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, 202-225-7141
Dodd, 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 Market
WASHINGTON – 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.