Housing for the Homeless, Inc. (in organization)

The other day, I responded to a comment on Twitter from a knowledgeable mortgage financing friend regarding the current housing situation vis a vis foreclosures. His view is that the "market should find its own level" ; that the Federal Government should not interfere with modification programs, the EHLP program etc.

After some thought, I must agree with him. If the pace of foreclosures returns to normal (once the robo-whatever is done and docs are corrected) and evictions follow promptly, there will be plenty of Housing For The Homeless. There will be no need to build new shelters. Mortgagees can just allow cities to house "The Homeless" in these abandoned/emptied OREO properties. The cities would pay but only by not taxing the mortgagee/foreclosing entity. If the mortgagee does not incur this liability by recording a deed, then more properties will be formally owned by the entity which won the foreclosure sale bid.

Now, one might ask,"Why should the homeless get to live in someone else's house when the someone else just got evicted and became HOMELESS?" Answer: "Well, that's the market finding its level!!!". Further, the new homeless family can move into another "victim's" house as he/they get thrown out! See, that way no one can complain - except "The Investors".

This is the shadowy group (Goldman, Lehman, Bear Stearns, Countrywide, JPMorgan et al) which created the securitizations of the mortgages, and sold and/or bought (and hedged) the resulting "bonds". They are the folks who took a mortgage, put it together with 3000 others, released all of the originating banks/mortgage companies from all liability, and sold pieces of the pool of mortgages as "Mortgage-Backed Security" shares/participations.

A solution to the matter of getting the investors paid during the OREO stage, would be to have the "Newly Homeless" receive a minimum wage pay (because they are out of work which is why they lost the house to start with) to remove all of the black mold that develops in uninhabited housing. To be fair, some of it isn't Black Mold of the bad kind but just regular garden variety MOLD.

So we have the solution:
1. Increase the pace of foreclosures to create Housing for the Homeless
2. Hire the homeless, now in a home, to remove mold
3. This helps the national unemployment problem so there should be some federal money for job creation, which can be paid to the investors as rent from the Homeless
4. The homeless move in, shopping carts, kids and all, and the streets look better, so new companies will move into the formerly empty urban areas because the former homeless have homes and a paycheck
5. The suits against the foreclosing mortgagees should slow, because, the family which just got evicted can move into another family's newly vacant home AND get paid.

The market will find its level. Hopefully it will be above the water table.

Author's Copyright by Richard I. Isacoff, Esq, July, 2011

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

Bigger & Fewer: "Banks" Rule

There is a new mosaic, or one that was just not recognized, developing in the Economy, and somewhat specifically in the mortgage area. Banks, systematically getting bigger and bigger, and fewer and fewer, are dictating the rules.

The Big 4 (or 4 1/2) BANKS have made it clear through their elected, and properly paid for members of Congress (politely referred to as "Lobbying"), that they do not want Elizabeth Warren to head the Consumer Financial Protection Board (CFPB) but in case she gets there (during a recess appointment), they want to emasculate (no offense Prof/Dr/Atty Warren) the agency first. The argument or rationalization: No agency should have the authority to enforce existing regulations that affect consumers or pass new regulations to fix really bad problems that hurt the economy as a whole. Even Hemp has more supporters than HAMP!

The same interests have been keeping Congress itself where it is possible, from passing enacting legislation that would force mortgage modifications and punish those who knowingly created, hyped and sold securities that they themselves bet against (hedges). These "Security Instruments", known as Mortgage Backed Securities and more generally categorized as Collateralized Debt Obligations were the mainstay of Lehman Brothers' (remember them?) profits; oh, and don't forget about Goldman Sachs! The play was that if enough mortgages were written, there would be enough good ones to overcome the bad ones: Quantity always wins but only if you are the creator/seller! As Phil McGraw, PhD, better known as "Dr. Phil" says "Well, how's that workin' for you now?" NOT SO WELL DOC!!!!

