Stop the Cram Down!

Hello Hampton Roads,

There's a fight going on between the nation's mortgage lenders (such as the American Bankers Association, the Consumer Bankers Association, & the Mortgage Bankers Association) to stop the "cram down" versus certain influential groups (including Democratic leaders, consumer advocates such as The Center for Responsible Lending, labor unions, and the AARP, the nation's largest lobby group) who want to see it happen. Cram down is the industry term for the forced easing of mortgage terms.

The proposed Miller-Sanchez bill, HR 3609, also known as the "Emergency Home Ownership and Mortgage Equity Protection Act" would give bankruptcy judges the right to unilaterally change loan terms as well as the balance on primary residences and thereby reduce the amount homeowners owe on their homes. Bankruptcy judges already have the ability to modify terms for other debt but not for homes. Currently there is a restriction against this which has been in place since 1978 as an incentive for banks to make loans to new homebuyers.

Advocates of this legislation say that it promotes "family stability and sustainable homeownership" and would keep as many as 600,000 homeowners from foreclosure. The benefits stated in Center for Responsible Lending include:
  • No cost to the US Treasury
  • Targets families at risk of losing their homes
  • $72.5 billion would be saved by avoiding 600,000 foreclosures
  • No negative effect on home credit
  • Guarantees lenders would receive at a minimum what they would get from foreclosure
On the other hand, the banks claim that this bill will increase the cost of mortgages for everyone since the additional risk would be passed down to the borrower. The increased costs would be reflected in higher interest rates which could go up 1.5% or more, higher down payments and higher closing costs.

The Mortgage Bankers Association has a website: which shows by state how much a typical home mortgage would increase if the bill were to be passed into law. The site shows the state of Virginia with a 1.5% increase in mortgage rates.

What are your thoughts?

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