Banks are facing the inevitability of bankruptcy modification of mortgages.Banks have fought the notion of what is called a cramdown, saying that giving bankruptcy judges the ability to modify first mortgages will drive up borrowing costs for everyone.Supporters of cramdowns point out that modifications are no more costly than bankruptcies.To get the support of Citigroup, the only major bank that has spoken out in favor of bankruptcy modification, supporters of the proposal agreed to limit the cramdowns to existing mortgages. Banking industry lobbyists want to further limit the cramdowns to subprime loans taken out between 2002 and 2007. “To the extent that anything is ultimately passed, we would certainly want to limit that damage,” says Steve O’Connor, head lobbyist for the Mortgage Bankers Association.
Source: Business Week, Theo Francis
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