Mortgage cramdowns: Debate might give new life to mortgage cramdown legislation - latimes.com

Mortgage cramdowns: Debate might give new life to mortgage cramdown legislation - latimes.com:

"Because lenders and mortgage investors would no longer be certain their loans would be truly secure, the MBA contends, they would be forced to require larger down payments and charge higher interest rates. 'At a time when the mortgage market is experiencing a serious credit crunch, [cramdowns] will increase costs to consumers, further destabilize the mortgage market and hurt the overall economy,' the MBA claims.

But economists Fitzpatrick and Thomson also note that 'what was most interesting about Chapter 12 is that it worked without working.' That is, rather than inducing a flood of bankruptcy filings, the simple prospect of a judge's unilaterally changing the terms of their loans led many farm lenders to institute loan modifications of their own volition.

Not so, counters John Blanchfield, senior vice president at the American Bankers Assn., who takes exception to many of Fitzpatrick and Thomson's findings.

Not only is the 'attempt to use the Chapter 12 experience as a road map to solve the current mortgage crisis based on a limited and flawed retelling of history,' wrote the director of the ABA Center for Agriculture and Rural Banking in a letter last month to the two economists; it was destructive to banks and harmed farmers 'who needed credit after it was enacted.'"

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