Cramdown may be back

After some laughable tenant farmer proposals, it looks like cramdown may get a second look.

http://www.washingtonmonthly.com/archives/individual/2009_09/019844.php

The reason for this is not that hard to fathom, but it may also make sense for lenders. If a house has 2 mortgages at 80% and 20% of purchase price (very common in the bubble), and the house is now worth 80% of that purchase price (many of us would be stoked at that valuation) the second mortgage not only gets nothing in a foreclosure, but can already be taken out in a bankruptcy.

So, unless there are a bunch of banks out there that only own firsts, it makes sense for them to seek some kind of way to put the often higher interest seconds into some restructuring rather than lose them altogether, say by resetting the value of them both to 80/20 of market at the time of the bankruptcy.