Printer Friendly

CRAMDOWN RISK SMALL IN MORTGAGE BACKED SECURITIES, FITCH SAYS -- FITCH FINANCIAL WIRE --

      CRAMDOWN RISK SMALL IN MORTGAGE BACKED SECURITIES, FITCH SAYS
                      -- FITCH FINANCIAL WIRE --
    NEW YORK, Nov. 22 /PRNewswire/ -- Fitch believes that a $100,000 bankruptcy reserve fund is sufficient to justify "AAA" ratings for securities backed by pools of first mortgage loans on primary residences because "cramdown" does not pose a significant risk to these securities.
    "Cramdowns" occur when the value of the property securing the mortgage loan is less than the outstanding balance of the mortgage and a bankruptcy court reduces the mortgage to the value of the property. Mortgage insurers have indicated that the shortfall is not covered by the primary mortgage or mortgage pool policies.
    Historically, cramdown has not been a concern due to a Bankruptcy Code provision in Chapter 13 that generally prohibits modification of loans secured only by first liens on primary residences.  Nevertheless, concerns have risen with the recent increase in personal bankruptcies and their attendant cramdowns.  The incidence of cramdowns, however, has generally been low; FNMA and FHLMC have had less than 25 cramdown cases in an aggregate portfolio of 12.8 million loans.
    To Fitch's knowledge, cramdowns have occurred only under Chapter 13 for personal bankruptcies.  In most of these cases, the loan was secured by personal property in addition to the mortgagor's primary residence, thereby making the above prohibition against modification inapplicable. "Jumbo" or non-conforming loans are not likely to be governed by Chapter 13, since Chapter 13 cannot be used where the debtors' unsecured debt (including the amount by which the loan could be reduced) is greater than $100,000 and secured debt is greater than $350,000. Instead, jumbos are likely to be governed by Chapter 7 which, to Fitch's knowledge, has not resulted in cramdown.  Debtors could, however, conceivably file under Chapter 11, but that is uncommon since Chapter 11 is intended for the reorganization of businesses.
    Separately, Senator Heflin (for himself and Senator Grassley) submitted a draft bill to the U.S. Senate earlier this week which, among other things, would definitively prohibit cramdowns of a first mortgage loan secured by real property or a manufactured home that is the debtor's principal residence.  Fitch believes that this bill, if adopted, would eliminate the risk of cramdowns for pools of first mortgage loans secured solely by principal residences.
    -0-                   11/22/91
    /CONTACT:  Neil D. Baron, 212-908-0509; James D. Nadler, 212-908-0538; or Mary Sue Lundy, 212-908-0526, all of Fitch/ CO: ST: IN:  FIN SU:  RTG GK -- NY027 -- 6327 11/22/91 11:11 EST
COPYRIGHT 1991 PR Newswire Association LLC
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Publication:PR Newswire
Date:Nov 22, 1991
Words:415
Previous Article:GEORESOURCES, INC. ANNOUNCES NINE MONTH EARNINGS AND PROGRESS OF RECENT DRILLING
Next Article:ISCO DECLARES QUARTERLY DIVIDEND
Topics:


Related Articles
BEAR STEARNS SERIES 1991-1A, 1B, 1C RATED 'AAA' BY FITCH -- FITCH FINANCIAL WIRE --
RMSC MORTGAGE PARTICIPATION SECURITIES 1991-18 RATED 'AA' BY FITCH -- FITCH FINANCIAL WIRE --
CAPSTEAD SECURITIES CMO SERIES 1991-VIII RATED 'AAA' BY FITCH -- FITCH FINANCIAL WIRE --
MBS BANKRUPTCY RESERVE REVISED BY FITCH -- FITCH FINANCIAL WIRE --
SEARS MORTGAGE SECURITIES CORP. SERIES 1992-4 RATED 'AA' BY FITCH -- FITCH FINANCIAL WIRE --
RMSC-FBS MORTGAGE CORP. TRUST 1992-1 RATED 'AAA' BY FITCH -- FITCH FINANCIAL WIRE --
EIGHTEEN SALOMON BROTHERS MORTGAGE SECURITIES IV CMOS RAISED TO 'AAA' BY FITCH -- FITCH FINANCIAL WIRE --
FUND AMERICA INVESTORS CORP II CMOS SERIES 1993-I CLASS F&B 'AAA' BY FITCH -- FITCH FINANCIAL WIRE --
MARK COHEN, NANCY STROKER NAMED TO FITCH EXECUTIVE COMMITTEE -- FITCH FINANCIAL WIRE --
Fitch IBCA Acquires Clase In Mexico - Fitch IBCA -

Terms of use | Copyright © 2016 Farlex, Inc. | Feedback | For webmasters