Obama Administration Abandons Cramdown

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Thursday, July 16, 2009 at 7:31 pm
Sen. Chris Dodd (R-Conn.) (WDCpix)

Sen. Chris Dodd (R-Conn.) (WDCpix)

As housing foreclosures top the 1.5-million mark this year, the Obama administration has openly abandoned cramdown as a strategy for tackling the crisis.

That approach — which would empower homeowners to avoid foreclosure through bankruptcy — was once a central element of the administration’s plans to stabilize the volatile housing market. Some financial analysts say the strategy would prevent 20 percent of all foreclosures. But, appearing before a Senate panel Thursday, two White House officials said that current policies are enough to address the problem.

Illustration by: Matt Mahurin

Illustration by: Matt Mahurin

“We have enough tools,” Herbert Allison, the Treasury Department’s assistant secretary for financial stability, told members of the Senate Banking Committee. “The challenge is to roll them out.”

The tools Allison invoked are several federal programs that offer financial incentives to mortgage lenders and servicers — the companies that buy the rights to manage loans — to modify the terms of mortgages in efforts to help homeowners escape foreclosure. Yet those programs rely largely on the cooperation of the finance industry to alter the loans voluntarily. Many lawmakers and consumer advocates argue that the companies aren’t doing enough to comply with the modification programs. The carrots without a strong stick, they say, just aren’t working.

“Why am I still reading stories about homeowners, community advocates, even my own staff acting on behalf of constituents, shuffled from voicemail to voicemail as they attempt to help people stay in their homes?” asked Sen. Christopher Dodd (D-Conn.), chairman of the Banking Committee.

It wasn’t supposed to work out this way. When the Obama administration unveiled its Making Home Affordable program in February, it estimated that the initiative would entice servicers to modify loans helping between 3 million and 4 million families keep their homes. To date, 325,000 modifications have been offered under the program, according to Allison. Of those, 160,000 are currently in a three-month “trial-modification” period. If borrowers prove they can meet the terms of the modifications over that span, then the changes become permanent.

Under a separate program to help underwater borrowers refinance their loans, just 43,000 homeowners have been helped, Allison said.

Those numbers pale in comparison, however, to the wave of foreclosures that continues to wash across the country. In the first half of this year, more than 1.5 million homes have entered into the foreclosure process — up 15 percent from the same period last year, according to the latest figures from RealtyTrac, an online foreclosure database. More than 336,000 filings occurred in June alone, RealtyTrac found — a jump of about 15,000 from the month before.

And the numbers are expected to increase alongside rising unemployment — a trend that’s expected to continue through the end of the year.

For supporters of cramdown, the numbers offer compelling evidence that the voluntary programs aren’t doing enough to stem the foreclosure crisis. Providing homeowners with the option of bankruptcy, they say, would offer the threat to accompany the administration’s incentives, empowering judges to reduce, or “cramdown” the rates and principals of primary loans. Under current law, that option is available to owners of vacation homes, yachts and almost any other material possession, but family homes are exempt.

Mary Coffin, executive vice president of Wells Fargo’s mortgage servicing division, said the bank has already helped nearly 1 million homeowners this year with refinancings and loan modifications. In June, Coffin noted, 83 percent of the modifications resulted in lower payments for homeowners.

The cramdown issue is hardly new to Capitol Hill. In March, the House passed a cramdown bill that was widely expected to sneak through the Senate on its way to becoming law. It didn’t happen. Instead, the bill fell 15 votes short of upper chamber approval — a failed effort occurring while the White House watched in silence from the sidelines.

Last week, House Democrats on the Financial Services Committee staged a hearing to rue the bill’s failure in the Senate. But upper-chamber lawmakers appear resigned to the fact that it simply doesn’t have the votes to pass.

“Obviously, it would have been better to have the stick of bankruptcy involved,” Sen. Charles Schumer (D-N.Y.) said of Washington’s anti-foreclosure efforts. “But it’s not in the cards.”

Indeed, during Thursday’s three-hour Banking hearing, Schumer’s words marked the only explicit mention of cramdown at all. Afterward, Sen. Robert Menendez (D-N.J.), who chairs the Banking Committee’s housing subpanel, said bankruptcy reform was among “the quickest and least costly” ways to stem foreclosures, but supporters lacked “the political capital to make it happen.”

