People ask me, will they really settle? Of course the question is from borrowers and they are asking if they can actually do something about the millions of foreclosures, default cases and upside down equity cases totaling more than 10 million homes in the U.S. alone. The answer is yes, especially now — because the financial institutions are doing everything they can to make it LOOK like it is business as usual. But the markets are far more fragile than they are letting on. So in order to avoid a plethora of lawsuits in which the truth comes out on the front pages of every newspaper, they are seeking various settlement opportunities with the victims of these mortgages and notes. 

Be sure, in your settlement to make sure you have no deficiency judgment exposure and make doubly sure that whoever you re dealing with proves beyond any doubt that they actually have title to the mortgage and note. I have been personally apprised of large situations where the “lender” “bought back” the loan. I was the messenger bearing bad tidings:  

WHERE THE NOTE AND MORTGAGED WERE SECURITIZED AND SOLD OFF, THE LOAN THEY “BOUGHT BACK” THEY BOUGHT FROM SOMEONE (E.G. FREDDIE MAC, FANNIE MAE ETC.) WHO DES NOT OWN THE MORTGAGE AND NOTE. THUS THE LEDNER IS GETTING A DOUBLE HIT. THEY BOUGHT NOTHING WITHOUT KNOWING IT, THE SELLER SOLD NOTHING WITHOUT KNOWING IT AND SOMEWHERE OUT THERE IN INVESTORLAND, THERE ARE HUNDREDS OR PERHAPS THOUSANDS OF INVESTORS WHO HAVE AN INTEREST IN YOUR MORTGAGE AND NOTE AND WITHOUT WHOSE SIGNATURE, YOU MAY WELL STILL BE BOUND TO THE SAME MORTGAGE AND NOTE YOU THINK YOU ARE SETTLING. BE CAREFUL!!!

WASHINGTON (MarketWatch) — The Federal Reserve is actively considering creation of a lending facility that would accept “very safe” foreign collateral from “sound” global banks in case of a widespread liquidity crisis, Fed Vice Chairman Donald Kohn said Thursday.

A new global discount window is “under active study,” Kohn said. “It is possible that over time, major central banks could perhaps agree to accept a common pool of very safe collateral, facilitating the liquidity management of global banks,” he said, stipulating that such loans only be made to sound institutions.

Kohn’s suggestion came in prepared remarks wrapping up a special conference in New York on liquidity in money markets that was sponsored by the New York Fed and the Columbia Business School. Read his prepared remarks

“Market functioning remains far from normal,” Kohn said, pointing in particular to large spreads between overnight bank rates such as Libor and other short-term rates. Such large spreads indicate that markets still are in shock.

Kohn argued that the Fed and other central banks had prevented a global run on Bear Stearns and possibly other major financial institutions in March, but the emphasis of his talk was on what lessons central banks and the financial system should take from the liquidity crisis that spread like topsy from subprime mortgages to asset-backed securities to the collapse of one of the world’s biggest investment banks. See latest story on Bear Stearns

“One of the things we have learned over recent months is that broker-dealers, like banks, are subject to destructive runs when markets aren’t functioning well,” Kohn said.

The biggest question is: What to do about the broker-dealers and investment banks that, since the run on Bear Stearns, have now been given unprecedented access to the Fed’s lending facilities? Should that access be continued on a permanent basis? Or should it be provided only in emergencies?

Kohn had no simple answer to that question: “Unquestionably, regulation needs to respond to what we have learned,” he said. “Whether broader regulatory changes for broker-dealers are necessary is a difficult question that deserves further study.”

Permanent access to the Fed’s balance sheet at attractive rates would distort markets without well-designed and well-executed supervision. On the other hand, everyone in the markets knows that the Fed will step in with funds in an emergency, so in some sense the markets have been irredeemably distorted already.

Kohn suggested that the term auction facility, which was created in December and expanded in early May, should be retained on a permanent basis after the crisis is over. The TAF allows banks to bid to borrow funds from the Fed’s discount window for 28 days.

“The Fed’s auction facilities have been an important innovation that we should not lose,” he said. “They have been successful at reducing the stigma that can impede borrowing at the discount window in a crisis environment and might be very useful in dealing with future episodes of illiquidity in money markets.” 

Rex Nutting is Washington bureau chief of MarketWatch.

Filed under: bubble, CDO, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage | Tagged: credit crisis, DEED IN LIEU, Fed, FINANCIAL MARKETS, foreclosure defense, FORECLOSURE SETTLEMENT, FOREIGN COLLATERAL, mortgage meltdown, short sales |