Mortgage Mods - Where Did The Money Go?

My mortgage modification clients often ask about the class actions or Attorney Generals actions against mortgage companies, lenders, and servicers, when the newspapers/Internet proclaims "XYZ Bank settles with Massachusetts for $XXX Million". The biggest single question is "Where did the money go?" Unfortunately, the answer I give is "I don't know except that there was no fund set up for modifications". Then I get the BLANK STARES from my clients.

"How can that be?" they query, to which I reply, "I do not know - probably to offset the cost of the suit and to establish a new unit to investigate mortgage fraud AND to help balance the budget." To this date I have never received notification that the Commonwealth of MA is setting up a fund to help borrowers avoid foreclosures, or even to set up an agency to help homeowners apply for a loan modification.

At this juncture, homeowners are being cast adrift. The 50 States +/- CA & MA (depends on the day) have been arguing with the biggest lenders/servicers over a settlement for all of these institutions evil-doings; and they were indeed evil! The proposals are at $26Billion or $26,000,000,000 but no one is offering to pay. Instead the Banks et al want to promise they won't do it again and that they will make it easier for homeowners to get a modification. Making it more difficult would be to say "NO, WE WON'T DO MODS ANYMORE". No money will go to individual homeowners. No funds will be set up to help a borrower get caught up. As the title of the movie proclaimed "GONE IN 60 SECONDS" (so where is Nicholas Cage when we need him?).

Even if there is money made available, the selection/application process will be as difficult as getting the modification as evidenced by the recent Federal "EHLP" (Emergency Home Loan Program) program that only gave out 1/2 of the $1Billion allocated for it.

In fairness, because of the structure of the mortgages, now part of giant pools of loans called "Mortgage-Backed Securities" or "MBS" for short, no Bank owns the loan(s). They are collateral for a Bond, typically a fixed income security, pieces of which are bought and sold as part of mutual funds, retirement funds, and corporate investments. It's like GE borrowing money by issuing a bond - this means that GE is stating to the world that if it receives up to $XXXMillion from investors, GE will pay them interest at "X"% for "Y" years, and GE puts up its assets as collateral. With MBS, the underlying assets of the fund, home mortgages, are the collateral.

The refrain often heard when one is trying to get a modification is "The Investors do not allow modifications" or "This requested modification is outside investor guidelines". When the investor is the Federal Nation Mortgage Association (FannieMae) or the Federal Home Mortgage Corporation (FreddieMac) or the Federal Housing Administration (FHA) the formula used to determine "Yes" or "No" is at least obtainable. And, because these are either Government Agencies or quasi-government agencies, they do participate in the HAMP program. But, you deal not with Fannie or Freddie or the FHA but with the loan SERVICER. This is the company picked to run the pool of loans - to collect payments and send out bills, and to start foreclosures and to actually WORK ON MODIFICATIONS.

There is no rhyme or reason to the process. Each servicer has slightly different requirements, all allowed by the Making Home Affordable program which created HAMP. Paperwork must be submitted and often resubmitted again and again. This is the period that most borrowers give up or taking time from work to put documents together again and again, in the hope of getting an affordable payment now that there is no more overtime or even one less job for the borrower(s) to count-on for the money to meet the payments.

I often sit at my desk working on one project, while on hold different times with a servicer for an hour or sometimes two. I can keep working on my computer and have at least one other phone in use while I work with a servicer. So far, my results are good but my client has no money to pay for all of that time, even when I only count the time I am actually doing calculations and filling out forms or talking to a servicer's representative. Because, in addition, there are the hours spent with the client who has no money to pay for the time and the results.

The most frustrating part of this process is when I ask my client, "Okay, you are now 4 months behind because the payment went up. How much have you saved? Certainly if the payment was $700 per month and now it's $850, you have the $700 put aside for each of the four months the Bank returned your money!", and the client answers "Nothing - I paid other bills". At which point I ask "Well, how are you going to pay if you get a modification if you can't even save the money you had been paying?". Occasionally the client will say "I don't know". Most often I hear "Well, when I have the modification, I will be able to make the payments somehow". With trepidation I ask "How, if you can't make the payments now?".

