«Barriers to Federal Home Mortgage Modification Efforts During the Financial Crisis Patricia A. McCoy August 2010 MF10-6 Paper originally presented at ...»
Such legislation would be less heavy-handed, moreover, than federal legislation forcing servicers to write down loans.114 The fact that servicers lobbied so hard – and so successfully – against such a provision in early 2009 is a strong indication that cram-down authority could significantly change the terms of loss mitigation discussions.115 108 Government Accountability Office (2010), at 8-11.
109 In a similar vein, Fannie and Freddie instruct mortgage servicers who handle their loans to refrain from foreclosing on homes until the borrowers had been considered “sufficiently” for a loan modification, repayment plan, or forbearance plan. Federal Housing Finance Agency (2010), at 6. FHA also mandates loss mitigation for the loans that it insures and courts have made this a precondition of going to foreclosure in many states. Thompson (2009), at 27.
110 Geanakoplos and Koniak (2009) would go further and appoint federal trustees to decide which troubled mortgages should be modified, left alone, or be put in foreclosure.
111 Goodman (2009).
112 Levitin (2009), at 571.
113 Kiff and Klyuev (2009), at 26.
114 Zingales (2008) would allow underwater borrowers to write down their principal balances by the same percentage home values dropped in their zip code, starting from the time they financed their homes.
115 Fears that cram-down authority would dampen future credit appear overstated. To the contrary, the evidence on point suggests that allowing bankruptcy judges to write down principal on a debtor’s principal residence will have little future adverse impact on the supply of mortgage credit. Levitin (2009), at 576, 578, 586-599.
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36 Figure 1. U.S. Unemployment Rate, 1999-2009
Source: Information provided by LPS Applied Analytics 40 Figure 5. Number and Distribution of Workouts in Non-Conforming Home Loans