Thursday, January 8, 2009

Taxpayer "cramdown"

Boom! Boom! Boom! Boom!

If you are wondering what the noise is its my forehead slamming against my desk.

Ughhhhh.....Welcome to the mortgage "cramdown"!

Bend over taxpayers. Its time for you to bail out the housing bubble!

Citigroup announced today that it has agreed to a senate proposal that will allow BK judges to modify mortgage loans. Here are the details:

"Citigroup became the first major bank to support a controversial plan to let bankruptcy judges alter mortgages in a effort to prevent more housing foreclosures.

Until now, banks have been ardently opposed to the proposal, which key Democratic lawmakers hope to attach to President-elect Obama's economic stimulus legislation.

The so-called "cramdown" proposal has been backed by Democrats over the past year as a potential solution to the foreclosure crisis.

Under the change, bankruptcy courts could alter the terms of mortgages, subject to certain conditions:

1) Only mortgages entered into prior to the date of enactment of the bill would be eligible for the treatment. All loans, and not just subprime, are eligible.

2) Borrowers have to show they made a “good faith” attempt to work with the lender before considering this bankruptcy provision. Bankruptcy cannot be the first option, and borrowers have to prove it wasn’t.

3) Bankruptcy judges can strip away a lender’s credit or rights if they violated the Truth in Lending Act or other state and federal laws.

The agreement with Citigroup to support the legislation was announced in Washington by Senators Richard Durbin of Illinois, Charles Schumer of New York and Christopher Dodd of Connecticut.

Durbin tried last year to win passage of his proposal, but it failed in the face of opposition from lending and housing groups that warned giving bankruptcy judges power to erase mortgage debt would increase costs for future homeowners."

My Take:

Sickening isn't it? The banks vehemently opposed this when it was brought up last year. why wouldn't they? If a BK judge does a "cramdown", guess who gets crammed? The banks of course. The fact that both Citi and the NAR agreed to this tells you how bad the situation is in housing.

This whole thing smells like a big pile of dog doo. Why on earth would any bank accept these terms? This is what happens when you allow Uncle Sam to put a collar around your throat. When you take $120 billion from the taxpayer via the government I guess you need to listen when they threaten you with your life!

Remember folks, the government bailed out all of these large institutions. Without Uncle Sam they do not exist. Why do you think the TARP was crammed down our throat in a matter of weeks? The banks were all toast and Paulson knew it.

I expect the rest of the big boys that accepted TARP money to follow Citi's lead. Instead of "lead" maybe I should term this Citi's "death march". The way I see it, this is the final nail in the coffin for the banks. What will end up happening here is this: Millions of homeowners will go to court and get their loans modified. The losses will then be taken by the banks via "cramdowns". The losses will then be crammed down the taxpayer's mouth as the government uses our money to infuse the banks with capitol so that they can offord to take the losses.

So isn't this just special. We the taxpayers: Who were prudent and lived within our means, must now go ahead and bailout everyone that took outrageous risk and bought homes that they knew they couldn't afford. By doing this, we also bailout the banks who were stupid enough to give them the money in the first place!

Boom! Boom! Boom!

Man I am going to have a headache if I keep doing this. I can't help it! Its the only way to release the anger after reading about this cramdown. I either do this or I grab a housing speculator by the throat and throw him out a window! The head smacking thing sounds like the wiser choice.

I have a question here: I wanna know when we "the taxpayers" get a chance to do our own version of a "cramdown". Perhaps the same judges that do these mortgage modifications can force the CEO's of these banks to line up on their knees(side by side) and allow each taxpayer to cram a sock down each of their throats. That's the cramdown I want to see!

Bottom Line:

What can I say folks? I get more angry and sickened by the day as I watch the government make such stupid mistakes.

Again I get back to "moral hazard". Who won't want a cramdown if they go ahead and do this? Anyone that bought a house within the last 6 years is going to want this deal. Why would anyone pay their bloated mortgage payment for 30 years if they have this option available?

If I was stupid enough to buy one of these McMansions, I would be the first guy on the phone to Citibank. "Sorry guys, can't afford it. Made a mistake. Lets go to court and work this out."

My oh my this is going to end ugly. I would avoid any investment in the financials until the smoke clears on this debacle. If the government goes through with this, the banks will essentially be nationalized. Their balance sheets will be hit with billions of losses. Their will have no earnings for years.

God forbid anyone in this country is forced to take a financial hit. The entitlement in this country has gotten completly out of hand.

Each day I get more and more angry with myself that I didn't act like a buffoon and go out and spend like a drunken sailor over the past few years. If I knew the country was going to bail me out, I would have bought a boat and a McMansion and partied until it was bailout day.

No trades today. I was too busy banging my head against my desk.


Jeff said...

