Sen. Merkley (Ore) Proposes Principal Correction for 75% of Underwater Homeowners

CREDITORS CAN ONLY GET PAID ONCE

Editor’s Note: If you are news junkie like I am and watch and read everything about the financial markets it is absolutely amazing how everyone seem to be in agreement that we are headed for a financial cliff and nobody wants to do anything about it.

Sen Merkley, with help from local organizers, is proposing a new bill that will require reductions in the principal due on residential loans. This isn’t hard folks, it just takes the guts to say the banks lied and they are still lying to us about the status of the loans, the origination of the loans and the money that has come and gone relating to these loans.

There are two basic reasons  why loan balances should be corrected: (1) simple arithmetic in an accounting and (2) the reality that people are simply not going to make a decision to keep their families enslaved to a mortgage (real or void) that will never justify itself in the marketplace because the original appraisal was artificially and fraudulently inflated.

In the first instance, the banks and servicers must be virtually removed from the equation because they never funded or bought any of these loans but they engaged in selling them as if they were owned by the banks. By taking out insurance, receiving bailouts, receiving proceeds from credit default swaps, just for a few examples, the banks were acting as agents for the investor lenders who were the only actual people to put up cash dollars. All the rest was paper pretending to be worth something.

An accounting from BOTH the Master Servicer and all subservicers will clear up all the money that came in from investors, borrowers and other parties and all the money that went out. We can then determine how much was paid or should have been paid by the banks as fiduciaries or agents of the investors. My analysis of hundreds of loans indicates that the total payments received on behalf of the real creditors was actually more than the obligation owed to that creditor which means that for that creditor, the loan proceeds should be corresponding reduced. That means the notice of default, notice of sale, foreclosure lawsuit are all based upon fake figures that at the very least should be reduced.

Under our laws, if a borrower has been defrauded under these facts, he is entitled to restitution under civil or criminal proceedings, which means that payments of actual money to actual recipients who may or may not have turned the money over to actual investors should be credited to the investor and therefore correspondingly reduce the principal due on loans funded by that creditor. They can only get paid once. If there are excesses that are legal, then I agree that it is an entirely separate matter as to whom that money should go, but to foreclose on a homeowner where the creditor has been entirely or mostly paid is absurd.

The second reason is equally simple as the mere adding and subtraction of a proper accounting. Nobody expects a businessman to languish without income in a failing business. He will walk from it, declaring bankruptcy or otherwise making arrangements with creditors. Somehow this basic principle has been warped, most recently by the renegade DeMarco in a moral hazard if a homeowner reaches the same conclusion. Whether you agree with the moral hazard argument or not, it is a simple fact that people WILL walk from the homes or stay as long as possible without paying a dime to get some of their equity back, if they find themselves in a failed investment that can never recover. It’s going to happen whether you like the idea or not. Better to manage the situation than have homes go without ANY bidding because the value is just too low but the people were kicked out anyway without accepting a loan modification. Those homes are the ones being bulldozed by the tens of thousands across the country.
If any of this makes sense to you, then you work for a bank and you are getting paid very well and expect bonuses despite an economy that is driving toward an economic cliff. You want as much money as possible before catastrophe hits, which is driven almost solely by the financial crisis caused by the use of deriviaties, especially in the mortgage markets — false and faked derivatives that are every bit as fraudulent as the robo-signed, forged and fabricated documents used in foreclosure.

Se. Merkley has cleverly gone the route of securitization to accomplish it so that it might incite the banks to agree and see this as a way of getting out of millions of lawsuits and criminal investigations. But perhaps we give the banks too much credit.

Merkley refi plan could reach 75% of private underwater mortgages

by John Prior, http://www.housingwire.com

Roughly 75% of underwater mortgages securitized into private-label bonds could be eligible for a refinance under the new plan from Sen. Jeff Merkley, D-Ore., according to analysts at JPMorgan Chase ($35.05 -0.95%).

The proposal would allow a Rebuilding American Homeownership Trust buy underwater mortgages with revenue from government bonds. The trust would be assembled either in the Federal Housing Administration, the Federal Home Loan Banks system or the Federal Reserve.

Principal would be reduced, and the loans would be refinanced into FHA-backed mortgages. The trust would profit off the difference between the interest earned on the new loan and the cost of borrowing money through the bonds, according to the plan.

While Merkley said the program would target roughly 8 million borrowers, bank analysts anticipate less participation.

Roughly 1.2 million nonagency mortgages with loan-to-value ratios above 100% could benefit from the program, according to Chase analysts.

Borrowers would be able to refinance into either a 15-year 4% mortgage, a 30-year fixed-rate mortgage at 5%. Borrowers could also split the new loan into a 30-year fixed on 95% of the property’s value and a “soft second” on the remaining balance, which the borrower wouldn’t have to pay on for five years.

