Livinglies's Weblog

the obligation created when the debtor entered the transaction may well be satisfied in whole or in part by the U.S. Taxpayer, insurers, or counterparties in credit default swaps. Wall Street attempts to frame the argument as giving a free house to the unworthy homeowner. The TRUE argument is what to do with all the excess undisclosed profits that paid the obligations of the homeowners many times over.

If the foreclosures were done in the name of entities that never advanced any money toward the funding of the loan, directly or indirectly, then all of the sales are improper, all of them create defective title and all of them will produce a torrent of unmarketable transactions in the coming years as buyers and lenders discover they cannot get title insurance.

Editor’s Note: Obama’s incremental approach is maddening but it seems that he is “getting it” step by step. First reported by Bloomberg news. this article from the NY Times summarizes the progress.

The problem remains that the administration is not addressing the issue of clear title and legal authority. Mr. Frey from Greenwich Financial highlights the point in his lawsuit against Bank of America accusing them of negotiating loans that the servicer does not own. This problem is not going away, and is getting worse with each new foreclosure sale at the steps of courthouses across the country.

If the foreclosures were done in the name of entities that never advanced any money toward the funding of the loan, directly or indirectly, then all of the sales are improper, all of them create defective title and all of them will produce a torrent of unmarketable transactions in the coming years as buyers and lenders discover they cannot get title insurance.

If money is being paid to servicers who lack authority to collect, then the debtor (borrower/homeowner) is in financial double jeopardy when the real creditor makes a claim. What will happen when Greenwich Financial or some other holder of mortgage backed securities makes their claim for repayment of the money they forked over allegedly to fund mortgages? What will happen when Greenwich Financial realizes that only a fraction of the money they paid went to fund mortgages and that the rest went to fees, profits, commissions and kickbacks? And where are the other investors, who incidentally are the only real creditors in this scenario?

An inconvenient and inescapable truth is that the servicers, whose fees rise as the loan becomes troubled and progresses from performing to delinquent, to default, to foreclosure and sale, are still getting paid on non-performing loans. If the loans are non-performing, where is the money coming from? It can only be coming from the payments made under performing loans, which directs our attention to the essential defect in the securitization of residential mortgage loans: the simplest of terms in every note that require the payments be allocated to the interest and principal on the note is being breached regularly and universally. This is the unethical and illegal result of cross collateralization and over-collateralization.

Wall Street blithely assumed they could disregard the terms of the note (use of proceeds) and mortgage when they securitized these “assets.” And there is the nub of the problem. The transaction starts out simple — money advanced by investors to fund mortgage loans to homeowners (debtors). But in order to make virtually ALL the money turn into fees and profits for Wall Street, the participants in the securitization chain ignored basic contract law, property law, lending laws, rules and regulations. The result was a tangle of claims from intermediaries who have no legal nor equitable interest in the revenue stream, principal or interest derived from those loans — all at the expense of the only two real parties to the transaction, to wit: the investor (creditor) and the homeowner (debtor).

A ban on foreclosures pending mandatory modification procedures is an imperfect step, but definitely in the right direction. It’s going to be a big pill to swallow when we finally come to terms with the fact that the parties at mediation or discussing modification only include one side (the debtor). It means coming to accept that all that TARP money went to the brokers instead of the principals. It means unraveling the now secret AIG documents that would show where the money went. It means performing an audit to determine where the money should be allocated.

And all of THAT means the obligation created when the debtor entered the transaction may well be satisfied in whole or in part by the U.S. Taxpayer, insurers, or counterparties in credit default swaps. Wall Street attempts to frame the argument as giving a free house to the unworthy homeowner.

The TRUE argument is what to do with all the excess undisclosed profits that paid the obligations of the homeowners many times over. Federal and State laws generally agree — failure to disclose the real parties and the real fees paid to all the participants in the transaction results in a liability to the homeowner for those undisclosed fees. The real answer is NOT to give more money to the intermediaries who never advanced a dime to fund these loans but rather, how to claw back the money and put the investors and the homeowners back in the position they were in before this huge fraud began.

Existing laws seem to address all of this in both lending and the issuance of securities. It’s payback time. The only question is whether anyone with the power to do so, will enforce the laws as they are already written. As of this writing, complaints to the FTC, OTC, FDIC, FED etc. produce nothing but an acknowledgment of receipt. The power is there. Where is the will?

U.S. Weighs Requiring Lenders to Consider Changes Before Foreclosures

The Obama administration, under intense pressure to help millions of people in danger of losing their homes, is considering a ban on foreclosures unless they have first been examined for potential modification, according to a set of draft proposals.

That would raise the stakes from the current practice, which strongly encourages lenders to evaluate defaulting borrowers for a modification but does not make it mandatory.

Meg Reilly, a Treasury Department spokeswoman, said Thursday that the proposed foreclosure ban was “one of the many ideas under consideration in the administration’s ongoing housing stabilization efforts.” The proposal was first reported by Bloomberg News.

Laurie Goodman, a senior managing director at the Amherst Securities Group who has been highly critical of the government’s modification program, said even if the proposal came to pass, it would not be “a major change. We think there is a large public relations element to this.”

The government could use some favorable public relations for its modification program, which has been deemed disappointing.

Begun a year ago, the program was meant to help as many as four million homeowners but has fallen considerably short of those goals. The Treasury Department has said 116,297 loans have been permanently modified and more than 800,000 more are in trial programs.

The Mortgage Bankers Association said its members were already doing what the administration was considering.

“Lenders generally go to foreclosure as a measure of last resort, after all other options, including loan modification, are exhausted,” said John Mechem, the trade group’s vice president for public affairs.

Any enhancements the government made to the modification program would be unlikely to stem many foreclosures, said Howard Glaser, a prominent housing consultant.

The modification program was designed for people who had subprime loans, he said, not for borrowers with high-quality loans who are unemployed. Tweaking the interest rate for an unemployed family does not provide enough help.

The Mortgage Bankers Association announced this week their own plan for reducing foreclosures: Lenders and loan servicers would reduce unemployed borrowers’ payments for up to nine months while they looked for new jobs.

The banking group said the servicers would need special loans from the Treasury to pay for the program. The administration has not commented publicly on the proposal.

“The real strategy in Washington now is to pray for an improving economy so these issues will resolve themselves,” Mr. Glaser said. “At the end of the day, a strong jobs market will prevent the generation of new foreclosures.”

There was some positive news in that regard last week, when the mortgage bankers said the number of borrowers entering default unexpectedly declined in the fourth quarter. But on Thursday, the government reported that home prices sank 1.6 percent in December, a fresh sign that the real estate market is nowhere near healed.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: ban on foreclosures, Bank of America, contract, creditor, cross-collateralization, DEBTOR, FDIC, Fed, financial double jeopardy, Frey, FTC, Greenwich Financial, Mortgage, note, Ny Times, Obligation, OTC, over-collateralization, Streitfeld, taxpayer, title defects, title insurance, unmarketable title, Use of proceeds |