Citgroup agreed earlier today to support legislation being pushed by some Senators to allow bankruptcy judges to require lenders to restructure mortgages.
In a process referred to as a "cramdown," the judges could lower the principal amount of a mortgage loan so that it equals the current market value of the property. In addition to lowering principal, the bill being considered also would allow judges to lower a loan's interest rate, extend the term of the loan or use a combination of all three actions.
Up to this point, the financial services industry has resisted such legislation, claiming that it would force them to raise interest rates to offset revenue lost from such restructurings.
But after the government pumped $45 billion in new capital into Citi last year as well as agreeing to stand behind hundreds of billions in potential losses from the company's risky assets, the new congress has much more leverage with which to push through such legislation.
Stay tuned!
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