This conversation takes place in my office or on my telephone at least twice every week and sometimes twice a day.

RULES FOR GETTING A MODIFICATION:

1. Call the Servicer and ask for modification or HAMP documents or go on their website and print them

2. Put all required documents together - fill them out completely and DATE THEM ALL and send them to the address stated on the website or the forms. Often they MUST be faxed.

3. Remember, if you are working with an attorney or any other third-party, that person/entity is going to have to have written permission from you to deal with the servicer/lender

4. Documents expire in 60 days. That means if you send in only some of the documents required, and then send in more, and then send in more because the servicer wants them, the first docs you submitted may be "stale dated" - just like bread - and need to be updated and resubmitted. This is where the process breaks down for most Homeowners.

5. Put aside the mortgage payment you were making or that you hope to be making. If you cannot save the money, you cannot save your home. Put simply, If a borrower is not disciplined enough to save the money to pay the mortgage, then there is no ability to pay the modified payment - so what is the point of going through all of the aggravation. Sometimes Life Is Not Fair.

6. If you get a package sent to you from the lender/servicer open it immediately. If documents are due on Wednesday of next week Make sure they get there by then. A day late and you are disqualified. Fair? Probably not but read the last sentence of Item 5 above.

The people with whom you will speak are not bad people. They are doing a job, trying to avoid losing their house and are jsut asking the questions they must to avoid being fired. Don't rant at them - that assures NO COOPERATION. Remember that the folks at the top of the MBS pyramid are the folks "calling the shots" and they can't lose.

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

rii@isacofflaw.com

http://www.isacofflaw.com

We Have Been Sent To The Minors

I work in the private practice of law dealing daily with the economic realities of average people who have average problems and with those who have extraordinary financial problems. Having had the responsibility for the investment of as much as $145M, I continue to pay attention to the financial markets on a daily basis. This posting is to try to explain what has happened in the lowering of the credit rating of the Country's "sovereign" debt (meaning money the Country itself has borrowed - think Treasury Bonds) from AAA to AA+. Just like in baseball, we have been sent down to the minors.

By now, the entire world, knows that the United States has lost some of its credit-worthiness. Standard and Poors, known better by "S&P", in its role as a debt rating agency (a company that determines what debt is safe for investment and what is risky and how risky). The fact that the other two major raters have not taken any action "against" the U.S.'s risk seems to be of no importance.

In the world of investments PERCEPTION IS REALITY. That's true in many areas of life but especially in this one

The downgrade was apparently caused not by economic factors but rather the dithering of the Congress in deciding to do anything about the debt-ceiling and deficit reduction. With the complete polarization of the 2 ½ parties currently "in charge", little was done to address the systemic problem of our growing debt and its root causes.

It's easy to state that the Obama administration did or didn't do this or that, or that Bush allowed deregulation to go too far (think SEC and securitization). But, in reality should that have affected the credit worthiness "rating" of the sovereign debt of the U.S.? Probably NOT.

The Congress, through a myriad of laws and regulations wanted/tried to rein-in the Rating Agencies and hold them accountable for the financial meltdown. Remember it was these same agencies that rated Mortgage Backed Securities as AAA paper. That they were/are paid by the "investment banks" who did the securities to sell bonds to make $$billions has escaped the review of the markets now in panic over our AA+ rating. Rather than this being an assault on the problem with our deficits and trade imbalance, it seems more like S&P trying to exert enough pressure to get Congress here, and Parliaments in the EU to back off assigning liability to Credit Rating Agencies.

S&P was the only agency to downgrade. S&P was the agency most involved in giving the "seal of approval" to the MBS and CMBS bonds. S&P stands to be the biggest target if liability is established for the incorrect/negligent/disregard for underwriting standards rating of those bonds. It's worth repeating that the securities firms securitizing the loans and selling them for huge profits paid the rating agencies large fees to rate the bonds.

