Reduce a Mortgage with the Cram Down Provision

A law approved in 2009 has saved more than one million Americans from having to pay for staggering mortgage amounts or lose their homes if they can't. This new law has a cramdown provision that aims to reduce mortgage obligations and make it easier for homeowners to meet their obligations.

Cramdown Bill

The cramdown bill allows American homeowners with difficulties meeting mortgage payments to file for chapter 13 bankruptcy and use the law to save their homes. This is in response to the mortgage problem that began the financial strain worldwide.

Under bankruptcy, federal judges have the discretion to lengthen terms, reduce the mortgage balance, and cut interest rates. With these allowances, the homeowner is given a large leeway so that he or she is able to keep the house in question. In a regular bankruptcy proceeding, the same concept is applied to a group of creditors wherein the minority will have to agree to the majority concerning the provisions of a reorganization plan.

This concept has taken on new meaning with the financial crises of 2007. Cramdown is now applied to help homeowners retain their homes while they suffer from the effects of the crisis. The federal government understood that many homeowners would not be able to pay their mortgages because they have lost their jobs as a result of the financial crisis.

Even if the mortgage sector opposed the move, the government really has no choice since it cannot allow millions of Americans to lose their homes. Doing so will confound the problems facing the government. With homeowners given enough concessions the government focused on creating new jobs and stimulating the economy.

Splitting the Loan

The bill will generally split the outstanding balance into secured and unsecured loans. The secured loan represents the market value of the house while the unsecured part will cover interests, fines, and penalties. What the bill can do is to make homeowners restructure their payments to be able to pay the secured balance. Meanwhile, the unsecured portion does not get paid, which is very similar to most bankruptcy proceedings in the corporate world.

Getting Legal Advice

To make the most of the cramdown bill to reduce mortgage obligations, consult or hire an experienced and expert chapter 13 legal counsel who will help you retain your home. Having legal advice keeps you from committing blunders that may cause you to lose your home to the mortgage provider.