Debate might give new life to mortgage cramdown legislation
Reporting From Washington — If there is a term that strikes fear in the hearts of residential lenders everywhere, it is "cramdown." Lenders dread the judicial procedure that erases a portion of a borrower's mortgage because the house, which is the underlying security or collateral for the loan, is worth less than what is owed on it. Actually, the word is a euphemism for forcing a ruling upon a creditor, as in "crammed down" the lender's throat. The proper term is "bifurcation," meaning that in a bankruptcy proceeding the loan is split into a secured claim equal to the current appraised value of the property and an unsecured claim equal to the difference between the unpaid balance and the home's present value. Generally, the borrower is required to continue to pay on the secured portion, while the difference is treated like any other unsecured debt.