Wells Fargo is in Court in Tennessee and Maryland trying to avoid being convicted of "Reverse Redlining", the pernicious practice that promised lower income and less educated/sophisticated borrowers, usually minorities, the AMERICAN DREAM - Home Ownership but lied and cheated to make the sale. "Mrs. Jones, the payments will only be $300 per month - for the first month then the rate will equal the 6 month rate of the percentage, the denominator of which is 100 and the numerator is 10 plus no greater than 7% nor any less than 7%,. and, Mrs. Jones, that rate will be in place until the first change date after which the loan will float to the regular level for this type of loan".

"Don't worry Mrs Jones, we at "Fast Talking Mortgage" would never steer you wrong. Just check our rating at the BBB. Here is the telephone number 1-800-waitforever; and if you have any problem with the loan, one of our Loan Specialty Team (for borrowers who complain), will assist you - that telephone number is 1-877-waitforever". If it wasn't so real and so devastating, that kind of "pitch" would make a great Saturday Night Live spoof. People struggling to pay rent are told they can own a home; and then they end up on the street.

The Banks have uniformly maintained that the laws do not apply to them - state vs federal - and even if they do, the banks didn't make the loans, they are just the Trustee or manager or they sold the loan and had just acted as an intermediary, owning the loan for mere seconds. What's worse is that they have all of the money in the world (well not really but more than any Plaintiff does) and are willing to spend ten (10) times the amount needed to fix the problem in order to justify their actions.

In all seriousness, what can be more despicable than convincing low income struggling families that they can buy a home of their own, when the game is just to make a sale of a mortgage and not care whether it's affordable. In fact, most of these loans were granted where the Loan Originator knew the loan would adjust to a point where the borrower would not be able to make the payments. Once again, no one cared. No entity was "on the risk". No bank or mortgage company would lose $0.05, because the loans were sold into a pool - securitized with 2,500 other loans. Again, the thought was that quantity made up for quality and if not, so what! No one loses, except the homeowners and, as we have seen, the Economy.

Add to the mortgage mess - we have the "Interchange Rate" debate. Regulators (formerly called "Revenooers") are trying to force the price charged for each "swipe"/use of a credit or debit card down from an average of $0.44 to $0.12, at least for the big 4 1/2. That is a huge drop in Bank revenue but also a huge drop in what merchants, and therefore consumers, pay for use of the debit card. Folding money looks better every day. Maybe we should all buy stock in Crane & Co., the company that makes the paper for U.S. money.

Group 4 1/2 are fighting the change mightily as they stand to lose $hundreds of millions if the change takes place.

We can then move to the issues about whether a Bank,the kind where you can go and open a checking or savings account, should be allowed to directly make loans and Securitize pools of Loans themselves, avoiding the middleman. In 1974 we had 14,000 banks in the country. By 2017 the count is expected to be 2,500. If you realize that this represents 50 banks for each state, they "Hometown Bank" is dead. Even now, in a city like Pittsfield, MA which has a population of 40,000+/-, a merger of TWO (2) Savings Banks is taking place (thank you FDIC) - the rub is between them they have nearly 50% of the deposits in the entire County. The next largest entity is a Federal Credit Union.

Bigger isn't better, it's just bigger. And, bigger means more power - a greater ability to force laws on or off the books through trade organizations and their lobbyists. Is big bad? Not conceptually; but in practice?. As of Friday 5/06/2011, the ABA (American Bankers Ass'n) seemed to have changed its position regarding Elizabeth Warren and will support the nomination. The CEOs of Group 4 1/2 must be furious. Congress, especially the GOP side, is forcing a "recess appointment" .

There is no easy, or even difficult, answer to this issue. The consolidation of the Financial Services Industry is moving faster and faster. The was a time, not so long ago, when Banks and Insurance companies and Stock Brokerages all had to be separate. Now we have one stop financial shopping. Convenient, maybe. Dangerous - ABSOLUTELY

Author's Copyright by Richard I Isacoff, Esq, May, 2011

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

HAMP: "You Probably Think This LAW Is About YOU!"