Michael Shemi wrote an excellent column in the August 4, 2011 edition of American Banker's blog "BANK THINK" ( http://tinyurl.com/3s4tn7n ) where he discusses the moves to lessen the restraints and assignment of liability to and on the credit rating agencies. As he put it "Lastly, the continuing crises surrounding sovereign debts and national deficits from Greece to Portugal to the United States are affording rating agencies another opportunity to boost their own importance. By threatening the imminent downgrade of the ratings for these countries, the rating agencies keep their names in the news and constantly rattle the chains of issuers, regulators, and investors."

Of note is the matter of the probable divestiture of S&P by McGraw-Hill which owns it - "spin-off" because of S&P's enormous profitability. It needs publicity. It needs a crisis to show its importance and absolute need.

The U.S. economy has problems but also the capacity to overcome those issues if Congress can stop the "Texas steel cage death fight" over ideology". It's almost as if each political party and each faction thereof wants credit for causing the next recession. The rating agencies need to be held accountable - but so does Congress; and so do WE the people. We desparately need a coherent plan to reduce the deficit over the next decade by $4trillion and then another $10trillion in the decade following. Budget cuts? Social Security cuts? NO!! Tax reform - so rich folks pay a share commensurate with their annual income. Raise the age for Social Security benefits starting in "X" years - maybe from 62 (early)and 65/6 (regular-full) to 63 and 67/8 respectively.

If the WORLD saw us with a plan to eliminate the deficit totally in 20 years with a big push in the first 10, all would be well again.

Author's Copyright by Richard Isacoff, Esq, August 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

The Greatest Depression? Ask Rep. Neugebauer (R-TX)

Rep Randy Neugebauer, Chairman, House Financial Services Oversight Subcommittee, said it is time for the government to admit its foreclosure prevention efforts are a failure and should be shut down. The Texas Republican said such programs are counterproductive and are preventing the housing market from bottoming out, which is necessary before recovery can begin. (1/24/2011 from the American Banker)

Now, there is a real solution to the foreclosure crisis! Bite the bullet - displace hundreds of thousands of homeowners, let the inventory of bank-owned properties (OREO) sky-rocket, let the housing market drop bottomless and that will allow us to have an economic recovery. The sad part about Rep. Neugebauer's assertion is that he may be right in the long-term, but at what IMMEDIATE & CURRENT COST!

The program is not working - no news there. Why? Because the government regulators and policy makers do not want to to tackle the "investment banks" and the "investors" in mortgage-backed securities ("MBS")to tell them they WILL modify loans. At this time, no one can order a lender, mortgage servicer, investor, Pool Trustee, or any one else that it/she/he MUST modify a loan.

Everything is voluntary and the decision makers are in a position that they cannot lose. even if the market "bottoms out" as the Rep. from TX suggests it should. The Sponsors of the MBSs and the investment banks that put the packages together and sold them have already been paid or are so high up the MBS hierarchy of payees, that unless the value of every mortgage in the pool of mortgages becomes utterly worthless (no value at all to the houses securing the mortgages which comprise the MBS), THEY WILL GET PAID.

From an "economic" point of view (see the 1/13/11 posting), the Rep. makes sense. From a financial point of view it does not. From a human point of view it would be "The Nightmare from Wall Street". Remember "economics" is the study of an economy which is merely a system to deal with supply and demand. The concepts are simple but the implications are not. This is a case where the theory is great and accurate in its long-term view. But, getting from here (where/when we need modifications and for the Government to help all of us struggle through the mess) to there (where the market, the economy can correct itself) is a 20 year span.

Perhaps the Rep. has not taken into account the mass disruption of the pensions which hold funds that hold mortgage-backed securities. Or maybe he has forgotten that if there is no confidence in the value of the MBS, which is really set by its stability and ability to pay the return it's promised, the value will drop to $0 or something close to it. In reality, the houses that would be lost in foreclosure will retain significant value, even if that is only 20% or 30% of the mortgage balance. When the next generation comes along, it will be able to buy a vacant house for 40 cents on the dollar from what was owed on the mortgage. What will it cost the current homeowners on a nationwide basis?

