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What is cramdown legislation and how would this help me?

Is it worth while to wait a month and pay my mortgage?  My condo has devalued from 467k to 390K.  My lender is Bank of America.  I put 10% down and I have 2 loans (88% in amt of 5.25-5yrs ARM and 12% amt of 7.25-5yrs FM loan type).

I want to walk away but I'm afriad of bad credit on my excellent credit score.  I have a good job and decent salary so I don't think I qualify for the loan modification.

This condo supposed be a short term (5yrs) investment but now, I'm 16%-18% under. 
What should I do?

  • March 12 2009 - Sterling
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Answers (3)

Be careful.  Loan modifications are really not that beneficial and the impact on credit can be overcome.  I get worried by posts like Chad SEE which only emphasize the "sales" advantages of a loan modification and not the other risks.  I suggest you look at this recent article:

http://www.investors.com/editorial/IBDArticles.asp?artsec=16&issue=20090324

In particular look at these statements in the article:

Specialists who handle loan modifications for borrowers say that despite a flurry of new programs, few mortgages are being reworked.

"Lenders aren't doing anything," said Jim Richman, president and founder of Richman&Associates, a real estate and debt restructuring firm in Glendale, Calif. "They're waiting to see if the government will bail them out."

"Everybody is stalled 100%; the lenders aren't doing anything" with modifications, said Moe Bedard, president of Loan Safe Solutions, a Corona, Calif.-based firm that does mortgage auditing for attorneys.

  • March 26 2009
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I would not let it go and ruinthe good credit.  Have you tried to modify the loan?  You could be a good candidate.  You no longer need to be behind with most banks. They want good performing assets on the books just like you do.  They also want you to show you can afford the new payment or terms.  So unless you have alot of money left at the end of the month it is probably worth a chance
  • March 26 2009
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The cramdown legislation has not passed yet, it has passed the house of representatives but still needs to get past the senate and then be signed by Obama.  In a nutshell, it allows bankruptcy judges to modify the loan to fair market value, fixed rate, at current market with some allowance for risk. 

The bill has several requirements, namely you must exhaust every effort with the lender before you can get relief.  I see a lot of complications with the legislation but it is a step in the right direction.  As for your situation, it might help, if it passes.  Unfortunately, you should wait and see if and what actually passes.
  • March 12 2009
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