This week we are going to see this "cramdown" bill come up for debate. We are probably talking Thursday. But this is the bill that would allow judges to erase or reduce the principal amount of a mortgage for borrowers who file for bankruptcy. In other words ... you buy a house for $225,000. You borrow $200,000 from a third party (individual, bank, mortgage lender .. whatever) to give to the person who sold you the house, along with $25,000 of your own. The third party lender takes a security interest in your home to cover any losses in case you fail to pay them back. Then you go deadbeat and file bankruptcy. The judge then rules that you don't have to pay all of the $200,000 you borrowed from the third party back ... and what's more, the third party cannot rely on their security interest in your home to make themselves whole. Pretty nifty, huh?

Now ... how will the mortgage lenders react to this? Do you know what PMI is? That's private mortgage insurance. When you don't put enough money down on your home the lender may make you pay premiums for PMI. This insurance policy will pay off the lender if you bail on your loan, the lender forecloses, and you home doesn't bring enough at auction to cover the amount you still own the lender. People don't much like paying PMI ... but it has been part of the game if you put less than 20% of the purchase price down. Well, let me introduce you to a derivative of PMI. This may be called PBI. Private bankruptcy insurance. This will be an insurance policy that the lender will take out to cover them in case you go bankrupt and the judge says that you can keep your home and you don't have to pay all of the loan back. Guess who is going to pay the premium for this insurance? That would be you .. another little goodie added to your mortgage payment. Add 'em up. A nice fat little extra added to your monthly payment to cover the lender if they foreclose on you and don't get enough at foreclosure to cover the amount you still owe, and another fat little extra added to your monthly payment for insurance to protect the lender in case you go bankrupt and the judge reduces the balance you owe and lets you keep the house. Either way ... borrowers who fully intend to pay their mortgage and have little likelihood of going bankrupt are going to have to cover part of the tab for the deadbeats out there.

There is another possibility. Maybe the government will make PBI illegal. Then the lenders just hike the interest rates to cover the potential losses from these cramdown provisions. Who knows! Maybe they'll create PBI and hike the interest rates as well! Or maybe they'll just tighten up the credit requirements to the point that if you even give a hint of the smell of someone who might someday go bankrupt you won't be able to get a loan. How could you emit this odor? Credit card balances, instable job history, too much available credit ... there are many ways.

Seems like a good time to be looking into owning apartments and rental homes again.