Class Actions for Modifications or Divine Intervention

There has been movement in some state courts to shore-up the failure of the legislation enacting the Making Home Affordable program initiatives to modify loans (HAMP etc); Federal Courts seem paralyzed.

As stated in an earlier post, there is no private right of action under the Home Affordable Modification Program ("HAMP") or any of its siblings. Congress, the Treasury, Federal Reserve, and all of the alphabet soup of regulators (FDIC, OCC, OTS, TARP Oversight, etc), evidently did not want (or caved-in to the mortgage investment community) homeowners to be able to sue mortgage servicers and actual lenders just because the servicers and lenders uniformly and regularly ignore the intent and actual RULES and REGULATIONS set out in the MHA/HAMP enacting legislation/rule-making.

The lack of this "private right of action" means that no matter how slip-shod, devious, lying, resistant, unethical, and immoral the servicers and lenders are in reviewing, analyzing, and denying modifications, homeowners/borrowers CANNOT sue in Federal Courts, and specifically Bankruptcy Courts, to force a modification OR sue because the servicer/lender has REFUSED to follow Federal regulation, rules, and guidelines. Even if the home is foreclosed and sold after the servicer/lender promised a modification, Congress and the White House, in their hurry to curry favor with the Banking interests (Goldman Sachs, Chase, Bank of America) and keep lobbyists happy, failed to put any teeth in its MHA/HAMP legislation.

Only the regulators like the Treasury, FDIC, Office of Thrift Supervision ("OTS"), Federal Reserve, can even recommend/urge/push the Banks and Investors in mortgages and Mortgage-Backed securities to follow the rules. There are no teeth in the rules and regulations.

Some State Courts have seen fit to force Lenders and servicers to show that they have acted in good faith when a Homeowner manages to get before a judge. The key here is "acting in good faith". If there has been no "good faith", or worse, demonstrated "bad faith", State Courts are allowing injunctions to stop foreclosures. No one expects there to be a modification when a homeowner is 30 months behind and cannot make a payment even if it based on 2% interest rate for 40 years, unless the problem was fraud in the origination of the loan. But most issues are regular people with regular problems in today's economy: job loss, reduced income, illness or death.

The exception may be CLASS ACTION SUITS. Simplifying a complicated legal issue, simply put, if there can be shown that as a pattern and practice a lender/servicer systematically and consistently rejects modifications, or acts so negligently as to de facto reject modifications (never gets paper processed etc), and there are enough diverse persons affected, then there may well be a "CLASS" of persons affected enough to demonstrate that all are "third-party beneficiaries" of the federal law.

Homeowners and their attorneys should begin to think about such Class Actions. Perhaps if there are enough suits against Lenders/servicers and the "investor-managers" of the Mortgage-Backed Securities, Congress may take action: Don't count on the mortgage industry or the Banks to help any more than they are forced to by some higher power (as morality is out, do not plan on Divine Intervention).

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

rii@isacofflaw.com

http://www.isacofflaw.com/

Recession In Real Life

Has anybody stopped to look at real people, and not just to discuss economic theory. The theory states that a "recession occurs when there are two or more consecutive quarters when the gross domestic product ("GDP") falls". GREAT - what does that mean? To most of us NOTHING. It’s just another scorecard for the government and the entities that control the money supply, the interest rates, the federal budget, and the stock market, and of course, it is important for economists.

The problem for the un-wealthy is that this country is "...Of the People, By the People, and For the People...". The key word is "people" - that is opposed to "person". The government, out of necessity, looks only at the TOTAL financial picture of the ENTIRE country. Policy is made for a GRAND SCALE, the people, so that "on average" a stimulus package will work; a foreclosure prevention program will actually abate the crisis of people losing their homes; the unemployment rate starts to decline.

"On average" does not help any individual, just the larger group. By that I mean that there will be a few that do very well, a few that really get hurt, and the vast majority probably survive - but barely!

Look at the results of the Making Home Affordable Program, the parent to the Home Affordability Modification Program ("HAMP"). Foreclosures continue at numbers far exceeding what we have seen in the past, and much of the slow-down in the pace of foreclosures is because mortgage companies just do not want any more inventory.

