advantage of by creditors. (This proves once again that our Congress is owned by the finance industry.)

If you don’t like cram-downs for primary residences because contracts are sacred, then why are cram-downs allowed for every other type of property. You name it, private jets, vacation homes, luxury yachts, machine tools, ect. are all CURRENTLY subject to the cram-down. Its absurd that only home mortgage contracts are sacred. Simply put, screwing the little guy is what the cram-down exception on primary residences is all about. There is simply no reason to allow primary residences to be treated differently than every other type of property.


Well, a contract is as good as your legal team. Chapter 11 is pretty cool with contracts: Shred it. Thought you had a deal, a labor agreement, a pension — well you did. Management gets a bonus as they enter the market again, cleansed of all their sins. The government encouraged commercial banks to hold preferred in F and F, and what happens?

And as far as “mark of a free society”, maybe you’ll be able to appreciate your situation . I’m one of those conservatives that figures all societies are feudal — despite disguises. Notice the King has opened the grain stores for the chosen.

Your pension can suffer from cram down, and nearly every type of asset qualifies for them – except primary residence. The bankers can get a multi-trillion dollar bailout for engaging in massive fraud, but you are a pile of crap if you don’t pay all your debts. At least your tax dollars are hard at work, working against you to prop up our Ponzi scheme banking system. Further proof that the American dream of owning your own home is one with a high price tag attached.

Written by admin

January 1st, 2009 at 1:12 pm

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