Monday, February 1, 2010

A Cramdown by Any Other Name ...

I'm not sure who takes the haircut on this, but in Las Vegas, which is ground zero for housing, foreclosures are down while short sales have skyrocketed. A short sale isn't quite as borrower-friendly a cramdown—the borrower has to find a new place to live—but in the end the bank usually takes a loss, and the home ends up occupied, cutting down on foreclosure blight. The track record for loan modifications so far has been terrible. Most modified loans end up going right back into distress, which is why banks haven't been interested in expanding them. Short sales may be a decent way out; replace the now-underwater and possibly out-of-work household with someone who meets today's more rigorous lending standards.

(photo by flickr user sean drelinger)
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