More than three-fourths of these borrowers would choose to split the refinanced loan into a “soft second,” according to analysts.

“Of course there are a lot of details that would need to be ironed out. After all, this is effectively forming (or building upon) another GSE,” Chase analysts said. “While we can see clear benefits for both borrowers and investors, the devil is in the details.”

Banks with large amounts of underwater mortgages would be unlikely to participate. Refinances aren’t like modifications. They must be offered to all borrowers who qualify, and many banks and servicers have been reluctant to write down principal for delinquent underwater borrowers, let alone current ones.

Borrowers with severely underwater mortgages would likely be shut out. Servicers must reduce principal to at least 140% LTV. In the analysts’ example, a borrower with a $340,000 mortgage at 170 LTV (owes 70% more on the loan than the house is worth) would need $60,000 reduced. Along with an $18,000 risk-transfer fee, the lender would likely lose $78,000 on the deal, and the risk of default would still remain.

Treasury Department Secretary Timothy Geithner testified before the Senate Banking Committee last week that he thought the Merkley plan was a good one and would work with the senator on possibly producing a pilot program, maybe even using unspent Hardest Hit Funds.

Chase analysts estimated that more than 525,000 borrowers with private-label loans could refinance into full 30-year fixed mortgages and save an average $207 per month or $1.3 billion total every year.

Celia Chen, senior director at Moody’s Analytics, said the program would also help borrowers rebuild equity faster and significantly reduce the risk of default.

“Moreover, it would benefit the broader economy, as refinancing frees up cash for consumer spending and generates business for mortgage originators and servicers,” Chen said.

But other questions remain such as selecting a servicer for the RAH Trust loans. It also remains unclear if trusts could participate in the program.

“Clearly, bonds with the highest concentration of current borrowers will benefit the most if this program will reach nonagency trusts,” Chase analysts said. “We expect any pilot program to target bank loans first.”

jprior@housingwire.com

@JonAPrior

17 Responses

  1. @ las vegas

    FRAUD. FRAUD. FRAUD. Condoned by the government.

  2. everyone or anyone:

    Questions from my spouse:

    1)If the value of our house was over appraised at origination, why are foreclosures and short sales value so much lower than appraised value?

    2) How can principal reduction of 75% now be considered earned income if in past it would just be considered equity, why does it have to be declared?

    3)Where did our equity go?

    Thank you.

  3. @joann

    “The thing about modifying anything or reducing the balance on anything…….if truth be told it has already been modified and or reduced…(or paid in full or charged off or written off or…)”

    YES. Only junk debt buyers/debt collectors of unsecured false default debt (in subprime refi’s and new purchase):

    “…Understand that loans sold to Fannie/Freddie were falsely placed in default, with collection rights sold, insurance collected. These “collection rights” were securitized into the bogus MBS trusts we now know as “toxic assets.” Who invested in these toxic MBS?? Big investor was Fannie/Freddie. Why?? Because they paid a higher interest rate than Freddie/Fannie could have achieved had they retained the whole loan.

    The securitization process conceals who the real “investors” are. As a security investor in the toxic MBS, Fannie/Freddie is not the lender/creditor/investor. We need to open Fannie/Freddie default records, and accounting records. FHFA has blocked this — and government does nothing…”

    Fannie/Freddie is not “opening books” because they are FULL OF BLATANT FRAUD.

  4. @Usheeple,

    And 10 minutes later, we still don’t know who the hell is the sponsor of that “Coburn-McCaskill” frickin’ bill! Those guys are grossly overpaid. That’s all there is to say. I’ll do the same job for half the money. Wanna vote for me?

    At least, when i went to Barnum Circus, the clowns made me laugh…

  5. Key word “Proposes” yada yada And???Show us the money!!!!

  6. @ enrage: Senate crooks only awaiting YOUR orders to pass bill http://www.youtube.com/watch?v=xUO5J-0zg5k

  7. A 75% debt forgiveness should not be considered until and unless all the money stashed abroad in Swiss or Carribean accounts is brought back first and seize by the IRS and until banks have been thoroughly dismantled and incapacitated once and for all. Otherwise, We The Taxpayers keep being on the hook ad vitam eternam.

    Remember: the idea is to give our kids a fighting chance in life. They didn’t ask to be here. We have absolutely no right to mortgage their future with our own screw ups and failures.

    Anytime I read that Geithner agrees with a representative of We The People, I get a nasty rash. Right away, it becomes suspicious. Sorry guys, that’s what “having no credibility whatsoever” means… We’ve seen that guy in action and it wasn’t pretty. I have no indication that it has changed one bit.