This posting's title, with apologies to Carly Simon who wrote and sung Billboard's 72nd most popular song ever, is appropriate if any of us think that the Mortgage Modification issues and Programs, like HAMP, are about us; they are all about the Servicers/Lenders and the INVESTORS of the ubiquitous Mortgage-Backed Securities ("MBS").

The program, which has no teeth for enforcement by any entity (Treasury, FDIC, Federal Reserve, etc.) was established to protect the INVESTMENT pools of securitized mortgages. This means simply that the mortgage and investment communities refused to permit any government force-down of a program that might hurt "ROI" or "Return on Investment", or more crudely put, the PROFITS and INCOME made by the owners of these mortgage pools, and by the Goldman Sachs and Lehman Brothers of the world - the people who brought us the "great meltdown"

In fairness, the whole idea behind putting a large number of mortgages together, computing the average interest rate to be paid by homeowners, while at the same time calculating the expected or historical number of "bad" (non-paying) loans, was to enlarge the market of home ownership. By putting the mortgages into securities, all of the mortgage originators, brokers, lenders, banks, mortgage companies, who made these mortgage loans were "off the hook".

As stated in earlier posts, only the investors had anything to lose and they had done their homework. They figured out how much to pay for $1 billion of what became a BOND secured by home mortgages. What could be safer? Based on past experience, the Depression aside, the answer was Nothing Could Be Safer! Or maybe not!!!

During the early musings about what to do as the market was plummeting, and Mortgage-Backed Securities were being valued at $0 - high figures of 40% of face value, there were many theories put forth as to "What Do We Do Now?". One of those concepts was to have Congress and the Supreme Court declare that the contract making up these pools of mortgages, could be broken, for the sake of national security. Remember, our financial stability was gone and the markets were in free-fall.

Rejecting that idea, and rather than one of the Federal Government's arms publicly insuring that no MBS would drop below 70% of face value because the Federal Government would guaranty the FIRST 30% of losses which would have stopped the spiral down, the free-market system functioned as it is designed to do, and we ended up with the mess we are in currently regarding FORECLOSURES!!

The Making Home Affordable ("MHA") program which gave birth to "HAMP" really was a deal with the mortgage and securities industries. The program is about making sure that profits stay high enough to continue to attract buyers of MBS. The way to accomplish that goal is to NOT make modifications that will hurt the INVESTOR - Homeowners be damned. 9%-10% unemployment is no excuse for defaulting on your mortgage payment. If you can catch up fast enough you get to keep your house. If not, well, the house goes to sale at auction -but you can't bid -HA! Gotcha!

Realize that the reason the rules do not help most of the homeowners applying for modifications, or foolishly, a principal write-down, is that they are not supposed to. The rules are there, as written, to protect investors. Well, YES and NO!. If the investors take significant losses, the spiral down starts again and soon a family homestead will consist of two large tents.

Author's Copyright by Richard I. Isacoff, Esq

http://www.isacofflaw.com/

rii@isacofflaw.com

Synthetic Derivatives -What are They and Who Cares?

A few weeks ago, the Senate interrogated the guys from Goldman Sachs, a Wall Street so-called "Investment Bank" The argument was about regulating Synthetic Derivatives. HUH? What are those and why does it matter anyway?

Here’s the easiest way to think about it - there is a real Football league made up of real football teams. In each game played there is a winning team and a losing team. And, in each game players do good or bad.

Then we have a Fantasy Football League, made up of the same teams but with the players on each team made up of peoples' "dream team" - players taken from any team and put together (only on paper). Based on how each player and the REAL TEAM he plays on does each week, these made up teams are ranked. People actually bet on these MADE UP TEAMS- "FANTASY TEAMS"- which are DERIVED from the real teams. A Fantasy League is a DERIVATIVE.