Factor in those who lose houses to foreclosure and then the rest of the homeowners, from low-income to upper-middle class income, who manage to keep a house now worth half (1/2) of what's owed, and you have a "financial" (not economic") crisis. The economy will have way to much supply, and literally no demand for years.

Recession? Nah, the Greatest Depression

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

rii@isacofflaw.com

http://www.isacofflaw.com/

Good News/Bad News - Is There a Difference?

Foreclosures are up 23% from the end of the 3rd quarter last year. Foreclosures are up 5% from the end of the second quarter this year. If the numbers continue, this year will have more foreclosures than any before. THAT'S THE GOOD NEWS!

With all of the money given (loaned) to banks, and with the likes of JPMorgan Chase having a profit for the last quarter of $3,600,000,000 ($3.6 Billion), having doubled the amount of money it has planned on for loan losses, you might think that there would be money for you to borrow to refinance your house (after all your credit is good ), or borrow for your business. WRONG - THINK AGAIN! Banks are bracing for the next wave of losses; commercial real estate mortgage backed securities failing because the loans that make up the securities are defaulting. Additionally, because of the financial crisis we are still in, the "normal" way of making loans will not work.

In the April 13th posting (and several others), the whole issue of securitization was explained. The basics: agree to buy a large number of mortgages so that the value, on paper, of what the security maker controls is huge, like $1 Billion. Rather than holding the loans in any Bank, and risking borrowers not paying the mortgage regularly, sell the loans in a package (pool) to investors on Wall Street; investors like mutual funds, individuals, pensions, and of course the Federal Government. So now the $1 Billion portfolio is owned by thousands of people, plans etc. The security eliminates the risk of loss for all of the banks involved in making the loans, because no bank owns one of the actual mortgages - not one. Investors, not lenders/banks, each own a small portion of the pool. Again, they own a security, that acts like a corporate bond, but not a mortgage.

Because of the recent losses and the enormous rise in foreclosures, no one wants to buy these mortgage-backed securities ("MBS"). If no one will buy them, then they will not be created, because the creator does not want to get stuck with a long-term investment (pooled mortgages). If they are not being created, the banks will not lend; even to good borrowers. THIS IS THE BAD NEWS.

There will be no real recovery until credit is available again. The government's mortgage lenders FannieMae and FreddieMac, FHA, have new and very strict guidelines. If you have a blemish on your credit report, NO LOAN.

Businesses use borrowed money all of the time to keep operations running, to buy new equipment, and to expand. If banks won't lend to them, the business shrinks and dies. More jobs are lost, and not just at that business. if people lose work, then they cannot spend money and other businesses fail. That is the cycle we are in for unemployment. And more unemployment means more defaults on mortgage payments, and that means more foreclosures.

The new Bank regulations that will require banks to keep more money set aside for bad loans, and the fact that only the Federal Government will buy the existing MBS and not new ones, means that Banks will not make loans, except to the very best customers. The noose gets tighter and tighter. The recent run-up of the stock market is not a reflection of consumers’ and "Main Street" types’ (us) confidence. The profits are being made by traders, Wall Street professionals, and companies like JPMorgan Chase.

So, the very kinds of investments, the MBS or pools of mortgages, that allowed the housing boon, has led us to the housing boom - it’s imploded. Breaking the cycle we are in will take time; actually a great deal of it

Senate Votes Against Homeowners' Rights

Photo from Article by By Mike Lillis in the Washington Independant

What could have been the best and least costly way to fix the housing market and to save countless homes from foreclosure has been snatched away. A piece of legislation that had become known as "The Durbin Bill", actually Senate Bill 61 which was sponsored and championed by Sen. Richard Durbin, has all but been permanently defeated when only 45 Senators voted to end a filibuster on the bill this past Wednesday (Note: A filibuster is a procedural rule that allows the opposition to proposed legislation to prevent it from being voted upon, by continuing the debate forever. It takes 60 senators to end the filibuster and stop the delay).

