Everyone positioned for un-enjoyme

Everyone positioned for un-enjoyme
Eric | 01.08.09 - 4:01 pm | #

Apparently, my 'n' and 't' got laid off.

So would this mean that someone who bought a home for $1 million with nothing down when their real annual income was $50K could stay in the million-dollar home as long as they kept up with the court ordered repayment plan? Assuming that the judge crams down the mortgage to whatever amount would result in a 38% DTI for the future mortgage payments.

Seems like a screaming deal for potential foreclosees...

I wonder if they now think it is in their best interest or they just realized they are swimming against the tide and its about to get a lot stonger with the Obama man at the helm....

With $300 billion in tax payer guarantees that's very generous of CITI ...

Where's The Bank Holiday ?

Or to put it another way: cramdowns are great in a functioning market when the lenders take the loss on a bad loan. Now that the taxpayers own $6 trillion in MBS, this is just a bailout by other means.  Instead of FHA or FDIC  (via its IndyMac proxy) or Barney Frank picking "deserving" home debtors for principle writedowns, the judges will do it instead.

The taxpayers still eat the loss.

Can anyone explain to me why the Senate needs to negotiate with Citi on this? When did the banks get veto power over banking legislation?

Oh, never mind....

Under the great title Ring of Fire Redux: 5-Alarm Burner in 4Q, Oppenheimer's Barbarella says:
The "Ring of Fire," described simply, is that when a security is downgraded, a higher level of capital is required by banks to be held against that security. From July 2007 to date, over $5 trillion worth of securities have been downgraded, but our concern here is that the pace of downgrades has only accelerated through 2008. In fact, in the fourth quarter, over $2.3 trillion of securities were downgraded, or over 2.5X the amount of the prior quarter and almost the entire amount of securities downgraded between 3Q07-3Q08.

Where's the Bank Holiday ?

Maybe I'm being a little too literal with the definition of cramdown, but if Citi supports a cramdown, well, then it's not a cramdown, is it?

Whatever happened to the "over the objection of the creditor" part of the cramdown?

Nothingburger.

It's what's for dinner.

