New Year's Cramdown

Will the cramdown survive into the next decade?

Banks have successfully lobbied against many proposed financial reforms, but perhaps none more strenuously than the cramdown -- a court-ordered reduction of a mortgage loan's outstanding principal. Although lowering principal is arguably one of the most effective ways to stem foreclosures, banks have killed numerous attempts to allow bankruptcy judges to cramdown.

As the year drew to a close, however, a surprising pattern was observed: more banks and thrifts were stepping up to the plate and lowering mortgage principals themselves, according to a report released in late December by the Office of the Comptroller (OCC) and the Office of Thrift Supervisions. Even though banks and hedge funds have spent millions to stop such regulations, they seem to realize the times are changing.