Mortgage cram downs next blow to banks?

This guy thinks so and gives at least three reasons why. The banks have probably been carrying the performing loans at full value but when Congress gets through, that may prove a sad delusion. Law of unintended consequences and all that but, on reflection, does this matter? We’re dumping billions on banks already, what’s a trillion more?

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One response to “Mortgage cram downs next blow to banks?

  1. Retired IB'er

    I think there is an even bigger issue with cramdowns, which is the impact it will have on mortgage rates.

    At this point, conforming loans are being driven by the US government. If we ever want to wean the mortgage market off the taxpayers back, cramdowns will be an impediment to investors. Judges will be a wild card that increases investor risk. Increased risk, of course, means higher interest rates to compensate for the higher risk.

    Even if the government stays in the conforming market, I believe cramdowns will cause jumbo market rates to increase to compensate for increased risk and down payment requirements to increase as well to decrease the risk of default.

    Cramdowns will be another perfect lesson in the law of unintended consequences.