Mortgage Settlement:Sky Clearing or Storm Coming?

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

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

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

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

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

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

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

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

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

www.isacofflaw.com

rii@isacofflaw.com

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

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

Brief Recap of Major Financial Issues

There used to be a TV show, weekly, called appropriately "THAT WAS THE WEEK THAT WAS". It provided a satirical review of the weeks happenings - especially politics. Kind of like a fast paced, hit-a-run version of John Stewart. Actually, "The Daily Show" is a modern day iteration. This Is The Month That Was:

FORECLOSURES
1. Foreclosures still moving at a brisk pace. Some slowing but due to paperwork issues. The mortgage servicers, led by the Mortgage Backed Security Investors, want to foreclose, and actually do so, even when they do not have the legal rights. IT GOES LIKE THIS :
a. You get a loan from the "We Saw You Coming Mortgage Company"
b. The mortgage company has already sold the loan to a large bank
c. The holder of the mortgage only (not the note, the I.O.U.) is company called MERS, short for Mortgage Electronic Registration System. This is mortgage industry registry to avoid recording mortgage transfers
d. The loan is "sold" into a Pool of 3000 other loans paying the Bank for its investment in your mortgage. The Bank now has no risk - this explains why no one cared about loan quality and why there were bizarre loan products like the "Pick-A-Payment"

e. The pool is sold as a BOND - just like a corporate bond- where investors buy $10,000 or maybe $1mil of the total which can be $2billion+ The reason to purchase is to get a higher than bank savings account interest return without much risk (good luck!)
f. If a borrower falls behind in payments, the manager of the pool of loans (called the investor) decides whether to modify the loan or not
g. The Fed Gov't set up the Making Home Affordable program to help homeowner get modifications but DID NOT REQUIRE ANY LENDER/INVESTOR MAKE ANY MODIFICATIONS

CONSUMER PROTECTION

1. There was a Consumer Finance Protection Board established so one agency can "ride-herd" as a REGULATOR to be certain that consumers don't get swindled. Here's where that is:

a. The CFPB is to stop "Predatory Lending practices", credit cards that have hidden fees (like the 0% interest for 1 year including balance transfer except for the 4% or 5% fee, not interest on the transfer)-see last posting for full explanation, and excessive fees to Banks for using a debit card.
b. The Republicans in the Senate have vowed to refuse to allow the appointment of ANYONE to the top spot at the CFPB unless the powers are reduced and there is a committee running it

2. Banks are lobbying to reverse the Law that will limit how much they can charge the merchants for each customer use of a debit card. Right now if you buy a $2.00 coffee and "swipe" your debit card to pay for the coffee, the store might get charged $0.40. No wonder prices for small items like coffee and hamburgers are so high

JOBS
1. Jobs are still being created, 50,000 this past month but that is only 1.2% of the unemployed
a. No real manufacturing starts to create jobs
b. Housing market dead - too many foreclosed and repossessed homes to let prices rise so no one can sell, Banks own too many houses, no reason to build a new house hoping someone will buy it
c. Mortgages are extremely difficult to get so even if you want to buy, who will lend you the money. No building-No Jobs.
d. Outsourcing to other countries bigger than ever

ECONOMY

1. Economy is not defined as how much we are earning or how much things cost or how confident consumers/businesses are feeling

a. Economy is the system to move goods and services. Essentially how will supply and demand is working
b. Economics is the study of the economy - not a science and there are as many theories as there are people studying the economy, therefore being Economists. So when you hear about "The Top Government Economist said that..." it's just his opinion. It is not a real science. It's a social science based on opinions and theories

2. Our trade imbalance grew. This is the measure of how much we import versus export. We import much more than we export.

a. The trade imbalance affects the value of our Dollar as compared to other countries currency
b. Things got better with Japan because few cars are being imported due to the disasters that hit Japan
c. Things got worse with China - they buy a fraction for us of what we buy from them.

