The mortgage crisis
 

Confused once again I faithfully turned to CNBC (who's affiliation I'm not so sure of, all I know is they're Wall Street 24/7) tonight as usual because my mom works at a clearing house and likes to catch everything up until Jim Cramer. I'm torn specifically on the issue of letting judges modify mortgages.

I have no problem with them changing the interest rates or extending the grace period, but they are going to have the ability to change the actual worth of a property by court order. And who would be determining what is a fair market value? There was another argument I heard in a debate on the Kudlow Report arguing that even those who are well off should be able to modify their mortgages since they will be financing the rest.

On the other hand, this would be a drastic increase of pocket money for the lower class and take a ridiculous amount of weight off their backs.

I also heard, but can't find a good source, that the renegotiated mortgages would be five-year adjustable rate. Isn't that what got us in this problem in the first place? The rate at the end going up again to the point where the owner can't afford it? Or am I just missing something and people will have enough gross income to pay it off by then?

I'm sure that people are really going to use it for good intentions all the time...

Forgive my cynicism, but this seems more a way to get out of houses free rather than a way to reduce payments.

Let's be clear.

This is an outright case of wealthy people complaining that average shnooks receiving benefits that the aforementioned moneyed individuals already enjoy.

Adding to that, that these are the same wealthy people whose catastrophically risky and unethical lending practices caused the current economic collapse, and I really can't imagine what if any moral case is meant to be made against this measure.

So what if they don't?

The cram-down is a very common situation in chapter 13 bankruptcies (this is actually my career field currently). It is most typically used in the case of vehicles purchased more than 910 days before the date of bankruptcy petition filing. So this isn't anything new, it's just another method of allowing a debtor to revalue their possessions at actual market value instead of the outlandishly high balance that principal + interest + inflated home values had everything set at.

Also it is through the bankruptcy court. As a result people will have to include their proposals inside their chapter 13 plan which is a required filing. Creditors have the option to object to confirmation of said plan, which means, people can't abuse this system and cheat their way to a super cheap house, it has to be sanctioned by creditors and trustees alike, and signed off by a judge.

I support this move personally.

As for fair market value, there are people who make their careers out of determining that. The thing about appraisers is you have to watch them, because some of them get a bit sloppy about their work and round things that ought not be rounded to save time on funny shapes, like blocks bulging out of an otherwise square house, or getting sloppy when calculating the area of yards with hills, or other stuff. There was a news report on it sometime right before the housing crash, or right after it began or something, but it was a while ago and I can't quite remember when it was or what news station reported it. :sweatdrop

But yeah, I see no reason the existing appraisers can't do it.

The onus will fall upon the creditor to have an appraiser value the house. The debtor can simply put an arbitrary value in their plan, and then if the creditor doesn't accept it they will have to order the appraiser on their own dime. Now, if the bankruptcy courts make it a requirement to file a home appraisal with the plan to justify the cram-down it might be a different story, but the thing is, the debtors are fucking bankrupt. So it's not like they can afford an appraisal unless there are pro-bono services.

Also in a bankruptcy setting there is no room to be sloppy with an appraisal because the creditor will be holding your feet to the fire to make sure you find every single little thing that could raise the value. So the above post is partly fallacious because if an appraiser does a bullshit job then they are no longer in business with these creditors which could represent a massive loss of income. Though this is probably only within the bankruptcy court, they might still be lazy asses outside due to the idiocy of your average consumer.

I'm thinking more along the lines of property rights and contracts. But how shiney has explained it, it makes more sense to me if they have to have third party arbitration.

It can also be the case they they will have 2-3 appraisers value a house and just take the average of thier appraisals to settle and disputes between the creditors and the home owners.

Just something I thought I would add to the convo.

Jim Cramer attacks Bush Administration, Obama Administration, and Jon Stewart. I've been reading through and like most of it. He also clears up the out-of-context quote used on the Daily Show.

Well a quick read through of that article suggests to me that Cramer has no idea who "the rich" and the "poor" are. He's advocating measures that are fine if you want to help the American middle class with thier stock investments and the capital value of thier assets but they are not the ones reforms should help.
This really summed it up for me:
If you've got stocks, if you've got retirement accounts, if you're got college savings you are not the ones who need helping in this economy.
There are a lot of people a lot worse off.