SOME EXAMPLES OF THE PROBLEM:

1. American Home Mortgage Servicing Inc. ("AHMSI"), the 6th largest servicer in the country, has 124,300+ loans it was handling that are more than 60 days delinquent and program eligible. Just 10,000 (9%) of these were in the first step to a modification, a Trial Modification Program; and only 232 (less than 2/10ths of 1%) had permanent modifications. No wonder - I submitted a package, with ALL of the required documents for a client, and after waiting 3 months, he was offered a Trail Modification that INCREASED his payments by $180/month - 17%. His loan was sold through Predatory practices, a fact of which AHMSI and its attorneys are aware but, so what! ON AVERAGE, when they do a modification, it helps.

2. Wilshire Mortgage (technically Wilshire Credit Corporation) buys and services large blocks of mortgages. My clients fell behind due to a loss of pay - (company closing so $18/hr became $8.10/hr), and because of very bad accident, where husband was out of work, getting grafts etc, for 8 months. I submitted a COMPLETE HAMP package to Wilshire, using their forms and comprised of 40 pages, on August 19, 2009. In early January I called as we had received no response despite many telephone calls to the company. I was told that they had the documents but they were now out of date - please update. I sent a full new package per instructions on 2/2/2010, but the scheduled foreclosure sale for 2/17/2010 would not be postponed. So I filed for protection under Chapter 13 of the Bankruptcy Code THE DAY BEFORE THE SALE, and have filed suit against Wilshire within the week.

3. HSBC/HFC/Household Finance (I & II)/Beneficial (all the same owner - HSBC) had been sent documents over a month ago. I contacted both the foreclosure attorney and HFC’s (et al) primary litigation counsel for help. Literally the day before the sale was to take place I had to file suit to stop the sale. The loan was a "bait and switch" with multiple sets of original documents, with a last minute increase in the interest rate, federally and state required disclosures not given to the borrowers, or or incorrect on the face of the documents. No modification was ever even offered to the borrowers despite their submission of documents.

4. The mortgages I have with JPMorgan Chase, Bank of America and Bank of America Home Mortgage (the old Countywide), Saxon Mortgage, OneWest (formerly IndyMac Bank)and several others, follow the same pattern

"ON AVERAGE":

In ALL of the above cases, my clients can afford their mortgage with a rate reduced to 5%. In all cases, the necessary paperwork was filed timely to prevent a foreclosure sale, but WITH THE SPECIFIC MORTGAGE the lender/servicer was just too busy. ON AVERAGE the claim is that the companies are responsive and adhering to the MHA program guidelines. That may be true but dealing with SPECIFICS, people are losing their homes. I have at least 15 cases just like these with more coming in every day - and most are taken with the hope that the lender will have to pay attorney fees because the clients do not have the money.

MHA, HAMP, HARP, TARP, and the other acronym programs, work "ON AVERAGE" - or in these cases they DO NOT. Even the Government’s grand scale of looking at problems for the mass solution do not make any sense. It’s like looking through binoculars backwards. Everything looks fine until you hit the iceberg.

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

rii@isacofflaw.com

http://www.isacofflaw.com/

"Making Home Affordable" Program Is Not Working

The Obama administration's Making Home Affordable program, you know the one to stop foreclosures on millions of homes, is missing the mark. As was reported in the New York Times by Peter Goodman in today's edition, "The Congressional Oversight Panel, created last year to keep tabs on taxpayer bailout funds, said the Obama administration’s program would prevent fewer than half of predicted foreclosures." (To read his full story go to http://www.nytimes.com/2009/10/10/business/10modify.html ).

Mr. Goodman's article discusses the overriding problems with the program, but does not deal with the situation from a day-to-day point of view. In reality, the Obama Program, as it is called, (which is really named Making Home Affordable ("MHA"), and has under it two programs - Home Affordability Modification Program "HAMP" and the Home Affordability Refinance Program "HARP") does not accomplish the goal of home preservation.

