New Year May See Second Home "Cram-Down" Mortgage Modifications

Bankruptcy judges may soon be modifying terms of the loans on second homes. The practice is known as "cram-downs," the Wall Street Journal reports.

"In a cram-down, a judge modifies a loan, often reducing principal so a borrower can afford it. Lenders hate it because they have to absorb the loss. Bankruptcy judges currently have the ability to modify certain personal loans and even mortgages on vacation homes, but they can not cram-down mortgages on primary residences," explains the paper. Lenders have modified "tens of thousands of loans without government help. But often this hasn't solved the problem," the paper says. "A report last week by the Office of the Comptroller of the Currency and the Office of Thrift Supervision found that nearly 37% of mortgages modified in the first quarter of 2008 were 60 days or more delinquent after six months."