Allison declined to take questions following the hearing, and the White House did not respond to additional calls for comment.

The lack of interest on Capitol Hill could spell bad news for millions of homeowners around the country. The White House hopes to have their programs running at full throttle by the fall, Allison said. But he warned that they are multi-year efforts, and the administration anticipates “millions” more foreclosures, even if the programs underway meet all of their goals.

A Credit Suisse report unveiled in December found that cramdown would prevent 20 percent of foreclosures — a number that remains relevant, one author of that report said Thursday.

Hampering efforts to tackle the crisis, there remains some disagreement over why lenders and servicers have been reluctant to repackage loans so that they become affordable. Paul Willen, senior economist at Boston’s Federal Reserve, had perhaps the simplest theory.

“The most plausible explanation for why lenders don’t renegotiate,” Willen said, “is that it simply isn’t profitable.”

Willen suggested a foreclosure-prevention program in which the borrowers receive direct assistance — either through grants or affordable loans — rather than offering the incentives to the servicers to help homeowners only if they choose to. “If such a program existed, Willen said, “we would have solved this problem by now.”

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29 Comments

Obama Administration Abandons Cramdown | Low Loan Refinancing
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[...] News Sources wrote an interesting post today onHere’s a quick excerptSen. Chris Dodd (R-Conn.) (WDCpix) As housing foreclosures top the 1.5-million mark this year, the Obama administration has openly abandoned cramdown as a strategy for tackling the crisis. That approach — which would empower homeowners to avoid foreclosure through bankruptcy — was once a central element of the administration’s plans to stabilize the volatile housing market. Some financial analysts say the strategy would prevent 20 percent of all foreclosures. But, appearing before a Senate [...]


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Swami_Binkinanda
Comment posted July 17, 2009 @ 10:09 pm

FAIL


bobccc
Comment posted July 18, 2009 @ 11:28 am

First, government cannot run anything correctly! They dipped into our S.S. funds, barely attack fraud in Medicare, Medicaid and all other programs. Helped bring down the housing market with
the help of Barney Frank & Chris Dodd….and there are no investigations of these so-called politicians!

Our government has become a giant ponzi scam!


Name
Comment posted July 18, 2009 @ 4:46 pm

Sad, but true. I am 73 years old and lost my sources of income through the downturn in the market, serious surgery and the resultant loss of a part-time job. My social security of $775. is less than my mortgage, $926. I have been paying my mortgage from what is left of my savings, less than $20,000. now. My mortgage company told me I was not eligible for load modification until my savings are only three times my monthly income, i.e. $2300. What a catch 22; when I have $2300 in the bank, can I pay my mortgage and my other bills and then wait for them to decide on whether I am eligible for a modification? By the time I am 74, I will be out of my beloved home and looking for a tiny apartment. What a way to finish out a life!


jjohnson85249
Comment posted July 18, 2009 @ 10:58 pm

wall street lackeys now include the white house

When Geittner and Obama had the chance to push for loan modifications through the courts (bankruptcy judges)they chose wall street over main street. housing would have already started to recover if the legislation would have passed. Obama and Geittner chose to join a group of wall street lackeys – senators kyl, bayh, martinez,spectre and others rather than give homeowners a negotiating tool that would have been far more effective than anything thats been tried.Obama and Geittner are trying to save face by threatening the loan servicers (much the same way that they did with the banks that the taxpayers have bailed out)and no one is intimidated by this.The banking / mortgage interests are running this country and you can look at your elected officials campaign contributions to verify it. as long as wall street continues to pay for our elected officials votes- we don't stand a chance.perhaps next elections we (voters) should VOTE OUT all the incumbents and start over


john51
Comment posted July 20, 2009 @ 2:41 am

Sen. Dodd has proven to be the ultimate Washington Whore


LONE_STAR_TEXAN
Comment posted July 21, 2009 @ 4:35 am

Well you can thank the Democrats for your situation thanks to their socialist engineering of the housing market. All for the sake of the poor vote.


