Cram Down? Say what?

My time at the Mortgage Bankers Association was critical to my career, but honestly I wasn’t passionate about the work. It was interesting and I worked with amazingly talented people, but I never felt a real calling there.

This “journey” I am chronicling is definitely going to focus more on my work after MBA, but I am going to write about a few select moments from my MBA experience that will put my later role in the housing crisis into perspective. Translation – this entry will be longer than normal.

It was at MBA where I really learned about the major players and the issues behind the recession, and their effect on the mortgage industry, the housing market and the nation’s homeowners.

I came to MBA during a major transitional phase for the organization. If you read my first post in this series, you know that this scared me a bit as I had joined my previous company during a transitional phase of a different kind and it didn’t end well.

There were roughly 2,500 member companies and 150 employees at MBA when I arrived at the end of 2007. Life seemed to be good for the organization, its employees and its members. Even a move to a brand new building was on the horizon. Not to mention, my new colleagues were very much into happy hour at least 2-3 times a week.

Everything was looking up and we were drinking up.

During my first few weeks on the job, I was actually wondering what “complete story” I was helping the organization tell.

That first holiday party I attended, at the Hilton on 16th Street, was pretty lavish and there was an endless array of prizes raffled off to employees, in the spirit of the season I presume – hotel stays, golf lessons, gift certificates, huge gift baskets, dinners at top restaurants, etc. All really nice and all sponsored by MBA’s member companies and partners.

It seemed like I was the only person there that day didn’t actually win anything. Not that I really cared after about five bourbons. I was just happy to be earning a paycheck again and I felt like I had hit the jackpot of consulting jobs.

Just a short time into 2008, it was clear that the good times in the mortgage industry were coming to an end.

As the mortgage crisis started to take shape, MBA went into full attack mode. The foreclosure rate was rising sharply across the country, the economy was tanking, banks were failing, mortgage companies were going out of business almost daily and MBA’s quarterly National Delinquency Survey conference call was becoming a major media event.

On top of that, MBA had initiated at least one round of layoffs in the first quarter of the year, which immediately gave me that all too familiar uneasy feeling. I watched as at least two of my new friends got the axe and I was concerned for myself. But it dawned on me that the housing crisis that was causing all of this havoc, internally and externally, was also the impetus for my hiring.

They needed me to spin. And believe me, there was plenty of spinning coming down the pike. After all, it was my sole purpose to “tell the complete story”.

On top of spinning the rising delinquency rate and helping deflect the animosity directed at the mortgage industry, I was tasked to help the government affairs shop deal with the mortgage “cram down” issue facing Congress. This was the top priority for MBA at the moment.

Cram down, huh? Ouch.

That’s exactly what I said. It sounded pretty painful.

Get comfortable because this is the part where I try to be technical, and it’s not really my thing, so bear with me as I explain the concept of cram down to those who aren’t familiar with it.

And for those of you well versed in it, I apologize for any mistakes. I understood it better eight years ago when I was living and breathing it every day.

In MBA’s context, cram down is a tool that gives a bankruptcy judge the authority to change the terms of a mortgage (reduce principal, change the interest rate, extend the number of years, etc.) during a bankruptcy proceeding. To the average person, it seems like a reasonable thing to do since everything else is fair game during this type of proceeding.

However, mortgages on primary residences are not allowed to be touched under current bankruptcy law. And in 2008, with the housing crisis in full swing, this irked the consumer advocates who lobbied Congress to change the law and allow the cram down mechanism to apply to mortgages.

The MBA’s main argument was fairly simple. Allowing a judge to change the terms of a mortgage would make most mortgages unaffordable as lenders would raise rates and require larger down payments to mitigate new risk. This would lead to more instability in an increasingly unstable housing market. Plus it would set a dangerous precedent whereby judges could now have carte blanche to modify any contract they felt wasn’t fair.

Congress was voting on a bill that included cram down and MBA was determined to get that clause removed.

It was certainly a contentious few months as the consumer groups took aim at the mortgage industry and fired repeatedly.

My role in all of this was to write op-eds, sign the names of MBA executives and get the pieces placed in major publications. Of course, I had never done any of those things before, but amazingly it came naturally once I understood the issue completely.

And after several internal edits, my first op-ed, “written” by the MBA Chairman at the time, appeared in the Atlanta Journal Constitution.

Months of political maneuvering by MBA, its peer trade groups and the consumer advocate foes followed. The result – cram down was defeated in Congress and I got my first taste of how lobbying really worked.

I believe cram down was revived in another bill after President Obama took office, which sparked a whole new series of debates, but by then I was on the next career challenge.



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