Mortgage Settlement:Sky Clearing or Storm Coming?

Whether CA and NY join is anticlimactic. The quibbling over the amount of the settlement was foolish. $17B or $25B has never been the issue. Of bigger concern is the ultimate trickle-down (how Reaganesque) to the affected homeowners.

The Banks have wanted a "free" pass as to future suits and an indemnification from suits by borrowers who are now out of house and home. I know that there will be the hue and cry of "they only got what they deserved; after all they didn't make their payments - so the paperwork was faulty - they didn't pay!" (I worked at a bank where a fellow SVP called it the "Human Cry" - never knew if it was a clever pun or...). Here, there is a human cry and it's from the families who fell behind for legitimate reasons (loss of job due to federal program cutbacks), tried to get a modification but before they could react their house was gone.

I have worked with nearly 100 variations of that scenario in the past 3 years! And I have handled 50+/- of the situation where the house got to be too expensive and the homeowner stopped paying because the mtge co refused payments after 90 or 120 days delinquent.

For that first group, where there were no assignments, where MERS (Mortgage Electronic Registration System) initially foreclosed, where HAMP was ignored or where a major Lender/Servicer stated to me "We don't have to do modifications because we did not take any Federal ("TARP") money", is the group that should be compensated. With the per household figure being $1,500, that's not even 1st, last and security for an apartment, and in many places barely 1st month's rent.

The Securitization of mortgages into RMBS (Residential Mortgage Backed Securities - where thousands of mortgages were pooled together - See Posting Dated ) made this fiasco possible. In a sense, the banks have had to deal with the losing cards they got in the draw. The suit should have included the rating agencies, the Investment Banks, and all who facilitated a swindle that makes Madoff look like a low level Ponzi scheme.

I cannot point a finger at any one individual, organization, regulator, administration etc and say "You caused this world recession!!" That being the case, the Banks that allowed forged or failed documents to be used, corrupted the Civil side of the legal system by swamping Plaintiffs' lawyers with Wall Street law firms to a point where, even though all procedures were followed the hired guns won.

I ran failed S&Ls in MD and part of the Bank of New England mess in MA - I have chased and caught the thieves and cut the business/person who just got a raw deal some slack. Here we have Corporate Persons, some of which took "assets" at the request or arm twisting of the Fed, Treasury, OCC, or FDIC, being asked to pay a quarter's earnings to make up for a systemic failure. That's the price for being in the game but here everyone has lost. Stockholders, displaced CEOs and other officers, Homeowners, Administration officials etc.

The $25B is just hush money - hush to the whole bloody mess.

Author's Copyright by Richard I Isacoff, Esq, February, 2012

www.isacofflaw.com

rii@isacofflaw.com

PS AN AGREEMENT WAS REACHED JUST AFTER I RELEASED THIS FOR 10AM FRIDAY. HERE IS A LINK TO THE JUSTICE DEPARTMENT'S PRESS RELEASE http://tinyurl.com/73ypvub

Money Money Everywhere But....

The money supply to Banks is there. Interest rates for Bank borrowing is still near 0%. But, homeowners are now subject to much tighter rules for borrowing because the Banks follow the BOOK, or in this case the Federal Reserve Regs. As a result, home mortgages are MORE DIFFICULT to get than anytime in the past decade or two.

There are new rules to try to reign in the high-cost, so-called "subprime" predatory loans. As of October 1st "High Cost Loans" have a new definition: any loan that is "1.5 percentage points" above the average prime mortgage rate. (Note: that is not the prime rate mortgage index but a prime rate mortgage - a mortgage given to a "prime borrower" or a so-called "a" borrower - great credit). If a loan is a "high-cost loan" under the new definition lenders must verify that the borrower can repay the loan through earnings and other income, not simply by a foreclosure or refinance.

That rule may not appear to be a departure from the "old" way but it is. The crisis we are still in was caused by some large lenders/brokers making loans to anyone who could pass a basic screening:"Can you hear thunder and see lightning?". Greedy and ignorant brokers/lenders would often give loans to borrowers without requiring any proof of the borrowers ability to pay.

Sometimes the borrowers knew exactly what they were doing and did not care - they gambled that the market for houses would keep rising and that they could refinance their way out of any problem There were no verifications of employment or verifications of deposits send. No bank statements showing a steady balance, for the self employed were requested, and often, for employed borrowers, W-2 copies were ignored or not sought.

Basically, the new rules that the Federal Reserve has put into effect as of October 1, 2009, merely force lenders/brokers AND borrowers to do what they should have been doing all along. That borrowers would fabricate income and lie on applications was ignored, or even encouraged.

Some states, like Massachusetts, Connecticut, Rhode Island, and a handful of others across the country have already put regulations in place that make the lender/broker certify that the loan is in the best interests of the borrower. In fact, Massachusetts REQUIRES this criteria be met for high cost loans, as defined by the Commonwealth General Laws. Also, many states, Massachusetts among them, have enacted legislation or have had the highest court in the state rule that certain threshold questions (like can the borrower repay and is does the loan lower payments or allow for home improvements, or lengthen the term) must be met on a refinance before the lender/broker can consider itself safe from violating such laws. UNFORTUNATELY, many of the National Banks, and some Savings Institutions governed by the Office of Thrift Supervision, claim that state law does NOT apply to them.

The Federal Reserve Rules also state, in part, that Prepayment penalties are banned if the mortgage payment can change in the initial four years of the loan. For other higher-priced, mortgage loans, a prepayment penalty period cannot last for more than two years. (this is the link to the 65 page Regulation:

http://www.federalreserve.gov/reportforms/formsreview/RegZ_20080109_ifr.pdf

Banks have over-reacted so NO MONEY TO HOMEOWNERS. Foreclosure proceedings are still climbing. The worst may not be over for the average homeowner who has a financial problem, or a first-time home buyer who does not have a high (700s) credit score.

Author's Copyright by Richard I. Isacoff, Esq, October 2009

http://www.isacofflaw.com/
rii@isacofflaw.com