2009-01-13ft.com

"We are not surprised to see the market react negatively," Mr Flanagan went on. "While lenders have long maintained that [the lack of cramdown] was needed to keep mortgage rates low, that notion ultimately proved to be a farce. To say that now is not a good time to change the bankruptcy code merely echoes the sentiment of the last 30 years, and ignores the facts that [this part] of the mortgage market is shut down anyway."

We echo this gentleman's fine statements. The inability to cram-down mortgages was a farce: it turns out default risk DOES still exist on mortgages. As long as that is the case, bankruptcy judges should be able to adjust mortgage debt accordingly. In fact, the very law that got rid of cram-downs likely inflated values to the point that any "benefit" of the law was undone. Now, the market's reaction is basically "oh shit, you mean we can't push ALL of the default risk onto the borrower and the government?" That's right, pricing according to risk -- the contemporary asset-backed securities market's worst nightmare.


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Comments:

Deed In Lieu at 22:09 2009-01-13 said:
It's time for bankruptcy judges to bring "risk" back into the market place. To quote the above article "Chris Flanagan, analyst at JPMorgan, said the bankruptcy cramdown may reduce foreclosures and stabilise house prices but that higher costs would be passed onto consumers. Increased bankruptcy filings could also increase losses on securities backed by credit cards and other consumer loans, he said."

With all due respect Chris, what are these higher cost, a down payment, higher interest, or having the ability to pay the mortgage?

People are hurting out here in the heartland, losing homes, losing jobs, losing value in retirement accounts, losing their hold on the American Dream. The American taxpayer is already paying a high cost to protect the lenders/investors who want to be protected so they can have NO RISK HIGH YEILD loans, of course they are going to be dragging their feet to any long term fix of this problem. Thank you Chris Dodd and Barnie Frank. Permalink

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