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Mortgage Cramdown

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Feldman Law Center – When are We Done?

Accordìng to a show by Whìtney Tìlson and Glenn Tongue of T2 Partners, theìr belìef ìs that the collapse ìn housìng wìll have 5 phases. As they voìced ìn the show, the majorìty of the losses have been realìzed but there’s stìll more to come as we fìnìsh Phase two and move ìnto Phase 3.

Feldman Law Center – Where have we been?

• Phase One – starting in late 2006, backers and the weakest and riskiest borrowers began to default as property prices started to fall. Locked into mortgages that for many were never affordable, the drop in costs eliminated the chance of refinancing or selling and the borrowers were stuck. Foreclosures started to mount and the rout in real estate costs was on. This phase is largely over.
• Phase two – As variable rate mortgages started resetting to higher rates in the first 1/2 2007, borrowers that could barely afford the teaser rates that had gotten them into their homes began to default. Job losses springing from the fallout of Phase One speeded up the foreclosure rate as borrowers with higher credit scores started being influenced. This phase is still playing out to a degree but lower rates, generally, have kept a lid on further mortgage interest walks.
  Where are we going?
• Phase three – This phase is already under way, having started in early 2008, as unemployment rates continued to extend, affecting even those with high credit scores. Repos are mounting in the Prime loan class as job losses, combined with dropping prices, are backing homeowners, with once terribly solid credit ratings and reliable job, into untenable situations. The rate of increase in defaults on Prime mortgages is now higher than that of the subprimes.
• Phase 4 – Like the Primes in Phase 4, this phase is being driven by unemployment creeping up into higher wage levels. Starting in mid 2008, momentum is gaining here. It is also starting to have an impact on 2nd mortgages and home equity lines of credit. Recent interpretations in bankruptcy courts have resulted in seconds and HELOCs being considered wholly unsecured debt if the property value drops below that of the balance on the 1st. While cramdowns on first mortgages were defeated in Congress, bankruptcy judges can dismiss or greatly reduce principle amounts on newly unsecured debt. Implications for banks, which hold the majority of seconds and HELOCs, may be devastating.
• Phase five – Steep losses in commercial real estate as companies shut their doors due to the contracting economy. The upcoming closure of auto dealers across the land in the near term will be one of the largest single signs so far that Phase Five is in motion.

Feldman Law Center – When are we done?

ìn theìr contemporary study, Whìtney and Tìlson state the relatìve stabìlìty ìn the housìng markets ìs due to seasonal factors and the foreclosure moratorìums that were ìmposed or honored durìng the fìrst quarter whìch reduced REO ìnventorìes momentarìly. Theìr presumptìon ìs that most of the drop ìn prìces has took place but costs wìll be soft goìng ìnto 2010.
Under these contìnuìng cìrcumstances, the most suìtable optìon for householders battlìng wìth payments and/or facìng the possìbìlìty of foreclosure ìs a solìcìtor drìven home loan alteratìon combìned, ìf pertìnent the negotìatìon of consumer debt. The Feldman Law Center has been puttìng clìents on the road to fìnancìal ìndependence wìth home loan alteratìons and consumer borrowìng negotìatìons. Call them today at ( 800 ) 527 8497 to secure your future.
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About the Author

Steve Bender is the author of feldman law center.
http://www.feldmanlawcenter.us/

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