This from an attentive (and well known) investor. I’d provide a link except the press release is not yet posted on Dodd’s website
United States Congress
For Immediate Release
July 10, 2009
Contact: Kirstin Brost/Justine Sessions, Dodd, 202-224-7391
Steve Adamske, Frank, 202-225-7141Dodd, Frank Ask Regulators to Address 2nd Mortgages Valuation Problems that Discourage Loan Modifications
Honest Accounting Key to Effort to Help Families Keep Their Homes & Stabilize the Housing MarketWASHINGTON – Today Senate Banking Committee Chairman Chris Dodd (D-CT) and House Financial Services Chairman Barney Frank (D-MA) sent a letter to the heads of the bank regulatory agencies asking them to address whether banks are inflating the value of 2nd mortgages on their balance sheets, thereby discouraging proactive efforts to modify and restructure mortgage loans and crippling programs designed to prevent foreclosures.
Across the country housing prices have dropped and many Americans owe far more on their mortgages than their homes are worth. Because they are “underwater,” these homeowners are unable to refinance, leaving them unable to make payments. The HOPE for Homeowners program was designed to help Americans stay in their homes by adjusting their mortgages to 90% of the assessed value of their property while helping mortgage companies prevent larger losses they would face if the homes simply went into foreclosure.
The tough reality is that in areas where housing prices have dropped dramatically, 2nd mortgages may be virtually worthless. Regrettably, many banks are still unwilling to update their balance sheets to show these assets have dropped in value, and inflated values have made it virtually impossible for HOPE for Homeowners to work. These companies would rather deny reality today, even if it means more people losing their homes and the banks losing more money down the road with a further explosion of foreclosures.
Below/attached, is the letter:
Trust me, the letter does not add much.
Of course, this is not a complete change for these solons on the issue of mark to market, merely a reversal where the banks are clearly being pigs. The second mortgages often have no value in these cases, but the second mortgage holder nevertheless will use his blocking position to try to squeeze blood from a turnip. My impression is all this does is kill refis rather than yield them cash, but they seem unable to get past their reflexes.
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I don't think it's reflexive action, Yves. The banks are determined to prevent _any_ reduction in principal on paper for whose losses they are liable, and to stall any MTM concurrently. Why? Point 1: They are thrice dead if they acknowledge the losses, so they refuse to do so with the Guvmint's connivance. We know this. Point 2: They can only be restored to youthful vigor if someone takes the paper from them at face. Which can't happen if the paper has been marked _down_ from face. So they stall, and generally hold their credit-breath until the real economy turns blue. The real plan has been the same for two years: hold out until the government gives them a get-out-of-Death Free card by buying the paper. To me, its their entrenched strategy.
Over at CalcRisk, there's a post up on how some of the same banks have slipped language into 'short sale approval' documents where, yes, distressed homeowners are allowed to seel their house for for whatever the market price is—but are still liable to their lender for the unpaid balance. It's part of the same strategy: Mortgagees/bankruptees will be held liable to the last penny owed to the mega-thieves while those same mega-thieves use their control of government financial policy to get their own debts forgiven or taken over without any losses taken.
I'm amazed that ANYONE who took out a mortgage during the bubble is willing to pay these crooks a dime. Really. Lemmicrats, all of them, thinking that they have a stake in their society instead of the Wealthy R US Society having a steak in them. Hammered well in, that is.
This beautiful 180 degree symmetry is like a surrealist dance masterpiece that just takes my breath away and leaves me wheezing and drooling. The sexual tension is explosive and makes me want to (fill in blank here).
Also see and feel deep within:
Bee Gees-You should be dancing
http://www.youtube.com/watch?v=k6ccjD_hfSk
Ponder: http://en.wikipedia.org/wiki/Sexual_tension
The device creates a direction for the plot: toward a resolution. Alternatively, it might create a subplot that may or may not be resolved.
The device, when used by a skilled writer, evokes tension in the audience on account of this private knowledge. In a generic movie, by contrast, sexual tension is often employed and then concluded with a love scene.
>> Oh Dodd, oh Dodd, oh Dodd, oh, oh, oh FRankie…. oh…
I agree with Richard Kline's points. It is a mixture of greed (to get the last penny) and fear (that their own insolvency will be officially exposed).
As for Dodd and Frank, they are like two gunslingers who are so slow on the uptake that you could see them start their draw and still have time to plant your garden, go on vacation, and still get back in plenty of time to see that they were only shooting blanks anyway.
Not to mention that the HOPE for Homeowners program is voluntary and most servicers choose not to participate. So even for those without second mortgages, the point is null and void.
Save the last dance for me (Great Version)
http://www.youtube.com/watch?v=hB4UMliNj1o
Cheek to cheek?
The denial you refer to on the part of lenders is the exact reason why they need to be forced to see clearly, and admit their losses by allowing homewoners access to bankruptcy courts.
This letter seems to be posturing more than anything. The thing is, banks aren't allowed to mark down their loan assets (that are held to maturity, anyway) unless they have evidence of imminent loss. The fact that everyone knows second liens are more or less worthless is irrelevant unless the individual borrower is seriously delinquent.