  8. The thing about modifying anything or reducing the balance on anything…….if truth be told it has already been modified and or reduced…(or paid in full or charged off or written off or…) just identify the beneficiary or the secured interest or – whatever you want to call them – or “true” creditor…..then show the accounting and the money trail to that entity and how much is now owed to them. I would take that deal. No “modification” is needed. Plus if anyone else got paid instead or got a house instead – restitution and or damages. If there is no beneficiary, secured interest or creditor ect – there’s no loan and that is for Carie. One simple law ought to do it: Who exactly do we owe and how much exactly do we owe them and put a moratorium on the middle parties doing anything while this is produced. Challenge the skeptics – fine if they think the records of the servicer are going to match the records of the ture creditor or whatever you call them – just force the production of the stuff they are hiding and we’ll pay. Make our day. If they are hiding fraud – isn’t it about time it came to light? What is the harm? The money mongers are already going down with their debt slaves. Can’t function without them anyway. In the meantime everthing else is crashing. Can’t keep up the illusion forever.

  9. Great videos. Thanks for posting.

    This is what Iran does with bank fraud.

    http://www.americankabuki.blogspot.com/2012/07/iran-sentences-4-to-death-in-26b.html

  10. Who ever heard of a loan that needs a down payment, anyway?

  11. Here is Part 2 of that video. Forward both to everyone you know.

  12. Who’s going to jail? It’s fairly short (15 minutes) but I like to hear some of the names thrown in.

  13. “The trust would be assembled either in the Federal Housing Administration, the Federal Home Loan Banks system or the Federal Reserve.”

    Well, well, well… Do we want any of those entities involved in fixing up what they created? I think not! I, for one, would rather see those shut down, a completely different agency created with people who NEVER belonged to anyone of them, some serious regulations and oversight put in place and a brand new start from scratch. Can’t make something new with something old… And whatever is old is so rotten that anything they touch will stink in no time.

  14. This is another convoluted plan with no merit.

    We’ve been preached to all along now that the “lenders” are only servicers and that no one OWNS these loans. Thus, there are no liens. Our titles are clouded. These are unsecured debts. Etc. etc.

    Now we are expected to re-contract with the “new” crook on the block when these loans have already been paid several times over??

    “…the lender would likely lose $78,000 on the deal, and the risk of default would still remain.”

    The above statement is misleading the people into thinking that lenders are LOSING MONEY. That’s hogwash!

    I’m sorry. This plan more B.S.

    How about the TRUTH?

    Let’s pass a bill that states that government and bankers have to tell the truth.

    Let’s forgive all the phony debts and move on. Kill the lies once and for all.

    5% interest? The borrow rate is still at 0%, isn’t it???

    This plan smells of some BIG investor trust that’s figured out yet another way to skim money off the mortgage crisis, pretending to rescue homeowners and save the nation. “We wouldn’t want to let all those mortgages go to waste now, would we? Let’s figure out a way to profit on them again. Only this time we’ll have real binding contracts and the borrowers will know who the real lender is.”

    You wanna sign up for this???

    I’d rather lose my home than to concede to more crimes.

  15. Summary Judgment … for a Homeowner

    Posted on July 31st, 2012 by Mark Stopa Esq.

    I’m sorry I haven’t posted much in recent days. You see, I’ve been really busy procuring summary judgments for some of my clients. No, not summary judgments of foreclosure (against my clients) … summary judgments in my clients’ favor. Summary judgments as in … case over … case dismissed … you lose, bank – do not pass go, do not foreclose, and do not collect any money. Obviously this doesn’t work every time, but as the Orders below reflect, it certainly works sometimes.
    More at http://www.stayinmyhome.com/blog/2012/07/summary-judgment-for-a-homeowner/

  16. What a joke. Another lame PR attempt that will benefit no one. Those of us who put several hundred thousand dollars down on our inflated price homes,make our payments and still have maybe a small equity will never recoup our losses. Freddie Mac bought my mortgage from Taylor Bean a month after I closed on the loan in 2007, Taylor Bean was shut down for fraud in 2009. In only 9 days I had a new servicer courtesy of MERS, yet I’m not sure who holds my “bearer paper” and all those involved have made their money again and again. I’m thankful I don’t have to fight for my home as some on here who are desperately hanging on, but I am concerned about clouded title issues in the future.
    The government and the banks will continue to pretend to make it better.

  17. my house at the height was appraised at 244,000- some were selling for 285,000-houses like it are now selling for 55,000 (short sales), it is worth- 60,000 less than when we bought 20 years ago- i haven’t left so how the heck are we supposed to figure out it’s current value?

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