Mortgage "Cram Down"

According to Friday's (March 5, 2009) Wall Street Journal, the house has passed the "cram down" legislation. This legislation would allow homeowners in financial difficulty to ask bankruptcy judges for relief from their mortgages.

Reqirements - Homeowners must make systematic and verifieable attempts to modify their mortgage before resorting to bankruptcy. Homeowners must be able to certify that they provided extensive information on their finances to the bank holding their loan.

What investor is going to risk a loan defaulting?

How high will rates have to go to compensate for the risk that a judge may modify the mortgage note?

What is the definition of relief?

According to Miriam Webster Dictionary

1: a payment made by a male feudal tenant to his lord on succeeding to an inherited estate
2 a: removal or lightening of something oppressive, painful, or distressing
b: welfare
2a c: military assistance to an endangered post or force
d: means of breaking or avoiding monotony or boredom : diversion
3: release from a post or from the performance of duty
4: one that takes the place of another on duty
5: legal remedy or redress6 [French, from Middle French, from Italian rilievo relievo]
a: a mode of sculpture in which forms and figures are distinguished from a surrounding plane surface
b: sculpture or a sculptural form executed in this mode
c: projecting detail, ornament, or figures
7 a: sharpness of outline due to contrast
b: the state of being distinguished by contrast
8: the elevations or inequalities of a land surface
9: the pitching done by a relief pitcher

I guess definition 2a and b might apply - 2 a: removal or lightening of something oppressive, painful, or distressing
b: welfare
but definition 3 is interesting also release from the performance of duty
then again definition 5 legal remedy or redress may fit

None of these say what the relief may be -
Reduction of the mortgage balance
Extension of the term of the mortgage
Lowering of the rate
A combination of all of the above

Seems to be no guideline or definition of relief, except from Miriam Webster.

Looks like the mortgage market will get tighter for another reason.

Judges Modifying Mortgage Loans For Individuals in Bankruptycy?

CNBC reports:

Housing Bill Would Let Judges Erase Mortgage Debt

The U.S. House is expected to approve legislation Thursday that would let federal judges erase mortgage debt for homeowners who enter bankruptcy.

The bill will dovetail with President Barack Obama's housing market recovery plan announced last week and includes other provisions meant to aid struggling borrowers. The legislation will almost certainly pass the House, where Democrats have a healthy majority. The plan must then be paired with a companion plan that has not yet been introduced in the Senate.

Here are some details of the House plan:

Bankruptcy judges would be permitted to rewrite loan terms for homeowners who seek protection from their creditors in bankruptcy. For the first time, borrowers could have the courts erase some home loan balance and lower interest rates. The lending industry is trying to pare back the terms of this provision, and changes might be made before it becomes law.


Could this mean that rates may go up?

Would any investor invest their money in mortgage backed securities?

Would this cause less mortgages to be written?

What would a borrower have to do to qualify for a mortgage?

It will be interesting to see the final bill.

Stimulus Bill $8000 First Time Home Buyers Tax Credit

Stimulus Bill Sec 1600 Page 24 of 575 pages
Conference Agreement Page 19 of 285

Ammends the previous tax credit/loan to an $8000 tax credit ($4000 if married filing seperately) or 10% of the purchase price whichever is less. No longer a loan. No Longer Does the Tax Credit Need To Be Paid Back. Only available from December 31, 2008 through December 1, 2009.

If you took the tax credit/loan last year do you have to pay it back? Looks like you have to live under the terms of the 15 year no interest loan.

First time buyer is defined as, having not owned a home in the last three years. You must make less than $75,000 if your single, $150,000 if you are married. The credit phases out if income is higher. Have not been able to figure how the credit phases out

If you sell or rent your house in the 36 months after you purchase you will have to pay back the credit.

Home Value Protection Code (HVCC)

Home Value Protection Code (HVCC) From Fannie Mae's website

https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/

Like it or not here it is!

H.R. 3221 Title V - SAFE Act Mortgage Licensing Act of 2008

This a good website for the Mortgage Licensing Act of 2008

http://www.csbs.org/AM/Template.cfm?Section=SAFE_Act

From the Federal Reserve:

http://www.hud.gov/offices/hsg/sfh/res/finalrule.pdf

Once again a tough read!

Regulation Z amendments - Truth and Lending

Proposed changes from 7/10/2008

http://www.federalreserve.gov/boarddocs/meetings/2008/20080714/draftfedreg.pdf

Tough read

Red Flag Fact Act

I have not read enough on this to comment

Here is the link

http://a257.g.akamaitech.net/7/257/2422/01jan20071800/edocket.access.gpo.gov/2007/pdf/07-5453.pdf