The bill, following the House or Representatives' lead, would have given Federal Bankruptcy Judges the authority to modify unfair primary residence first mortgages. First, it must be stated that the Judges have the authority and use it every day on almost every other type of loan. Sometimes the Lender is happy because the Judge will not modify the loan, and sometimes the borrower is happy because needed relief is okayed by the Court. Why then has this proposal brought about such intense debate and one of the most "gloves off" lobbying effort in a long time?

The simple answer is greed, but that does not really explain the full picture. Having worked in the Banking industry, as a banker, regulatory enforcer, and part-time lobbyist, I can attest to the power of the banking and finance lobbies. Why would this sector of the economy which has received billions of dollars, in fact, a trillion dollars, oppose the ability of a Federal Bankruptcy Judge to modify an unfair home mortgage? The explanation lies in the nature of home mortgages in today's financial market and in the new definition of a "Bank". The "banking" industry includes companies like Goldman Sachs, which do not make consumer loans, do not take deposits, do not have checking accounts, do not have ATMs, do not have branches, and do not have customers/depositors, except those few customers who buy SECURITIES. These so-called banks are really securities firms which put pools of mortgages together and sell them to pension plans, large companies, mutual funds etc.

Earlier posts have discussed the securitization of home mortgages into a type of derivative called mortgage backed securities. This pooling of hundreds of millions of dollars of mortgages into packages has caused them to cease being a loan from a bank to a homeowner, and to become a source of income, each mortgage contributing its fair share, for investors who bought not the mortgages, but the right to receive income from the pool of mortgages, the Mortgage-Backed Security (we will refer to these as MBS for the rest of this post).

The argument runs like this: Because the rate of defaults has risen well above predictions, the flow of cash is threatened to a point where the investors may not get what they "were promised"when they paid for their fractional share/piece of the MBS. It is critical to keep in mind at all times when thinking about this issue that the MORTGAGE as we think about it HAS CEASED TO EXIST for the purposes of the investment MBS.

The investors in the securities called MBS,do not want to have the value of their investment decreased. If enough mortgages in the package have the terms changed to lower the payments, the entire package will pay less than expected/promised, and therefore the entire package will be worth less than the investors paid for it. Also, we are referring to a pooling of mortgages where each pool might be $500,000,000 (1/2 billion dollars) or more. The financial stakes are enormous. This in fact is why the term "toxic assets" sprung up - toxic because they would harm or kill the value of the MBS AND no one knew to what value. Therefore the assumption was that they were worth nothing, or close to it.

Okay. So what does that have to do with the Durbin Bill to allow Bankruptcy Judges to change terms? EVERYTHING! If a borrower obtained a loan that had an interest rate which was at the market rate of maybe a bit higher, and it was an Adjustable Rate Mortgage (ARM) where after two years the rate would go up and where the loan could never go down below the original rate, the mortgage could be sold at a premium even if, in reality, it cheated the borrower who never was told about the rate increases. By allowing a Judge to determine that the mortgage was sold to the borrower under false pretenses, and misrepresentations, and therefore permitting the Judge to CHANGE/LOWER the interest rate, the owners of the MBS that owned the loan would lose, as explained above.

