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Geithner's role - the cramdown [View All]

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autorank Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Feb-03-09 10:46 PM
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Geithner's role - the cramdown
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I was surprised and disappointed with the appointment of Tim Geithner, head of the NY Fed, as
Secretary of the treasury. That was for good reason. He screwed up on credit default swaps and
we've yet to pay for that.

Why Geithner? There were people saying, if you want to fix a problem you need people who know the
problem, etc. That wasn't comforting ... until I heard a criticism of the stimulus plan (which I like)
for any sign of benefits to homeowners.

And then I thought of Geithner: what is his role?

Here it is. Geithner will deliver the "cramdown" to mortgage holders.

That's what Obama does for home owners ... it would be huge.

What's a cramdown?

CRAMDOWN-- a court-ordered reduction of the secured balance due on a home mortgage loan, granted to a homeowner who has filed for personal bankruptcy.

-- In a cramdown, the bankruptcy court splits the outstanding mortgage balance into two parts. The amount of debt equal to the current appraised value of the home is treated as a secured claim, which the borrower must continue to pay.

-- The amount of debt in excess of the current property's value becomes an unsecured claim, which is usually not repaid in full. In areas where home prices have depreciated, cramdowns can result in significant mortgage reductions.

-- In some cases, the judge may order the remaining secured debt amortized over the remaining life of the loan term, thus lowering monthly payments. In other cases, monthly payments remain the same as before the cramdown, and the secured mortgage is simply paid off faster.

There is no entity in the financial community that has any credibility left after Bank of America
was exposed for the Merrill deal and Wells caught for it's employee "recognition" event. What are
they going to say? It's not fair! Screw them.

This idea popped into my head when I corresponded with Numerian over at The Agonist
(who has written brilliantly on the meltdown).

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