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

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