douglasM
Comment posted July 24, 2009 @ 10:07 am

People we need new Senators. Dont vote the senators back in get rid of them and let them see what its like not to have a job. And how will it cost us in the long run. My bank will not even work with me, they told me just let it go into foreclosure they will collect from my mortgage insurance. The banks are selling the homes for half the price already. I think we need new US Senators. The old ones have been bought by the banks like little whore's. They are not looking into what is happening with the foreclosures. I am in California i have lost $479,000 in the purchase price of my house. My bank wont even answer the phone, I get someone’s voicemail. The cram down needs to go through soon or we need to get new Senators. I really do mean that!


douglasM
Comment posted July 24, 2009 @ 10:08 am

People we need new Senators. Dont vote the senators back in get rid of them and let them see what its like not to have a job. And how will it cost us in the long run. My bank will not even work with me, they told me just let it go into foreclosure they will collect from my mortgage insurance. The banks are selling the homes for half the price already. I think we need new US Senators. The old ones have been bought by the banks like little whore's. They are not looking into what is happening with the foreclosures. I am in California i have lost $479,000 in the purchase price of my house. My bank wont even answer the phone, I get someone’s voicemail. The cram down needs to go through soon or we need to get new Senators. I really do mean that!


douglasM
Comment posted July 24, 2009 @ 10:10 am

People we need new Senators. Dont vote the senators back in get rid of them and let them see what its like not to have a job. And how will it cost us in the long run. My bank will not even work with me, they told me just let it go into foreclosure they will collect from my mortgage insurance. The banks are selling the homes for half the price already. I think we need new US Senators. The old ones have been bought by the banks like little whore's. They are not looking into what is happening with the foreclosures. I am in California i have lost $479,000 in the purchase price of my house. My bank wont even answer the phone, I get someone’s voicemail. The cram down needs to go through soon or we need to get new Senators. I really do mean that!


douglasM
Comment posted July 24, 2009 @ 10:11 am

People we need new Senators. Dont vote the senators back in get rid of them and let them see what its like not to have a job. And how will it cost us in the long run. My bank will not even work with me, they told me just let it go into foreclosure they will collect from my mortgage insurance. The banks are selling the homes for half the price already. I think we need new US Senators. The old ones have been bought by the banks like little whore's. They are not looking into what is happening with the foreclosures. I am in California i have lost $479,000 in the purchase price of my house. My bank wont even answer the phone, I get someone’s voicemail. The cram down needs to go through soon or we need to get new Senators. I really do mean that!


douglasM
Comment posted July 24, 2009 @ 10:11 am

People we need new Senators. Dont vote the senators back in get rid of them and let them see what its like not to have a job. And how will it cost us in the long run. My bank will not even work with me, they told me just let it go into foreclosure they will collect from my mortgage insurance. The banks are selling the homes for half the price already. I think we need new US Senators. The old ones have been bought by the banks like little whore's. They are not looking into what is happening with the foreclosures. I am in California i have lost $479,000 in the purchase price of my house. My bank wont even answer the phone, I get someone’s voicemail. The cram down needs to go through soon or we need to get new Senators. I really do mean that!


douglasM
Comment posted July 24, 2009 @ 10:13 am

How will it cost us in the long run. My bank will not even work with me, they told me just let it go into foreclosure they will collect from my mortgage insurance. The banks are selling the homes for half the price already. I think we need new US Senators. The old ones have been bought by the banks. They are not looking into what is happening with the foreclosures. I am in California i have lost $479,000 in the purchase price of my house. My bank wont even answer the phone, I get someone’s voicemail. The cram down needs to go through soon or we need to get new Senators. I really do mean that!


freytan
Comment posted July 30, 2009 @ 2:07 pm

Cramdown is a good idea, we talked to our lender to modify, they just answer that we don't need that period(from Bank of America). How do you expect loan modification to go smoothly, just the first call we don't qualify anymore just like our neighbor, i know there are 6 ofus here in Fair Oaks Ranch and some other community seeking desperate help from the White House specially from our Congressman and Senators, I thought our government are pro-people but I think it's PRO-BUSINESS PEOPLE


freytan
Comment posted July 30, 2009 @ 2:12 pm

I think we should post those Senators name that oppose the cramdown and made shame campaign on them.


