Bloomberg provided a useful update on the 50 state attorney generals’ investigation into mortgage abuses.
One key development is that the AGs are treating investors as parties whose interests need to be considered. This appears to be at odds with the approach taken by Federal regulators, who are devising and implementing exams of various sorts which look to be purposely superficial (well, of course, if the real agenda is to change things as little as possible, you don’t need to do much outreach). Another is that the AGs have rejected the idea of a global settlement and are instead looking at a bank-by-bank approach (although presumably there will be some common elements across all deals).
But there are some inconsistencies in the piece, which suggests the spin is hot and heavy. For instance, the article does the reader the disservice of repeating the canard that principal mods hurt investors, although it finally offers this comment:
Banks have suggested the securities owners may block a settlement that includes loan modifications, said Chris Katopis, executive director of the Association of Mortgage Investors.
“The servicers are painting us as a convenient patsy,” he said. “We find it absolutely inaccurate that we’re holding up the modification process.”
This is really not hard to understand or get right. Foreclosures now are producing losses that exceed 70% of the mortgage balance on average. A deep principal mod for viable borrowers would be a win-win for everyone besides the servicer and subordinated bond investors. Because servicers keep advancing principal and interest to investors, subordinated bonds, which by any standard should be worth zero are instead getting interest advances. In the House Financial Services committee hearing on mortgage documentation issues, Maxine Waters asked a panel of banking industry representatives to provide names of investors who were opposed to mortgage mods and a Bank of America representative ‘fessed up that it was very few.
Another tension in the article is that it contends, without providing names, that investors want a “resolution” and that is treated as meaning a speedy resolution. But we hear again from Iowa attorney general Thomas Miller, who is playing a lead role in this effort, that a quick settlement is not in the cards. And given the dynamic outlined above, that principal mods will produce better outcomes for the vast majority of investors than foreclosures, and that banks will not come around to accepting that point of view quickly (principal mods would, among other things, have a nasty impact on the valuations of their second mortgages), the ones who are up to speed on this issue presumably recognize that a process that considers their views is not going to move at a fast pace. One attorney who has good contacts with major mortgage investors commented by e-mail:
Whenever I see indications, particularly comments off the record by “officials”, that a settlement might be near, I suspect it is Michael Barr that is behind it. Treasury desperately wants this issue to go away. Unfortunately, they haven’t suggested any solution that would work.
While there it no way to be certain that Treasury is behind this press meme of “quick settlement” when the AGs have repeatedly made clear that is not in the cards, it does not seem terribly likely that investors are champing at the bit.
The last bit of intelligence from Bloomberg is that in addition to their combined effort, some AGs are also pursuing separate initiatives. For instance, Illinois’ Lisa Madigan has made information requests of 26 mortgage companies. Bloomberg also reported separately that Maine has successfully pressured Bank of America and GMAC into suspending foreclosure.
The fact that this investigation is moving at a measured pace is a good sign. Only a cosmetic effort could be wound up quickly.
23 comments
Comments are closed.
If there’s ever any doubt, one will seldom go wrong by assuming the call for speed is coming from a shock doctrine criminal.
Here the reasons are obvious. The more time people take, and the more they feel they have time to think about things, the more clear the crimes and abdications will become. More and more evidence like the Kemp case will come out – the titles were not conveyed, the liens are detached and unsecured, the trusts were never legally composed, the MBS are worthless, and the practices were all systematic and intentional.
Oh yeah, and that the Obama administration just like the Bush before it has abetted every crime every step of the way. Michael Barr is committing daily felonies as we speak just telling these lies in an official capacity.
Yves, how do the principal mods affect the second mortgage?
The terms of the mod would have to stipulate a new lien in the new amount, to trigger a different party in a 2nd lien position involved in permitting a subordination. The note can be modified and perhaps the lien is left alone, so it can remain in 1st position. Two completely different lenders, or note holders would be at odds over a mod of the 1st lien position. If the house is under water, it is improbable that a lender with a 1st lien position would release it for any reason, even if it modified a note. The holders of the note in 2nd lien position would have to wait until the 1st lien was satisfied before seeing a penny. Hence, even if the 1st note reflects a principal reduction, in order to have a perfected position, the first lien may not be touched. At any rate, a 2nd, in a situation in this environment, with so many properties under water, is probably a lost cause no matter who does what.
No one with a 1st lien will ever relinquish that primary creditor position, without requesting and confirming that a 2nd lien holder, subordinate their right to take over the 1st lien position, if and when a 1st lien is satisfied in order to be replaced with a modified new principal amount.
Je vous remercie beaucoup
Homeowners/borrowers, all of whom are “viable”, should seek an attorney, immediately do a Chapter 13 and strip off the second. If one still isn’t “viable” to the owner/ruler/parasite class, petition up a 7.
It is astounding, with the massive amount of people who are out of, or under employed, we hear that borrowers should be drawn, quartered and thoroughly inspected for “viability” prior to any modification. I can still hear Rick Santelli going apeshit when the specter of cramdown was on the horizon. These corrupt SOBs drove housing prices to stratospheric levels and they still (today) want the jackboot on the necks of the borrowers.
Yves are CDS’s involved in this market either on the MBS or the entity holding the MBS’s and if so what effect do the CDS’s have on a bank/entity that engages in principle mods? I suspect that a bank/entity whose balance sheet changes and rating changes may trigger a CDS event that requires payment and/or the posting of additional collateral. That in turn will affect the balance sheet of the bank/entity that sold the CDS which in turn will cause a cascade of events for other sellers of CDS’s.
Next, will these banks/entity’s stop overnight lending or require more $ on the MBS’s with the bad loans if they are used as collateral for borrowing? Is another credit crisis in the offing?