Basically, if a homeowner is behind now, but was current as of January 1, 2009, and meets other criteria, the homeowner should be eligible for a loan modification. The modification allows the participating lender to set up a 3 month trial period wherein the borrower makes affordable payments based on actual financial information submitted to the lender, after which the lender can decide to modify the loan or not. The terms are dictated by the lender and may not ever become permanent.

The most disturbing part of the situation is that homeowners are going into foreclosure at a record rate, and the programs at best are being outpaced by the foreclosures by 3 or 4 to 1. Elizabeth Warren, head of the TARP Oversight panel, estimates that even when everything is working at full speed, the programs will lose the battle against foreclosure schedules by 2 to 1. The honest homeowner who "bought" a mortgage without really understanding the terms and was sold "a bill of goods", like thinking he/she had a 30 year fixed mortgage when in reality the rate changed after 3 years, has no recourse.

The lenders, Wall Street folks, and investors, who pushed and packaged these loans, and now do not want to take any loss of income, are not being held accountable. They still have no risk of loss. Taxpayers, meaning the homeowners who are in trouble, are the ones paying the entire cost of the programs, YET CANNOT EVEN GET HELP IN MOST CIRCUMSTANCES.

With the jobless rate being reported at near 10%, which means it is probably over15% (people off benefits and not looking anymore are not reported), and layoffs continuing, more and more people will be a situation where foreclosure is inevitable. The MHA could work, but not without the full cooperation from the lenders and mortgage servicers. With no one being in charge to enforce ACTIVE participation in MHA, and there being no regulator with teeth to force compliance, the people who own the loans will not allow the programs to work. They will lose money if modifications become permanent. Guess who wins this battle.

For now, it's the only game in town. If you are facing foreclosure, apply for an MHA program. Once it's determined you are eligible, any foreclosure action is put on hold while your application is considered.

(A correction from 9/28/2009 post: I incorrectly stated that Rep. Barney Frank was from Western MA. He is, of course, from Eastern MA)

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

rii@isacofflaw.com
www.isacofflaw.com

Mortgage Modification Mandates

As a follow-up to the last post, several important matters:

1. If you have submitted the application for a loan modification under the "Making Home Affordable" program, any foreclosure proceedings must stop. The exception is if you do not meet the basic criteria (see http://www.makinghomeaffordable.gov/)

2. To see if your lender/servicer MUST participate in the program go to http://www.financialstability.gov/impact/contracts_list.htm - if it is listed, it has to deal with the modifications

If the lender or servicer received any TARP funds or "volunteered" to be part of the Home Afforability Modification Program "HAMP" or the Home Affordability Refinance Program "HARP" it should be on one of the lists

3. If a mortgage company or servicers tells you not to send any money until the paperwork is received or not to send money for any other reason, ask for the person's name or employee number. Also, ask how you be certain that you should not send any payment. Even if you are satisfied that you do not have to send a payment "that" month, DO NOT USE THE MONEY for anything else. Set up a separate savings account and put all of the money for the payment(s) in the account. If the MHA modification doesn't work, and the lender has its own program, you WILL be asked if you have the last "X" payments, since the last one mailed.

4. If you get mail offering to help you get a loan modification, and the solicitations asks you to send in any money, even after you have called the company and spoken with a "counselor" DON'T DO IT, unless it is your lender/servicer and you have an agreement. There are hundreds of scams right now - 15% of my clients have paid money to some company that cannot help, except to help themselves.

Two expressions come to mind: "God helps those who help themselves" and "God help those who help themselves". (Interesting what one "s" can do!)

5. If you have questions, call a bankruptcy attorney or a foreclosure attorney in your area. If you don't know who to call, check http://www.naca.org/ or for a lawyer http://www.nacba.org/ OR send me an e-mail

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

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

"Credit Default Swaps" - Insuring Against Oblivion

We were dealing the the issue of DERIVATIVES. Okay - So I put too much into the last posting. Let's start this one in the middle; without the preamble.

