What is a cramdown?
A cramdown is when a bankruptcy court forces a bank to modify a loan, such as a mortgage, to reduce the principal debt, change the interest rate, or take other steps to help the bankruptcy filer. Under current bankruptcy law, courts can't force these changes on mortgages taken out on a filer's primary residence, as they can for car or student loans.
What's the significance?
As a potential fix to the subprime mortgage meltdown, consumer advocates have pointed to cramdowns as a possible way to help underwater homeowners successfully modify their loans. It was introduced for inclusion in the Emergency Economic Stabilization Act of 2008, but the financial industry voiced strong opposition and it was ultimately dropped.
Who's talking about it?
Mike Konczal describes how loan modification programs could have succeeded if cramdown were allowed...David Dayen points out that cramdown would have helped HAMP incentivize banks to modify loans...Elizabeth Warren's Netroots Nation panel discussed how walking away from a mortgage may be the only option for underwater homeowners without cramdown...Jean Molloff describes the predatory loan modifications going on without cramdown...Annie Lowrey reports that cramdown may be resurfacing and could get a second chance...Democrats in Congress accused President Obama of killing cramdown...Sen. Jeff Merkley is still pushing for a form of cramdown.