Mortgage Developments

The Senate reached an agreement in principle with Citigroup wherein Citigroup is giving its blessing to legislation allowing for bankruptcy judges to cram-down mortgages. The cram-downs will allow judges to reduce the principal and/or interest on troubled mortgages so long as the homeowner shows that they attempted to negotiate with the lender prior to filing bankruptcy. Further, the mortgage at issue would need to predate the legislation. The proposed legislation, in its current form, would only apply to Chapter 13 bankruptcies. (Source: WSJ)

Whether the above will be a positive or a negative is anyone's guess. Will this stabilize the real estate market, or just increase Chapter 13 bankruptcies, prolonging inevitable sales with another layer of red tape? Moreover, will this move chill the already frigid environment for mortgages, further restricting the flow of credit?

On a more decidedly positive note, Fannie Mae, in conjunction with Bank of America (through its subsidiary, Countywide Financial Corp.) has implemented a pilot program regarding short sales, the bane of many Realtors' existence. This program is not yet available locally, but calls for the lender to preapprove the price on a short sale, thus enabling Realtors, sellers and buyers to have a much clearer view of the playing field and increasing the likelihood of a completed transaction. (Source: WSJ)

If anyone sees a downside to preapproved short sales, please enlighten me at your earliest convenience. It appears to me that this approach is long overdue.