Let's get an example that most of us understand more easily - LIFE INSURANCE. When you buy a life insurance policy, you are betting an insurance company that you will die before you have paid more in premiums than the policy will pay to your beneficiaries. The Insurance Company takes the BET, because they know that on average, very few policy holders dies before either paying in more than the death benefit, or simply let the policy lapse after many years of paying. The insurance company, having hundreds of thousands,or millions of other people buying and dying, have sophisticated mathematicians (actuaries they are called) who prepare statistics on the probability of someone dying.

For example, if you are healthy and 30 years old, and do not race cars, and want to buy a $25,000 policy, the company will say "fine" and charge you a modest monthly premium. They can do this because they have statistical proof that very few 30 year old healthy people die. If you are 70, the chances of death before paying a lot of premiums is far greater, so the payments are much higher.

REGARDLESS OF THE SITUATION, YOU ARE BETTING THE COMPANY YOU WILL DIE WHILE YOU ARE INSURED AND BEFORE YOU HAVE PAID A FORTUNE, AND THEY ARE BETTING THAT YOU WON'T. That is gambling/betting/buying chances... The company can do this because they sell hundreds of thousands of policies and the statistics prove them right enough of the time. Basically, you and hundreds of thousands of others pay premiums, and the Insurance Company pays relatively few claims. They get to keep the profit!

To be certain that the Company has guessed correctly, it will bet another and bigger insurance company that the insurer might be wrong. The bigger company which has even more statistics takes the bet and collects easy money. It has bought a derivative - a bet not on the life of the insured, but a side bet on whether the first company will have to pay the claim. This second bet is DERIVED from the first bet -the insurance policy itself. It is equivalent to the bet on Tiger's golf game (see the prior post - great analogy & reading).

BUT, what would happen if a disease struck all of the 30-40 year olds and they died, leaving the older people only - the people who have less time to live (and pay premiums according to the math guys)? Easy - the company would not be able to pay all of the claims. The bigger company which had to pay the smaller company who issued the insurance policies might default. Both companies might go bankrupt. So, the bigger company bets with even bigger company etc. What happens is that there might be 7 bets that the 30-40 year olds will live long. If they don't, 7 companies have to pay and 7 companies might file bankruptcy.

Were any of the assumptions wrong? It was a first time event, all those young premium payers dying, but they did die. Would that make all policies bad? No. It does point out that betting that a mortgage will go bad (OKAY CALL IT INSURING AGAINST IT GOING BAD) or any other such bet is fraught with potential disastrous problems. The biggest of these is the fact that there could be 5,6,7 or 100 bets on that 30 year old's life or those mortgages.

With MBS, and the underlying mortgages, the type of Derivative is a CREDIT DEFAULT SWAP. It would be more accurate to it Credit Default Insurance, or (longer name here) "My BET that your loans will not default for which you pay me a lot of money." IT IS A SWAP OF RISK FOR MONEY. Nothing more -nothing less

How did we get here, and where do we go? (understand that there are more than $40 trillion in these Swaps and other Derivatives). The Final installment of the series will focus on how to keep the $40 trillion from wrecking (for real this time) the world economy

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

rii@isacofflaw.com

http://www.isacofflaw.com/

The Real Toxic Assets - Derivatives (whatever they are)

This posting will begin a 3 part series, to be finished by week's end, where we try to make understandable the un-understandable. Obviously the topic continues to be the "Stimulus Package", TARP, TALF, and the latest entry into the lexicon of acronyms, the PPIFs. PPIF stands for "Public Private Investment Funds". These are going to be the repository of those evil and lurking "Toxic Assets".

