Some advocates and real estate agents also point to an April 2009 regulatory change in an obscure federal accounting law. The change, in effect, allowed banks to foreclose on a home without having to write down a loss until that home was sold. By contrast, if a bank agrees to a short sale, it must mark the loss immediately.
When you look at bank opposition to cramdown, programs like HAMP that did little more than raise false hope, and the reluctance of banks to allow short sales, there’s a common thread: all of these efforts delay the bank’s declaration of loss. If bankruptcy judges could cramdown, if HAMP really did result in modifications, and if banks embraced short sales, banks’ balance sheets would be in much worse shape today. Banks are slow-playing anything that makes them re-value their mortgage portfolios, no matter what it costs mortgage holders or the how badly it delays the recovery of the housing market.