pcba/SENTRY

Hallelujah! Foreclosures prompt banks, NAHB to consider cramdowns

Posted by pcbasentry on January 9, 2009

January 8th, 2009 in Blogs
Official Fine Homebuilding Post, editor

We tend to harp on the need for a government program to address rampant foreclosures in a meaningful way. We admit it.
Our apologies for the harping. Dwelling on the subject is a byproduct of frustration — mainly with the current administration’s resistance to sweeping loan-modification legislation, even though foreclosures are at the heart of the housing crisis.

This week, however, discussions about loan modifications took a startlingly positive turn. Amid news reports about homebuilders meeting congressional leaders to pitch their housing aid plan, and amid all the buzz about President-elect Barack Obama’s stimulus plan and his intention to announce within two months a program to stem the foreclosure tide, The Wall Street Journal also reported that Citigroup, with the backing of the National Association of Home Builders, has struck a deal with Democratic leaders in the Senate to endorse legislation that would allow judges to set new repayment terms for mortgage holders who wind up in bankruptcy court.

This is, potentially, a very big deal. The Mortgage Bankers Association has long opposed legislation that would allow bankruptcy judges to impose what are known as “cramdowns” or forced mortgage modifications, on banks. Unfortunately, the cramdown is a key tool for reducing inventories of distressed properties and stabilizing the housing market.

Democrats have long favored cramdown legislation. But Citigroup’s apparent about-face on the issue is more significant than partisan preferences. The company’s prominence in the financial-services industry and its leadership in talks on Capitol Hill suggest such a law just might eventually see the light of day.

Another positive report coming from the nation’s capital indicates that Obama is inclined to retain Sheila Bair as chairman of the Federal Deposit Insurance Corporation. Although she was marginalized in early efforts for formulate economic-recovery programs, she has been a steadfast supporter of foreclosure-relief policy. On Wednesday, Obama told CNBC that “the FDIC and Sheila Bair have had the sense of urgency about the problem that I want to see.”

There’s obviously plenty of party wrangling and special-interest negotiating left to do before a law gets passed and an FDIC program gets implemented, but these new developments have at least helped us rediscover a sorely neglected resource: hope.

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