This is a topic that should be explored, and if involved exposed.
Treasury and the Fed have consistently taken the position that maintaining the banks’ solvency without disrupting their internal operations in any way is the same thing as having a solvent country and viable economy. While their position has legitimacy, it is not a totality and theere are numerous other factors that need to be balanced which is not happening today.
I don’t think that they believe that MBS investors, borrowers, and state/local property title issues even belong at the negotiating table. I suspect that if the states and MBS investors got together, they would realize that they have a lot in common in supporting mods for people who can clearly pay for mortgages at current interest rate levels on reduced principal reflective of current property values.
This would be devestating to the banks as they would lose the ability to extract foreclosure fees and the loss of their second lien values on those houses. A GM-style bankruptcy for those entities would be just fine since a new TARP is probably not, and should not, be in the cards. Since the banks don’t have unions, we wouldn’t see the UAW-type deals although I am sure that the Goldman Sachs et al would be pressing hard for AIG-type resolutions of outstanding financial instruments.
One funny thing in this whole foreclosure mess is that strategic defaulters like me who want to accelerate their foreclosure are unable to.
I would very much like for the process of foreclosure to hurry, since I want to move on with my life. We have talked to countless bank representatives, but NO ONE CARES. They are all following a script, asking for financial documents, short sale, etc. However, since my mortgage is completely non-recourse, the best option for me is to just let it foreclose.
I would be willing for them to take my property off my hands IMMEDIATELY, however they don’t seem to care that I’m living in the property rent-free for many months now. I’ve even asked to talk to whomever is in charge of foreclosures such that they could prioritize my foreclosure, but I never get any answers.
It’s a really bizarre situation we’re in. As a society we have trained our workers to just do their job like a programmed robot. It has happened in all phases of this mortgage mess, from the liar loans, to the robosigning, to the foreclosures. The assembly-line attitude that Americans have succumbed to does not bode well to our future as a successful nation.
That’s too bad, because this Fall there was a bum rush to clean out the “log jam”. and then that other stuff happened.
Not only are you not living “rent free” in your house, you’re doing your neighbors, your municipality, and yes, your Bank a big favor. They care a lot actually. Do you understand the decision you’ve made? You know – what strategic default really means? Do you feel like you’re getting away with something? Or did your post underhandedly describe how you feel about deadbeats? Mmm?
If I hear that fucking term “deadbeats” one more time, I might try to find you and tear you limb-from-limb.
The only deadbeat is the bank.
We didn’t blow up the economy — THEY DID. Consumers didn’t design this economy — THEY DID. Consumers didn’t create liar loans — THEY DID.
http://www.youtube.com/results?search_query=woody+guthrie+all+you+fascists+bound+to+lose&aq=0
I am not a mortgage expert, but I recognize equivalencies…
For any who are interested, take a look at the historical case of Teco Energy – and its Gila power plant…
Banks were all to eager to fund the white elephant – so eager that they offered non-recourse loans. As the stomach turned, the power market collapsed (much like the housing market currently) and TECO’s balance sheet got hammered. The banks on the hook gave the standard “Don’t do it, your credit ratings will be affected” line when analysts pointed out TECO’s likelihood of walking away from the loan. To make a long story short, TECO did walk away from a billion plus in debt, and ended up with a credit rating boost due to the instant improvement in its balance sheet.
Summary – why is it that
When a corporation does it – its called business.
When a person with the same situation does it, they are called a deadbeat.
Non recourse unless I have missed something means that the loan holder is only entitled to the property that secures the loan in the event of non-payment.
Non-recourse in some states. Others are recourse.
The banks also lose the payoffs on multiple insurance policies they took out on mortgages. Many mortgages were sold to different investors, and multiply insured — sometimes 4 or 5 times over.
No foreclosure, no payoff.
No payoff, no capital reserves.
Why do you think the banks are sitting on over a $Trillion in reserves right now, and hoarding more daily?
They know they’re going to have some bills to pay.
Identify the deadbeats and blacklist them, prevent them from obtaining gainful employment. That should cull the herd.
Fuck you.
How about capital punishment? Poverty is illegal.
I wouldn’t be suprised if Banksters would go to this length.
Tyranny has never had access to so much information. Before sounding conspiratorial, if unemployment is high, this means more foreclosures, which are decidely profitable.
FHFA didn’t want to halt forceclosures, instead they made a list and checked it twice to help the debt collecting lawyer-scum seize houses on behalf of Fannie and Freddie. They don’t care – I suspect they too assume they are doing “God’s work” evaluating who “deserves” housing and who doesn’t.
IMHO direct blog opinions and blame towards Congress, in our system they write the laws, direct agencies to regulate and direct the course of things. Blustering on blogs won’t change anything.
Change happened only when people showed up en masse in DC to demonstrate.
I doubt change is going to happen with plain old demonstrations. We need loosely organized civil disobedience, such as a general strike.
Fantastic post, thank you for this wonderful information.
RE: “One attorney who has good contacts with major mortgage investors commented by e-mail:
Whenever I see indications, particularly comments off the record by “officials”, that a settlement might be near, I suspect it is Michael Barr that is behind it. Treasury desperately wants this issue to go away.”
I have been corresponding with a Washington Post reporter…and when I wrote: “I watched both the Senate and House hearings last week. Very surprised main stream media like the Washington Post didn’t write about Adam Levitin’s bombshell comments, especially at the end of the House hearing “The prime directive coming out of Treasury is ‘protect the banks’ and don’t force them to recognize their losses.”
The response: “I originally had it in my story and actually didn’t realize it was cut until I checked the story after getting your email. (!)”
So The Washington Post editor determined his comment didn’t deserve to be mentioned???????