Now imagine a second "Fantasy Football League" made up of the same players and BUT instead being based on the outcome of the Real Teams, it’s based on the outcome of the FANTASY TEAMS and ranked according to how the players and the FANTASY TEAMS do each week. This is a Synthetic Derivative - it’s a bet about how well another bet will do! Will Pete win or lose on his bet on Fantasy Team #1. That’s what is being bet on.

A SYNTHETIC DERIVATIVE IS A BET ON A FANTASY FOOTBALL TEAM BASED ON A FANTASY FOOTBALL TEAM

Here's an example of REAL Derivatives and Synthetic Derivatives:

A bank (we'll call it "Bank 1") puts 10 mortgage loan together and creates what is called a "Collateralized Debt Obligation" abbreviated to "CDO". In this case, Bank 1 sells the CDO to an investor, possibly another bank called "Bank 2". Both Bank 1 and Bank 2 can actually see the collateral; go from house to house to be certain that the loan has collateral enough, that the houses are worth enough, to assure payment in case of a foreclosure (This is the way the "secondary market" used to run, but that was 20 years ago).

The key here is that while Bank 2 bought a "security", the pool of loans, called the CDO, it could actually see the collateral and was paying Bank 1 for the CDO (the 10 mortgage loans) based on reality. This was not a gamble but a true investment.

Now, let' take the CDO Bank 2 bought and make it part of a large pool of CDOs, maybe 100 of them, that a mortgage Bank puts together, a place like Goldman Sachs. . Now we have 1,000 mortgages comprising a "Mortgage Backed Security" ("MBS" for easy reference), spread out over a large geographic area. We have something that no one can really examine - the collateral is spread out over maybe 5 states, and there are 1,000 houses. It becomes a MBS because no one bank or institution bought this bunch of 1,000 mortgages as mortgages. Keep in mind that if each mortgage loan was originally for only $200,000, the MBS has a "value" of $200 million!

The MBS that was created by Goldman Sachs (in or example), is sold in pieces (of the $200 million MBS) to investors. For instance, a Mutual Fund that wants to provide a stream of income to it's customers who might be employees with a 401K or and IRA etc, might buy $10 million of the MBS. Another mutual fund might buy $20 million etc.So far, everything seems simple. Bank 1 puts 10 loans together and sells then to Bank 2. Bank 2 sells the loans, for a profit to a Mortgage Bank which is buying 100 of the CDOs like the one that Bank 2 bought and sold. The Mortgage Bank now has 1,000 mortgages (100 CDOs) and it calls them a "Mortgage Backed Security" or "MBS". THIS MBS IS A DERIVATIVE.

The MBS itself is nothing more than a security, something for sale which is DERIVED from the value of the mortgages that make it. Once the MBS is created no one thinks about looking at each house. Because of the number of loans, investors in the MBS are just betting that there will be an average number of mortgages defaulting and going to foreclosure. This is a gamble based on historical trends. Go back 4 years and think about what you considered the safest investment in the world - the value of your house!!

Now comes the weird part. There is a market for "investors" who will bet that the MBS will pay 100% of what it should and "investors" who figure that something will go wrong and the people who bought the MBS will get back only 80% of their investment. These Bets based on another Bet are bought and sold.

The price to buy one of these bets on a bet is based on hundreds of factors, like the disaster in the Gulf, the number of jobs created in a month, the value of the Euro in relation to the Dollar, the state of the war in Iraq, the problems in the Middle East as they can affect the oil supply, North Korea's testing of a missile, and on and on and on. These Bets on Bets are Synthetic Derivatives. Basically it is a bet placed on whether someone else's bet will pay off 100% or if it will pay only 80%.

That is what Congress is trying to regulate; the whole process that led to our economic collapse!

Maybe we should bet on whether Congress will get it done or not. I bet it won’t!!!