Again, if a Judge can state that a loan was unfair, and that the lender cheated the borrower, and therefore the terms have to be changed to make the mortgage fair, the entire structure of the MBS falls apart. If that happens, the "banks" who own them or have sold them, lose millions of dollars. This is because no one knows what the end rates will be or the amount of income any loan will pay, because a Judge could change it. There is NO CONCERN about the family, losing its home and being evicted because they were tricked into taking a loan with a moderate interest rate, not realizing that it would go up after 2 years by 3%, and then adjust every 6 months thereafter. The variations on the theme of bad loans have been discussed in earlier posts ( see the following postings: 3/18, 3/7, 2/21, 1/29, 1/3)

The "banking industry" lobbied the Senate not to allow Judges to make the determination that the loan is unfair. The attitude is that a borrower should have known better; that once you make a deal you MUST live with it, even if you were misled, lied to, cheated etc. What is lobbying? In its nice form it is just talking to members of Congress and expressing the opinion of the lobbyists client. In it TRUE form, it is pressuring Congress on a member by member basis to vote the way the Lobbyist/persuader wants by some of the following: threatening to move a large banking operation to another state; threatening to make no more campaign contributions if the vote isn't the "right" vote; threatening to support the Senator's/Congressman's opponent; threatening to pay for ads like the "Swift Boat" ads that hurt Sen. Kerry's presidential campaign; AND flat out bribery - money, houses, trips to where ever etc.

There are other players as well, like the companies that "RATE" the MBS, in a sense "kick the tires" to see how solid the investment really is. The companies have huge amounts of liability if the rating of the MBS market has been a sham. The stakes are huge -Billions of dollars for the investors,"banks", and the rating agencies!. Motive? "YOU BETCHA!" (thank you Governor Palin for the words to use)

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

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

Homeowners Not To Get Bailout Money

F.D.I.C. - MORTGAGE CRISIS - BAILOUT - MORTGAGE BACKED SECURITIES

It comes as quite a surprise to many, like the 535 members of Congress, that the recommendation and plans put forth by the F.D.I.C. regarding the way in which to help homeowners and stabilize the housing market is being ignored by the Administration's Secretary of the Treasury, Henry Paulson.

Now, truth be told, Secretary Paulson is probably a good bit smarter and experienced than I am, but perhaps some of his advisers and employees are not. More to the point, I suggest that F.D.I.C., suggesting a direct to homeowner mortgage aid program, may have the correct perspective. If the complaint is accurate, that the problem started due to adjustable mortgages being sold to and "bought" by sub-prime borrowers leading to Mortgage Backed Securities ("MBS"), then fixing those mortgages should alleviate the worst of the problems.

The securities markets, those entities that buy and sell literally millions of mortgages after they are bundled into MBS, have determined that the assets, because the true Fair Market Value is unknown, are worthless. That is as absurd as stating that they are worth 100% of the principal and interest owed on each underlying mortgage. EXTREMES - both views. There will be losses, but if they can be quantified by F.D.I.C. or any other agency of the Federal government, the investors in MBS should be more secure, have a sense of balance restored, and allow the markets to return to a sense of normalcy.

The F.D.I.C. program, in its entirety is at, http://www.fdic.gov/loans/loanmod/index.html. The basics are to underwrite a portion of the outstanding mortgages where there is a default, so that the holders of the MBS know that the value is still there. The basics of the program, which the Treasury is fighting despite the rules for use of the Bailout funds, is to MODIFY EXISTING MORTGAGE LOANS

1. Pay servicers $1,000 to cover expenses for each loan modified
2. FDIC/bailout funds would share up to 50% of the losses if a modified loan re-defaults

FDIC projections state that 2.22 million loans could be modified, having a book value of $444 billion with a total program cost of only $24.4 billion. Assuming a 33% default rate 1.5 million foreclosures could be avoided

One might also believe that while the people working for Secretary Paulson are working around the clock and are very bright, some of them in key spots have no experience in this type if crisis. If you have never worked-out failed assets (loans) in real-life, not just through computer modeling, nor as estimated by economists, actuaries, financial analysts, and Goldman Sachs/Wall Street, you may miss critical details. Here, to fix the problem, the problem must be understood: it is not securities; it is the inability to pay mortgages and the resulting erosion of home values.

THERE IS NO EASY ANSWER! That does not mean that we should have had to panic, lose confidence in the system itself, and, by stampede, cause the securities market drop like a rock.

author's copyright by Richard I. Isacoff, Esq. - November 2008

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