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  • http://www.blogger.com/profile/17855660652917758938 Jonathan

    >I think that it’s ridiculous to restructure a mortgage with a buyer who put down less than a 15% down payment on his/her home. As far as I’m concerned, the home never belonged to the buyer, it only belonged to the bank. Restructing I/O and low money down mortgages is nothing short of welfare. If a buyer wants to restructure his mortgage, the bank has a right to an equity stake in the home after the modified balance is paid off.Why is it ok for the government to demand warrants when “bailing out” a bank (or AIG) when the very same bank doesn’t receive warrants when “bailing out” the (quasi) homeowner?

  • http://www.blogger.com/profile/11501168638041947453 Isaac Gradman

    >Thanks for your comments. The point that borrowers should not be rewarded or “bailed out” for overextending themselves is well taken and shared by many during the current crisis. However, it’s important to realize that the possible amendment to the restriction on cram-downs of mortgages during bankruptcy proceedings has been motiviated primarily by the desire to stabilize the overall economy and prevent the downward spiral caused by massive foreclosures, rather than by a desire to keep borrowers in their homes for their own benefit. Thought I agree this does not create a positive incentive structure, we can probably agree that the government must take a macro approach to the unprecedented volatility and rapid contraction of the current economy to blunt the impact of these events in the short term. As for why the government should be provided rights above and beyond those of private institutions, the truth is that the law frequently provides the government and its agencies extraordinary rights for a whole host of reasons. As an illustration, look at the FDIC’s rights as conservator to adjudicate all claims against a failed financial instution itself before a party can bring suit, and that no claims of misrepresentation based on nonwritten representations may be brought, at all. This has been justified by the unique role of the FDIC as backstop for depository institutions and the need for the FDIC to accruately gauge the financial state of those institutions prior to taking them over. You can argue with the justification in a particular case, but it’s plain that the government does and is often justified in exercising rights different and appart from a private actor.Thanks again for your comments!- Isaac