Author's Copyright by Richard I. Isacoff, Esq, June 2010

rii@isacofflaw.com

http://www.isacofflaw.com/

Better Now Or A Year Ago?

Now that all of the drama of the Goldman Sachs vs Congress (actually Sen. Carl Levin) is over, what did it all mean. More importantly, WHO CARES? (well, I actually do but it's my job to care).

The reality is that regardless of who caused the financial crisis most of us just want to know when it will end and how will we survive until it does. Will knowing what a "Synthetic Derivative" help? NO, and it's not something you add to your cars oil or take out of it for that matter! If the crisis is over, if we have turned the corner on the recession, if the economy is improving, why is the unemployment rate still at record or near record levels, after adjusting for those who have fallen off of the rolls because benefits ran out, and deducting the Census workers?

The answer is easy, well at least explainable, or at a minimum, less confusing than Synthetic Derivatives. The term "Recession" is a technical economic word that rarely intersects everyday life. It deals with the number of consecutive calendar quarters that the "gross domestic product' declines. And when most TV types discuss the economy getting better they are really talking about the stock market, which a world unto itself.

For real people - are you better or worse off financially than you were 1 year ago? That's far from scientific and can be misleading, but it isn't a bad way to gauge the problem.

Foreclosures are still way up. April's figures showed fewer foreclosure sales but more actual cases where the lender has actually taken possession of the properties it foreclosed against months ago. And, the number of borrowers in default is not leveling yet. And the modification programs are still not really working. And people have so little left from their paychecks that they cannot afford to file bankruptcy using a lawyer, or even a document preparer (which is worse than filing themselves anyway).

In my office, we are taking payments for months from clients who want the expertise of a lawyer but can only pay $50 or $100 per month. The extra part-time job is gone; the overtime hours aren't available. Money is tight.

HOWEVER, at this point it doesn't appear that "the economy" will get any worse. This may not help every individual but it is an indication that we may have bottomed. How long we stay down is any one's guess.

Synthetic Derivatives? Think of a fantasy sports league based on a fantasy sports league, based on a real sports league! - (Next time I will try to explain in fewer than 5000 words)

Author's Copyright by Richard I. Isacoff, Esq, May 2010
rii@isacofflaw.com
http://www.isacofflaw.com/

Credit Card Rules - Explained (sort of). What to Do Until Then

On June 11, 2009, I wrote extensively about the new credit card laws - the ones that do us no good at the moment but might as the varied effective dates arrive.

Attached/Linked title of this posting, and again at the end of this entry, is a video that goes through the major points of the new rules.

None of the rules will erase any debt that has already been incurred, regardless of how unfair the borrower believes the debt to be. Interest rates jumping to 30% , late fees of $39 on a balance of $100 with a report of late payments (over 30 days) to the credit agencies, with, of course the accompanying rate increase, and perhaps the most difficult for regular card users, the arbitrary elimination of the available credit/decrease in credit line, without warning or apparent reason.

The 2 real banks, and the 1 "investment bank" (see last post for that definition) that had record profits, Bank of America, CitiBank/CitiGroup, and Goldman Sachs respectively, are the worst offenders. Yesterday, in the Sunday edition of the New York Times, there was a story by David Streitfeld dealing with Bank of America specifically, but the industry in general. In it he describes a woman who could not keep up with the higher and higher interest rates being charged. After pleading with Bank of America to lower the interest rate on her account without success, she just stopped paying her monthly bill. A wise decision? - probably not! - except in this case it was born out of desperation. The result: Bank of America called her with "deals" so she could afford her payments.

Look at the video - read the article in the Times and think about your position. Are you able to go without Credit Cards? Can you pay the minimum payments PLUS 1% of the balance owed to lower the principal and actually pay down the debt? If you can, then you may be able to get out of debt.

