NY Times Says it All – Almost – Foreclosures: No End in Sight

Editor’s Note: The opinionators at NY Times have it right in their description but wrong in their prescription. The reality is that nearly all securitized mortgage loans are worthless and unenforceable. The marketplace seems to know that — with “mortgage-backed securities” (that are not backed by anything in reality) selling at 3 cents on the dollar. Reality is that some 5 trillion dollars in equity was a lie. The executive branch can do little more than acknowledge that all the securitized loans were a bad idea (in practice, even if not in theory) and that the resulting “loans” were convoluted contracts barely resembling a loan, a mortgage, an obligation or a fair deal. Practically every basic black letter law component of of the law contracts, the UCC, property law, banking, lending and business practices were routinely violated beyond recognition in a pattern of fraud, deceit and theft. And the conduct continues with the foreclosures where intermediaries with no stake in the outcome are initiating foreclosures regardless and happily ignorant of whether the true source of funding has been or will ever be paid.
The legislative branch need do nothing because the laws are already there along with hundreds of years of common law supporting the basic premise that if you loan a dollar you should get back a dollar plus interest. Until now, nobody ever conceived of the notion that if you loan a dollar, someone else can collect it. Until now, nobody conceived of the notion that if you loan a dollar and get paid by a third party, someone else can still collect it. The bottom line is that this was a fraud on the market — actually 2 frauds — once in the investment  marketplace where investors bought bogus securities with bogus ratings and bogus insurance, and once in the real estate marketplace where consumers were duped into signing papers for bogus equity on bogus documents that violated the requirements of state and federal law.

The answer to this mess lies in the judiciary. The Courts are where the rubber meets the road. Where things like due process, standing, necessary and indispensable parties, and the hearing of cases on their merits is more important than procedural tricks that were never meant to apply to securitized lending.
June 2, 2009
Editorial

Foreclosures: No End in Sight

A continuing steep drop in home prices combined with rising unemployment is powering a new wave of foreclosures. Unfortunately, there’s little evidence, so far, that the Obama administration’s anti-foreclosure plan will be able to stop it.

The plan offers up to $75 billion in incentives to lenders to reduce loan payments for troubled borrowers. Since it went into effect in March, some 100,000 homeowners have been offered a modification, according to the Treasury Department, though a tally is not yet available on how many offers have been accepted.

That’s a slow start given the administration’s goal of preventing up to four million foreclosures. It is even more worrisome when one considers the size of the problem and the speed at which it is spreading. The Mortgage Bankers Association reported last week that in the first three months of the year, about 5.4 million mortgages were delinquent or in some stage of foreclosure.

Not all of those families will lose their homes. Some will find the money to catch up on their payments. Others will qualify for loan modifications that allow them to hang on. But as borrowers become more hard pressed, lenders — whose participation in the Obama plan is largely voluntary — may not be able or willing to keep up with the spiraling demand for relief.

One of the biggest problems is that the plan focuses almost entirely on lowering monthly payments. But overly onerous payments are only part of the problem. For 15.4 million “underwater” borrowers — those who owe more on their mortgages than their homes are worth — a lack of home equity puts them at risk of default, even if their monthly payments have been reduced. They have no cushion to fall back on in the event of a setback, like job loss or illness.

This page has long argued that a robust anti-foreclosure plan should directly address the plight of underwater homeowners by reducing the loans’ principal balance. That would restore some equity to borrowers — and give them a further incentive to hold on to their homes — in addition to lowering monthly payments. The mortgage industry has resisted this approach, and the Obama plan does not emphasize it.

With joblessness rising, lower monthly payments could quickly become unaffordable for many Americans. In a recent report, researchers at the Federal Reserve Bank of Boston argued that unemployment is driving foreclosures and to make a difference, anti-foreclosure policy should focus on helping unemployed homeowners. The report suggests a temporary program of loans or grants to help them pay their mortgages while they look for another job.

The government will also have to make far more aggressive efforts to create jobs. The federal stimulus plan will preserve and generate a few million jobs, but that will barely make a dent — in the overall economic crisis or the foreclosure disaster. Since the recession began in December 2007, nearly six million jobs have been lost, and millions more are bound to go missing before this downturn is over.

President Obama needs to put more effort and political capital into promoting the middle-class agenda that he outlined during the campaign, including a push for new jobs in new industries, expanded union membership and a fairer distribution of profits among shareholders, executives and employees.

There will be no recovery until there is a halt in the relentless rise in foreclosures. Foreclosures threaten millions of families with financial ruin. By driving prices down, they sap the wealth of all homeowners. They exacerbate bank losses, putting pressure on the still fragile financial system. Lower monthly payments are a balm, but they are no substitute for home equity. And until more Americans can find a good job and a steady paycheck, the number of foreclosures will continue to rise.

2 Responses

  1. Time for the Media to explain what’s been known for too long.

    That most of these subprime loans and foreclosure are VOID.

    And that the service providers and trusts, et al, are MANUFACTURING defaults in order to win BETS they placed on whether the borrower would default or not.

  2. Keep up the fight! For those of us in Judicial Foreclosure states like mine(Maine) we must press our council to digest the information on this blog.
    Maine stream media is slowly catching on but ultimately its an “insider’s game” even Foreclosure Advocates are telling homeowners to walk away, unless WE press them and demand DUE PROCESS!

    http://maineloanmodifications.wordpress.com/

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