(cartoon from The New York Times)

A short recap: - mortgages were sold that had the interest rate adjust ("ARMs"), on both prime and sub-prime borrowers, to the point that some homeowners could not pay the monthly payment. These, along with perfectly fine loans were then bundled together in $500,000,000 or larger pools, and sold to Wall Street firms which made them into saleable securities akin to a bond. They were then resold as investment quality bonds, in smaller pieces, to investors all over the Country and the world. After all, what could be safer than an investment, paying interest, that was backed by Home Mortgages. Everything was fine until the adjustments started to occur and delinquencies looked as if they would be greater than expected. The investments, Mortgage Backed Securities, "MBS", were no longer worth as much as everyone thought they were because of the fear of more defaults and foreclosures, so panic selling began, until no one would buy any of these MBSs. Because no one knew the exact value, IT WAS DECIDED, that the value would be ZERO, or something close to it and they became "Toxic Assets". (RECAP OVER)

The assets were no more toxic then than they were at the start. In reality, the true asset was the underlying collateral - home mortgages. How many would go to foreclosure and how much would be recovered was unknown, but there are a lot of percentages between 0% and 100% - none were used!! There were 2 hidden issues: 1. With the mortgages being bundled as MBSs and sold as bonds to investors (earlier posts please) no bank or lender or any one who sold them was at risk. The investors might lose some money, like they might on any corporate bond or a mutual fund, but the lenders were home free. 2. A little understood evil was waiting to steal the souls of all who succumbed to good interest rates - DERIVATIVES.

What is a "Derivative"? Simply put - a BET, a gamble that something will happen based on something else; like during the World Series, betting not on which team will win or lose but whether the score of both teams will be higher or lower than the number of strokes Tiger Woods takes in the first 3 holes of his current tournament. THIS STUFF REALLY HAPPENS!!! Here, it was a bet that mortgages would default in record numbers. It seemed like a safe bet to take, and had been for the past 50 years; mortgages had a more or less constant and predictable default/foreclosure rate.

Let's get an example that most of us understand more easily - LIFE INSURANCE. When you buy a life insurance policy, you are betting an insurance company that you will die before you have paid more in premiums than the policy will pay to your beneficiaries. The Insurance Company takes the BET, because they know that on average, very few policy holders dies before either paying in more than the death benefit, or simply let the policy lapse after many years of paying. The insurance company, having hundreds of thousands,or millions of other people buying and dying, have sophisticated mathematicians (actuaries they are called) who prepare statistics on the probability of someone dying.

For example, if you are healthy and 30 years old, and do not race cars, and want to buy a $25,000 policy, the company will say "fine" and charge you a modest monthly premium. They can do this because they have statistical proof that very few 30 year old healthy people die. If you are 70, the chances of death before paying a lot of premiums is far greater, so the payments are much higher.

REGARDLESS OF THE SITUATION, YOU ARE BETTING THE COMPANY YOU WILL DIE WHILE YOU ARE INSURED AND BEFORE YOU HAVE PAID A FORTUNE, AND THEY ARE BETTING THAT YOU WON'T. That is gambling/betting/buying chances... The company can do this because they sell hundreds of thousands of policies and the statistics prove them right enough of the time. Basically, you and hundreds of thousands of others pay premiums, and the Insurance Company pays relatively few claims. They get to keep the profit!

To be certain that the Company has guessed correctly, it will bet another and bigger insurance company to bet that the insurer might be wrong. The bigger company which has even more statistics takes the bet and collects easy money. It has bought a derivative - a bet not on the life of the insured, but a side bet on whether the first company will have to pay the claim. This second bet is DERIVED from the first bet -the insurance policy itself. It is equivalent to the bet on Tiger's golf game.

What would happen if a disease struck all of the 30-40 year olds and they died, leaving the older people only - the people who have less time to live (and pay premiums according to the math guys)? Easy - the company would not be able to pay all of the claims. The bigger company which had to pay the smaller company who issued the insurance policies might default. Both companies might go bankrupt. So, the bigger company bets with even bigger company etc. What happens is that there might be 7 bets that the 30-40 year olds will live long. If they don't, 7 companies have to pay and 7 companies might file bankruptcy.

Were any of the assumptions wrong? Yes and no. It was a first time event, all those young premium payers dying, but they did die. Would that make all policies bad no. It does point out that betting that a mortgage will go bad (OKAY CALL IT INSURING AGAINST IT GOING BAD) or any other such bet is fraught with potential disastrous problems. The biggest of these is the fact that there could be 5,6,7 or 100 bets on that 30 year old's life.