simon l
Comment posted October 31, 2009 @ 8:19 pm

modifications are total b.s. – the right of rescission is not even given – what other consumer rights does one lose because of bank greediness?

it would have been cheaper for the pres to have given every homeowner a $200k credit against their mortgage. instead, “modifications” allow some entity beside the real party in interest get paid – and we all know that the actual promissory note is never seen and probably doesn't even exist anymore – so how can it legitimately be modified?? never is given proof of a cancelled note. we are just being set up for future loss, so the banks can keep their non-deserving heads above water.

just let the banks claim bankrupcty, so the investors can make another contract with them. the homeowners made no contracts with the investors or the servicers, in most cases. why should should we have to claim bankruptcy, keep paying on a “modified” loan, and bailout the banks?? umm, shouldn't it be vice versa, with the banks claiming bankruptcy protection, paying the investors, and bailing the homeowners out?? who has more money here?

don't know about you guys – but my promissory note actually states that i must notify the note holder of anything regarding the debt obligation to the originating lender's address – or another address if the noteholder is other than the lender named on the note.

umm, that's a problem contractually, because the original lender never gave me notice of a change in note holder address. breach of contract for not disclosing the identity of the note holder to which notice must be made (ie, you want to notify the note holder that there was fraud at the execution, etc)?

seems to me they hide the real note holder so you can't let them know that you (and the not holder) have been defrauded. also, the note states that once payment in full is made, the cancelled note will be returned to the borrower.

now honestly, when does that ever happen? a release of mortgage is not a release of the promissory note (but a release of the note is a release of the mortgage – the mortgage follows the note, not the other way around – black letter law).

so all these MERS releases don't actually state that there is a release of debt, and you never get your note back – who's to say someone might not come 20 years from now trying to collect on the promissory note that was never cancelled as required on the note itself?


simon l
Comment posted November 1, 2009 @ 12:19 am

modifications are total b.s. – the right of rescission is not even given – what other consumer rights does one lose because of bank greediness?

it would have been cheaper for the pres to have given every homeowner a $200k credit against their mortgage. instead, “modifications” allow some entity beside the real party in interest get paid – and we all know that the actual promissory note is never seen and probably doesn't even exist anymore – so how can it legitimately be modified?? never is given proof of a cancelled note. we are just being set up for future loss, so the banks can keep their non-deserving heads above water.

just let the banks claim bankrupcty, so the investors can make another contract with them. the homeowners made no contracts with the investors or the servicers, in most cases. why should should we have to claim bankruptcy, keep paying on a “modified” loan, and bailout the banks?? umm, shouldn't it be vice versa, with the banks claiming bankruptcy protection, paying the investors, and bailing the homeowners out?? who has more money here?

don't know about you guys – but my promissory note actually states that i must notify the note holder of anything regarding the debt obligation to the originating lender's address – or another address if the noteholder is other than the lender named on the note.

umm, that's a problem contractually, because the original lender never gave me notice of a change in note holder address. breach of contract for not disclosing the identity of the note holder to which notice must be made (ie, you want to notify the note holder that there was fraud at the execution, etc)?

seems to me they hide the real note holder so you can't let them know that you (and the not holder) have been defrauded. also, the note states that once payment in full is made, the cancelled note will be returned to the borrower.

now honestly, when does that ever happen? a release of mortgage is not a release of the promissory note (but a release of the note is a release of the mortgage – the mortgage follows the note, not the other way around – black letter law).

so all these MERS releases don't actually state that there is a release of debt, and you never get your note back – who's to say someone might not come 20 years from now trying to collect on the promissory note that was never cancelled as required on the note itself?


North Capitol Street » Blog Archive » The State of the Nation’s Housing Market
Pingback posted June 14, 2010 @ 4:58 pm

[...] leaving their home in the bank’s hands and taking the hit to their credit scores. “Cramdown” or principal reduction programs would have prevented the rising tide of strategic default, [...]


North Capitol Street » Blog Archive » HUD and Treasury’s New Monthly Housing Scorecard Shows Continued HAMP Slowdown
Pingback posted June 21, 2010 @ 1:57 pm

[...] double-dips, loan servicers will be better at modifications. I think I’d prefer preemptive cramdown [...]


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