(Most) Banks and CUs are Against the "Cramdown"

by Ron Daly 

Credit unions and banks are not the same thing. We've all come to realize that. But that doesn't mean that they're entirely different. They offer similar services to people who need to manage their money. Obviously, we're partial to the manner in which CUs offer those services...and the people they offer them to. 

But today, we see the two groups united in their opposition to (standby for new financial buzzword in 3...2...1...)

THE CRAMDOWN.

Yes, the Cramdown. According to this CU Journal article (click here to read), both the NAFCU and CUNA have come out against the Cramdown legislation. On the other side of the aisle, we see the American Bankers Association, the Mortgage Bankers Association and the American Securitization Forum have all issued statements against the same piece of legislation, according to this article from Washington Post (click here to read).

And even though all five groups mentioned are "Anti-Cram", Citicorp - still the nation's largest banking institution, according to the Journal article above - has agreed to back the bill. What does this mean? The legislation would make it legal for bankruptcy court judges to re-structure standing mortgages on primary residences. Extending the payment deadlines, reducing the interest, changing the principal - all fully within the rights of said judges. This would effectively pull control/administration of mortgages away from banks/credit unions.

How has the market responded to this news? Well, mortgage indexes fell when Citicorp got involved. (click here for the article). 

Maybe there's some hidden gold behind the decision making process here that I'm missing. But look at the major investment banks that are (or were) in business these days. They couldn't handle money, which was their primary purpose, why trust them to handle government? Call me cynical, but I see trouble brewing if this gets passed. 

More on this as it develops...