These DERIVATIVES, these side bets, are some of the main issues that "broke" A.I.G.

What happened in the financial markets that have left us with trillions in debt is next in this 3 part series.

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

rii@isacofflaw.com

http://www.isacofflaw.com/

Stop the Foreclosure: How?

Since the last posting, very little has come of the stories about bailout money being available to stop foreclosures. Loan modifications are obtainable, but, without patience and a knowledge of the process, the task is nearly insurmountable. What is worse is not just that the pace of foreclosures is increasing, but that the moritoriums are over and all of the borrowers who thought that a solution would be reached, before the sale date, are being rudely surprised.

The argument that the President Obama will institute programs that will be the lifesaver for which everyone is waiting has merit; but what do we do about all of those homeowners who lose their homes in the meantime? If you have any concern about a soon-to-happen foreclosure, please read the post of December 22, 2008, which deals with stopping the process.

If there is any question about whether a property will be sold at a foreclosure action, contact an attorney or a legal aid organization. If there is no time left, and if there is a sale tomorrow, file a Chapter 13 Bankruptcy. The Clerks at every Bankruptcy Court can help an individual file the basic documents to get the Bankruptcy started, thereby STOPPING the sale.

The offer is open and will remain so - contact me through my website or directly by e-mail and I will try to assist through a referral to an attorney, or by "walking you through" the filing process.
Author's Copyright by Richard I. Isacoff, Esq, January, 2009
http://www.isacofflaw.com/

rii@isacofflaw.com

Foreclosures Continue

FORECLOSURE - TARP - BAILOUT - MORTGAGE CRISIS - CREDIT CRISIS - PAULSON

Secretary of the Treasury Paulson has informed Congress that the second half of the $700 billion bailout money has to be released for use NOW, because the first $350 billion has been used, none to help homeowners in foreclosure. More outrageous is that none of the remaining funds are being set aside to stop lenders from taking borrowers homes.

The pace of foreclosure sales is going to accelerate after the 1st of the year; the mortatoriums put in place by many states will be expiring, letting the Mortgage Servicers move against delinquent borrowers. Neither Congress nor the Treasury, which controls the TARP money (bailout), is taking any action to save homes. Despite warnings, from economists, the FDIC, housing industry experts, and investment market experts, that the credit crisis and economy's crisis will not abate until the housing issues are addressed, the present Administration and those entrusted to fix the problem have chosen to continue on the course of action initally taken -money to financial industry entities.

There is a logic behind this approach in theory, but reality has shown it not to work. Congress thought that by giving money to financial institutions there would be a "trickle down" to homeowners; that banks would lend money to individuals, enact loan modifications to save homes, and generally ease credit (the easing of credit to be addressed in a later post). Instead, money is being hoarded by the banks which are recieving the funds. They are solidifying their balance sheets, increasing their reserve of cash, but not lending, especially not lending to homeowners for loan modifications.

When this matter is brought up, the near unanimous response is " we cannot modify loans because there are no loans, just securities, and the investors will not permit modifications". Why is Congress and the Treasury silent on this issue. The "problem" can be fixed but not without political fallout. Would there be isues with the investment community, sure, but any dislocations are minimal compared to the downward spiral we are going to continue to endure if the housing crisis is not fixed.

As we consider why our friends, neighbors, and we lose our houses, we must put pressure on the Treasury and Congress to stop the financial insanity of allowing more and more homes to be sold at foreclosures, ensuring losses to the lenders, or investors, and increasing the glut of homes for sale, thereby driving down prices further, forcing more institutuions to need bailout money.

Putting aside politics and government inaction, the next installment will deal with credit and how to save your home.

Author's Copyright by Richard I. Isacoff, Esq - December 2008

http://www.isacofflaw.com/

Homeowners & Mortgages & Foreclosures & TARP?