TO all the SRS owners out there. Goldman just threw us a bone and downgraded 4 REIT's:

" UPDATE 1-RESEARCH ALERT-Goldman Sachs downgrades 4 REITs
Font size: A | A | A
11:16 AM ET 1/8/09 | Reuters

Jan 08 (Reuters) - Goldman Sachs downgraded four real estate investment trusts (REITs), saying it remained cautious on the commercial real estate industry and expected flat to negative 15 percent total returns in 2009.

The brokerage removed Public Storage (PSA) from its conviction buy list and downgraded Vornado Realty Trust (VNO) to "neutral" from "buy."

It also downgraded CBL & Associates Properties Inc (CBL) and UDR Inc (UDR) to "sell" from "neutral."

In a note to clients, analyst Jonathan Habermann said he expects REITs to deliver sub-par returns for the year.

"The continuing turmoil in the credit markets has resulted in a sharp reduction in the availability of debt capital for the CRE (commercial and real estate) industry, even for assets with performing loans, not to mention record wide spreads," he added.

The broker also cited limited financing options, even for REITs with better-positioned balance sheets, along with deteriorating fundamentals as the reason for forecasting yet another negative year for the industry. (Reporting by Biswarup Gooptu in Bangalore; Editing by Anil D'Silva)

Anonymous said...


It gets to a point where I don't want to follow the stock market anymore. Otherwise, I will just get so angry reading about all these bailout stories. It is sickening to see that responsible and honest folks are being raped by these scumbags. It is just so unfair and wrong.

ZMonet said...

I want to know if the cram downs are somehow reflected in the price of the home (i.e., creating a new comp for the neighborhood). Counting the cram down like a sale is the right thing to do, but I have a feeling there is no way the gov. is going to allow that to happen. Instead, there will be no transparency and nobody will know that the $600K mortgage was just written down to $400K.

Jeff, the only solace I have about not spending like a drunken sailor is that I like to have personal self control. True, the gov. is manipulating everything but at least with some money in my pocket I still have the ability to buy things when I want them and feel good that I earned them. These bubble bailoutees are just drug addicts who need to drink from the government's tit in order to get their fix. Yes, I know, little solace.

Sold my SRS today as when I can make 8% in 24 hours, I take it. It must have been the Goldman report that spiked the stock early on.

Avl Guy said...

Jeff, the devil will be in the details. The key is, once the eligibility details are worked out, how big will the universe of cramdowns-via-bankruptcy be? Its a bit of a moving target as wages/salaries slide down via lay-offs & cut-backs in hours, while demonstrating an ability to pay a restructured mortgage may be an eligibility requirement as it was for many of the 2008 mortgage relief proposals.
The bigger news is that this is a (mild) form of debt destruction; a stronger form would involve mortgage principal destruction. If this latter debt destruction happens in large enough scale it could accelerate our arrival at the bottom of the housing market by years...but not without serious side-effects as noted by u and other readers. Ironically, the additional public debt generated (to induce greater private & household mortgage debt destruction and) to make the affected banks whole again may sadly provide fuel for more debt destruction. Stay tuned.

Jeff said...


I feel your pain man. It really sucks!

Jeff said...


Great points on self control. Deflation is great if you have a little money in your pocket isn't it?

Everything has gotten so cheap! I have been doing some consuming lately because everythings on sale!

The cram downs will have to be counted as sales and written down IMO Zmon.

Without transparency or realcomps, no one would ever buy a home again because they wouldn't know the true value of the home. They would kill whats left of the housing market.

Jeff said...


Great points. I am skeptical this gets done but I agree. This would get prices back to normal levels in a hurry.

Another thought I have on this whole thing is this: Can you imagine how tough the lending standards will become if the bank knows the loan can get crammed down their throat down the road?

It may become impossible to get a loan because the banks will be so conservative in order to protect themselves.

20% down and 36 DTI will be back in a hurry in order to borrow if they go through with this. It may even be worse. 30% down perhaps?

Uncle Joe said...

You know, i've considered myself ethical and generally unwilling to take government handouts, but this shit just honks me off. I've worked hard to live within my means, and now everyone around me who was stupid enough to get mortgages they couldn't afford will get it crammed down? I'm feeling less and less bad about just jumping on the bandwagon, overspending, declaring bankruptcy, and walking away. Those of us who work hard and pay our bills are getting screwed over by government bailouts for all the irresponsible companies and fools who couldn't manage their checkbooks. It's so maddening!!!!

Joey said...

All really good points / opinions.
My buddy mentioned the same issues Avl / Zmon brought up with regard to re-assessing value or "comps".

I would imagine if the loans can be "marked to (real estate) market" then this option will be especially alluring.

BK attorneys are gonna make a fortune.

Jeff said...


I am honked the hell off too. Maybe I'll go out and buy a yacht tomorrow and then ask for a new cramdown loan because I can't afford it!

Why the hell stop at just houses. Maybe we can all get our credit cards crammed down.

Such a joke

Jeff said...

I talked to a BK attornet at a restaurant a few months ago.

They were told to "get ready its comin" at a national seminar that he went to.

I wish I had a law degree.

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