Whatever happened to the "over the objection of the creditor" part of the cramdown?
Sonic Seuss

~~~~

Have you seen Obama's team ... bankers ...

nuff said ...

Soon: 30yr mtg rates at 2.5% - with a qualification rate of 5%. Loans are for people who don't need money.

I see no problem in this providing the lender got appreciation certificates so that in the future if the home is sold for more than $170,000 the lender gets a percentage of the gain.
crazyvermonter | 01.08.09 - 4:14 pm | #

A percentage?  How about all of it until they are made right.... Including interest in arears....

.................

Look, there's orderly cram-down by pre-packaged BK of the lenders and dis-orderly cram-down by judges. Ever heard of case back-log? Remember, it has to get in front of the judge.

No, this is crap.

I'm going to stay at conjure's tonight.

you givin or recievin?
Crispy Bait | 01.08.09 - 4:19 pm | #

If you've found your way to this blog you already know if you're the top or the bottom....

And you dont like it one bit!

...................

Certain to be part of the cramdowns is a no-escape clause. People who accept it will be locked in. I'm guessing many won't want to bother. Who wants to be shackled to a depreciating asset (liability)?

OT:  Autoworkers union begins talks on concessions

DETROIT (AP) -- United Auto Workers union bargaining officials are arriving in Detroit this week to begin discussing wage and benefit concessions they must make so General Motors Corp. and Chrysler LLC can keep their federal loans.
Under the terms of the $17.4 billion granted to GM and Chrysler last month, the companies have until Feb. 17 to hammer out amendments to their current contracts that would bring labor costs in line with those of employees at foreign auto companies' plants in the U.S.
-----
Nothing says URGENT like moesying into Detroit with 40 days to play nice.  I'm glad that they didn't start on Monday, or they would have too much free time to kill up there.  /snark

"La lutte continue.

Forget the short-lived buzz of $300bn in TARP stimulus, pain for the banks is far from over. Real deleveraging is only just beginning to gather speed; the world economy has yet to enter its worst months, and there are certainly more writedowns to come."

Where's the Bank Holiday ?

crazyvermonter:

IMO, Citi could care less about the what happens to the principal owed to the ultimate lenders (e.g. the bondholders). It has everything to do with Citi being a servicer. Here's the relevant part from the Bloomberg story:

Citigroup accounted for 7 percent of the U.S. market for servicing home loans as of Sept. 30, according to the Inside Mortgage Finance newsletter in October.

As long as the payments are made, the servicer is happy since they get the first slice of the payments even before it goes to the bondholders. When BAC bought Countrywide, it was strictly for the servicing arm.

There are no saints in this mess.

Basel 2 --->  great point....

In the linked article there are 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.

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.

This doesn't look like a reversion to the old bankruptcy laws at all.

crazyvermonter I was waiting for that!

At least you didnt accuse me of being a lender or something!

I'm not following the logic here. Cramdowns are really about divvying up the available income stream among the creditors--they'll reduce the payments to the first mortgagee but increase the payments to other creditors. The Ch. 13 plan will be just as onerous on the borrower as it was before; this just takes away the first mortgagee's special exception and puts them on par with other secured creditors.

Why would that:

be "a knife in the gut" for all savers?

cause borrowers to mail in the keys?

"monetize the entire system"?

David Pearson: I'm not entirely sure about this, but aren't cramdowns already permitted on second mortgages? If so, the second mortgage holder would be a bit better off if the first was crammed down--he's unsecured either way, but this way there's a bit bigger pie for the unsecured to divide.

That's me @4:33

Which currency takes the biggest hit over the next quarter?
Anonymous | 01.08.09 - 4:33 pm | #

you already know!

® writes:
\tIf, the banks are rushing to support it then trust me it's a bad deal for the borrowers.

Nothingburger.
® | 01.08.09 - 4:30 pm | #
-----
Nothing, but agreement here.  

One caveat:  It may not be "bad" for the borrowers, but the bankers aren't losing much/any of their earnings with this proposal.

Shamooooo!

future renter writes:
I just filed for Chapt. 7 BK and it was a hard choice knowing cramdowns might be around the corner.

Am I missing something here? I thought cramdowns were relevant in Ch. 13 only--they're an option for the judge in determining the payment plan.

Popeye writes:
The words I have used may have been spoken in sincere statement. I meant what I have said. I place my flag.

I yam what I yam. I stand here: I yam not Elvis

If you are smart, you think... otherwise... lunch

enjoy this:

YouTube - Glenn Miller-"Fools Rush In (Where Angels Fear To Tread)"

Think - being smart is not so bad.

DON'T RESPOND TO TROLLS

The basic issue here is that in a bankruptcy, secured creditors are only considered secured up to the value of the securing collateral. From 1993 until now certain first mortgages were granted an exception to this principle--the question is whether they should continue to be.

Got it. Thanks, Basel Too.

Repost from last thread:

GS on NYC real estate. (excerpts at Curbed)

Curbed NY: We Read Goldman Sachs' Mind-Numbing NYC Real Estate Report So You Don't Have To (Kill Yourself)

It ain't going to be pretty here.

"I rest my case.
Popeye | 01.08.09 - 4:19 pm "

Might as well rest your typing fingers, too.

I will take your money blah blah blah hamburger today blah blah blah well blow me . . . down!

Ah-gug-gug-gug-gug-gug!

If you wish to speak of the market, don't be a child.

We live in adult times.

Be smart or be dinner - I'll buy lunch, if you are honest.

Stop or at least be aware of the Kid - porn.

Be smart or be dinner - I'll buy lunch, if you are honest.

YouTube - Glenn Miller-"Fools Rush In (Where Angels Fear To Tread)"

The troubles at the refinery in California had more to do with Peak Credit (bankrupt facility owner) than Peak Oil. They can't afford the crude they want to refine!

I don't get it, Max. Cramdowns already work on every other form of secured debt without any of your caveats being in place, and they worked just find on principal residential loans too until 15 years ago. Chapter 13 plans are already onerous enough that there's not much borrower moral hazard involved, and allowing cramdowns would eliminate an enormous moral hazard where lenders are involved. Going to leave the possibility of declining values out of your models? Not any more....

Yalt writes:
The basic issue here is that in a bankruptcy, secured creditors are only considered secured up to the value of the securing collateral. From 1993 until now certain first mortgages were granted an exception to this principle--the question is whether they should continue to be.

My understanding is that it was the 2005 changes, not the 1993 ones, that exempted first mortgages on owner occupied residential property.

Your first point, though, is not just true; it's why there should be cramdowns: a secured creditor cannot be secured beyond the value of the collateral.

...Citi gets what it wants without risking a lawsuit from the investors for breaching the pooling & servicing agreements by performing a Citi cramdown. Thank you Your Honor, may I have another.
wes | 01.08.09 - 5:49 pm | #

Never mind the fact that you didn't answer my question at all, since I was looking for a concession made by Citi and not a favor done for them....

What is a "Citi cramdown"? Citi doesn't do the cramdown; the bankruptcy judge does the cramdown. Performing the actions required of them by the bk judge doesn't put Citi at any risk of a lawsuit, cramdown or no.

I'll ask again; maybe I can get an answer from somebody who understands what a cramdown is. Markel, Basel Too, are you still out there?

Sportsfan--

On the second point, I'm not sure why you take issue with me when we seem to agree. Secured creditors can't be secured beyond the value of the collateral (as evidenced by the fact that cramdowns are allowed and are SOP on secured debt), except for first mortgage holders on principal residences, who by law are now considered secured to the amount of the note regardless of the current market value of the collateral. I think that's ridiculous and that in the interest of parity among creditors cramdowns should be allowed on all secured debt.

On the first point I'm quite sure you're wrong--it was the Supreme Court's 1993 ruling that allowed the exception. What 2005 did was make Chapter 7 onerous to the point of impossibility for most individuals, forcing them into Chapter 13.

sorry to ask such a dumb/rhetorical question, I am not a lawyer, but have to wonder - what is the long-term effect of all this interventionist nonsense going to be on contract law as a whole? or for that matter on the perception that our country even operates on or respects the rule of law?

it's no wonder creditors are unwilling to extend credit when they can no longer be assured that the agreement they made will be honored, of course, but how much moreso that the terms and figures can be changed seemingly at the whim of the federal government, introducing unquantifiable systematic risks?

Cramdowns will also make borrowers less willing to negotiate with lenders, so it's possible that more loan problems will go to court (with all its attendant costs) and it will just be an expensive way to modify loans.

I'll hang up and listen for my answer.....
JohnF | 01.08.09 - 8:05 pm | #

this is the new way... we punish the prudent to profit the insiders and share the spoils with those peasants upon whom the lords choose to bestow their beneficence, to keep them quiet about the illegitimacy of the system.

Cramdowns are merely another gash in the Titanic. If the boat sinks it will be because of bigger mistakes.

There, there. Now that you've cried out your tantrum, let Mommy change you and put you to bed.