FORECLOSURE - TARP - MORTGAGE - BAILOUT - SUBPRIME

(Note: This post refers to earlier writings. You are urged to read those submissions)

This is one of those times when a confession is necessary: I have a subscription to the Wall Street Journal, in fact both print and online! Now, in ordinary times, I would not have even mentioned my reading habits but, as I have stated before, these are not ordinary times.

The WSJ has published two editorial pieces opining that the FDIC proposal to get funds to homeowners by modifying mortgages would cost more than the $24 billion originally estimated. The Journal cited Treasury Department and White House critics that are purported to have shown the actual cost could be as high as $70 billion. This is to save houses; to end the cycle of foreclosures and stabilize the economy. This, it was deemed, was too much to pay for stability in the marketplace. Here, the marketplace does not refer only to the real estate market, but, to some extent, to the securities market as well, and, in reality, OUR ECONOMY.

Remember the Mortgage Backed Securities that are being called "toxic assets"? The toxicity is the inability to value these interest bearing bonds, derived from mortgages (hence called "derivatives"). The entire market for MBS was based on the sales pitch, by Lehman Bros, Goldman Sachs et al, that HOMEOWNERS WOULD ALWAYS PAY 100% of their debt. That may have been true when, if there was a problem, the homeowner/borrower could meet with the LENDER, discuss the problem and work out a solution. Mortgages have become rare - they have become securities. There is no owner, no banker, no lender to whom you can ask for help and advice.

The FDIC proposed refinancing borrowers and maybe even paying the loan servicers, the entities that collect monthly mortgage payments and sent them to the investors. The idea is that the servicers have no incentive to do more than send bills, collect money, and pay the investors. The PSAs (see earlier posts) define, in extreme detail, precisely what Servicers can do. The investors want the interest that they were "promised" and they will not accept anything less. That attitude will get them far less than if borrowers pay most of what is owned, or perhaps 100% of what is owed but at a lower interest rate.

If the FDIC has it wrong, and the investors are not thinking clearly due to a near panic, what is the solution? Solution? What is the issue? FORECLOSURES. Whether the reason a homeowner facing a loss of his/her home is "at fault" for reaching beyond his/her monthly income, or if the reason is that the borrower was sold a loan product that was affordable for the first two years and then had the monthly payment jump hundreds of dollars, is DOES NOT MATTER; it is irrelevant. We have to stop the accelerating the loss of homes by foreclosures.

Elizabeth Warren, a noted Professor at Harvard School of Law, and the newly appointed head of the House Advisory Committee to Oversee TARP, has taken issue with the Treasury Department's cure-all of giving money to Banks as the magic pill. She is quite clear that, while that may be part of the answer, stopping foreclosures is the major step we need to take. Offering low interest rate mortgages for first-time homebuyers is great, but if the housing is continuing to drop in value because of the level of foreclosures, no one is going to buy now. Everyone will wait for the bottom which, as a result, gets lower and lower.

We need a balanced approach. Pass laws to allow Servicers to negotiate with mortgagor-homeowners who are in trouble. This means Congress has to take-on the very nature of the Securitization of mortgages and the resulting PSA contracts. Offer incentives for Servicers to do the extra work. Set up a new Federal Mortgage Corporation, similar to that from the 1930s to increase the accessibility to affordable refinancing for homeowners who can pay, but perhaps not at the higher rate that were sold.

There is no easy answer. There is no way for lawmakers to assure that they will be able to brag, at election time, that they "did the right thing". Congress cannot keep worrying about being re-elected and therefore afraid of offending the monied interests. It is time to help homeowners. Investors knew, or should have known the risks. Critics will argue that MBSs are in average workers 401K plans,and comprise a large portion of pension plans. Using an overused medical analogy, perhaps we had better not worry about the broken leg until we restart the patient's heart!

Author's Copyright by Richad I Isacoff, Esq -December, 2008

http://www.isacofflaw.com/

How Long Can You Tread Water?