Factor in all of your debt - especially the credit cards. IMPORTANT!! - Put together an accurate list of your regular monthly living expenses. Include such things as cigarettes (if you smoke), a reasonable amount for food, eating out if it's unavoidable, enough for gasoline and a monthly budget for car repairs (during the entire year), all of your insurances, clothing (include shoes and underwear), income taxes expected to be paid over and above payroll deductions, student loans, cell phone, cable, Internet, utilities, rent/mortgage, and everything else that you really need to spend or save for each and every month. After all of that, can you pay the minimum PLUS at least 1% of the outstanding balance on all debts, whether each is a credit card, a personal loan from CitiFinancial/HFC,HSBC,Beneficial, or from anywhere else.

If after doing that budget exercise you can make the payments GREAT!! Do not be late on one payment or your plan might become dust in the wind. BUT try. If you cannot, seek financial counseling - not from a TV advertiser promising to reduce your debt to "pennies on the dollar" for a mere $XXXX.XX per month and a non-refundable processing fee of $XXX.XX

Author's Copyright by Richard I. Isacoff, Esq, July 2009
http://www.isacofflaw.com/
rii@isacofflaw.com

http://video.nytimes.com/video/2009/05/19/your-money/1194840368370/guide-to-new-credit-card-rules.html

They're Back!!! (With a Vengence)

Our favorite charities are back in business, but this time not asking for handouts - just taking the money from us. CitiBank/CitiFinancial/CitiGroup (well, you get the idea), Bank of America, JPMorgan Chase, Goldman Sachs, Smith Barney (whatever the full name is now), and a cast of other "BANKS", reported huge profits for the 2nd quarter or 2009. That must mean that the financial crisis that threatened life on the planet is now past! Well, yes and no or maybe, but we are not at all certain yet.

It is true that there were record earnings at some of these banks and they all did great, but it is where that got there profits that is disturbing, more so than the fact that after pleading for a bailout, they are ready to give out huge bonuses again. Little of the profits came from "banking" as consumers and small to mid-size businesses understand the term. Bank of America and CitiXxx had huge one-time profits from the sale of assets and from "investment banking". Ah ha you say - "banking is how they made money"! Not so quick grasshopper.

"Investment banking" is to "banking" (as most of us understand the word) as Burger King(R) is to a cooking a barbecued hamburger in your back yard. Char-broiled but to a different scale. Buying and selling securities, selling short, trading in commodities, dealing in derivatives, buying other businesses - and selling its assets at a profit, is what investment banking is. Making loans to small and mid-size business, or to people (unclean) is what it IS NOT.

Keep in mind that Goldman Sachs was one of the top firms that put mortgage loans into packages (securitization) and sold them at huge profits. When the value of mortgage-backed securities (MBS) began to crash Goldman "sold short. They "gambled" that the price would go down FAST and that they would fill the order to sell MBSs at the lower price. They made a small fortune while the rest of us lost millions in our 401Ks, IRAs, and had all credit stopped.

So, almost none of the money received from the government and from other financial incentives given during the crisis, went to new home mortgages, was used to modify existing mortgages to stop foreclosures, was used to keep the "mom-and pop shops" in business, or was loaned to small and mid-size firms to help them through the cycle so they would not have to lay-off 50% of their staffs, creating a nearly 10% unemployment rate. The rate of job losses is slowing, but still increasing in numbers.

The promised home loan modification process is not yet functioning. Mortgage modifications are more difficult to get than they were a month ago. Businesses keep laying-off workers because they have no business because other companies have had to minimize operations and they have reduced staff which has caused more foreclosures which has killed the building trades which has caused bankruptcies which has prevented many companies from being paid which has...

There are those economists and financial types who say now - "see, the free-market system is working". They were many of the same experts who cried foul at the bailout of AIG and Bank of America and Citi. The "free-market system" needed some help because of the lack of regulation in the late '90s and through 2007 that led to the crash from which we are trying to recover.

We have reached the point that we now know you cannot put CheezeWiz(R) back into the can.

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

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