FORECLOSURE CRISIS - CREDIT CRISIS - BAILOUT - MORTGAGE ISSUES

Those of you who are fans of William Cosby, EdD, a/k/a Bill Cosby comedian, might remember the line from his "Noah and the Lord" routine. That is the position we are in now with regard to the mortgage crisis (ongoing). The wild swings in the stock markets have grabbed the headlines on nights that the 3 automakers have not. Guess what? It all seemed to start with the mortgage mess. If you have not already done so, I suggest that you read my previous posts that have dealt with the credit and mortgage crunch. In reality, the mortgage difficulties are really securities markets problems, as I have explained before.

Below is my contribution to a discussion which is taking place on Wharton School of Business's online Journal Knowledge@Wharton. The article in its entirety can be read by using the link immediately following the text of this post. While it is written in a more technical fashion that I post, a careful reading will put many issues into perspective; at least into some perspective (although not all of them).

Since my submission to "Knowledge", there has been a flurry of activity of Sheila Bair's (head of FDIC) proposals to help stop the foreclosure slaughter. I will be posting my analysis of the criticism to the idea that mortgages be modified with the Federal Government underwriting part of the losses incurred by lenders and loan servicers, within a day or two - I am just waiting for some dust to settle, or more in keeping with the title above, until the flood waters recede.

(see link at end of this posting for full article entitled):

The Fairness Issue: How to Cope with the Flood of Foreclosures
Published: November 26, 2008 in Knowledge@Wharton


(my commentary) In "The Fairness Issue" article an excellent job was done in presenting nearly all views of the mortgage scene. As with views of anything however, the viewer's perspective determines what is seen, and what is not seen. The problems are set out well, but if one relies on the economists' and bankers' views, one will get only the macro financial picture.

There is no taking into account the effect on actual homeowners and their effect on the economy as a whole. One could argue that the micro analysis, the review of individual mortgagors, does not really matter, because no one of them matters in the scheme of the economy, ours or global. The argument would miss the point while being correct a the same time; it was this logic that gave us "toxic assets", mortgage-Backed Securities.(To me, the concept of an asset being "toxic" is an oxymoron and would only apply to enriched uranium and the like anyway). William Frey's comment that no one anticipated a catastrophic meltdown is exactly on point, but we had such a crash. If millions of individual mortgages created the problem, then why would there be a global solution?

Professors Guttentag and Wachter are correct in the assessment that the housing market should be the primary concern. If so, a semblance of normalcy can be restored; then maybe confidence can also recover. I have seen this with my clients. At the present, most of my time is spent trying to save homes, not just houses-- but homes. The fear, anxiety, and recriminations created by a foreclosure destroy families. Working with mortgagees, and their appointed servicers empowered by PSAs has proven to be a challenge. There are no rules; the government has let the servicers determine what happens in our economic life. Ms. Bair's [Chair of the FDIC] proposal through the FDIC, flawed as it may be, at least gives a ray of hope and a view towards Main Street rather than Wall Street.

Mr. Smetters' sentiment is a valid position, but begs the question: We cannot fix the housing markets, determine the value of mortgage-backeds, and effectively put in place long-term solutions by taking a broad brush approach. The Federal Government, has to back-stop the losses; it has to allow the MBSs to be taken apart, if necessary, to modify loans through write-downs of principal, interest, or both. The regulators are in place. FDIC, OCC, and the Treasury just to start; and we could always resurrect the RTC (Resolution Trust Corporation). I make no claims of originality in my ideas, but I ran failed S&Ls in the mid-80s, for the State of Maryland and with FSLIC, where there were depositors who could not get their money for months, and where loans were just as volatile as the ones in the MBSs. There was no "one size fits all" solution then, and there is not one now.

Last, if we are concerned about cost, we have already given the markets many times more than it would take to shore-up the MBSs by underwriting a portion of the losses an investor might realize. As Bill Cosby, certainly not an economist, so aptly stated in a routine, "Noah, how long can you tread water?"(asked the Lord). We had better ask ourselves that before the flood of foreclosures drown us all in unquenchable debt. The fire would be easier to handle.

full article at http://knowledge.wharton.upenn.edu/article.cfm?articleID=2104&post

Author's Copyright by Richard I. Isacoff, Esq., December, 2008

http://www.isacofflaw.com/