That's just a brief round-up of 4 topics of concern to us all

Oh, I almost forgot - there is the Federal Debt Ceiling -that is the maximum amount the Government can borrow. We will be "MAXED OUT" by August. Raising that limit is also being held-up by Congress. If it doesn't get raised, we end up defaulting on our loans (payment of interest and principal on such things as Treasury Bonds. Then the value of the dollar compared to other currencies will drop by 25%-35% OR MORE immediately. Think things cost are expensive now? How about $7/gallon gas or a $40,000 Base Model Toyota

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

rii@isacofflaw.com

http://www.isacofflaw.com/

Legacy Assets - Not Much Of An Inheritence

The Wall Street Journal in its February 5-6, 2011 edition had an article by David Benoit, entitled "BofA Sets Mortgage Cleanup Unit". The article about Bank of America was in the middle of the "B" section and drew little attention. In fact, there was no follow-up in the WSJ nor was it reported in the rest of the press. Certainly it did not make the nightly news nor the newscasts on the radio.

Okay, what did the title mean? Was BofA establishing a department of custodians/cleaners, or maybe street sweepers? Nothing that community minded. What BofA did was to establish a Business Unit to "monitor the Bank's 1.3 million delinquent loans". In addition, it will deal with foreclosures and INVESTORS wanting their money back for the bad loans in the Mortgage Backed Securities they purchased. The unit is named the "Legacy Asset Servicing" group.

Legacy, as in an inheritance? - well not really. Legacy as in " this is what we got stuck with when we bought Countrywide and made our own bad loans". A bit of math here - 1.3 million loans, averaging $100,000 each totals $130 BILLION of delinquent loans, and here delinquent does not mean 30 days late, but, rather, seriously late - nearing foreclosure.

There are 55,000 employees in this unit. BofA hopes to reduce the number to 35,000. Sounds great for BofA, but the reduction is only from eliminating redundant operations so BofA profits increase. What's another 20,000 unemployed workers matter? Harsh assessment - yes. But, we now have $130 billion in loans (1.3 million loans) where people may have their homes foreclosed.

Because of these loans, BofA's mortgage groups lost nearly $9 billion in 2010 and had to reserve, put in escrow and promise not to spend, another $4.1 billion. If the investors get their way, and force BofA to buy back the bad loans in the MBS the investors bought, it is reported that BofA could lose another $10 billion. What is staggering is that, while stockholders might not be thrilled and some executives might get fired, the $10 billion will be only inconvenient for the Bank. That should give you an idea of the size of the Bank.

What the article does not state, and what is not being reported, is the tens of thousands of homeowners who will be losing their homes. Do some "deserve" it for not paying the bills because of frivolous spending, or because they used the house as an ATM by constantly refinancing until payments were impossible? SURE! But the majority of homeowners facing foreclosure are victims of job loss, illness, mortgage sales people who outright lied and falsified documents (of that I have first hand knowledge), and the general economic collapse.

If this Legacy Asset Servicing group really takes charge of all of these loans, there is at least some hope that through regulatory oversight, private lawsuits, federal legislation (don't count on that one), and the new Consumer Finance Protection agency, there can be an examination of these loans - maybe to stop foreclosures and force modifications. Nowhere in the story is there even the hint of BofA taking steps to help homeowners with modification; to change its own policy of "if we don't have the documents and recognize that we do, you will lose you home".

The investors want their money back. Why should they get it? The level of sophistication of these "investors" equals that of the Chairman of the Federal Reserve. Many of them packaged the loans and some created the Mortgage Backed Security product. Why should they just demand their money and get it. Yes, they have a contract that protects them - HOMEOWNERS DO NOT!!

Bank of America is only the biggest of the entities taking this kind of action. Every "Bank" with a large mortgage portfolio, or those who sold loans into what became Mortgage-Backed Securities are doing the same. The fear is that all of the investors who lost, or may lose, money (it may just be the income stream from the investments) will demand that the Banks who sold these "toxic" loans repurchase them, ridding the potential losses from the securities, thereby protecting the investors. The irony here is that the Investors created the monster that is now threatening to "gobble them up" in losses.

Is there anything wrong with centralizing the work with defaulted loans. NO! It's the right way to process the work. BUT if this is being done to streamline the foreclosure process, and to mollify investors so they get their money back (why can the rest of us buy an investment that has a guaranty that you can never lose money), the entire SYSTEM must be revamped.

Record 2.9 million Foreclosures; Investors Want Money

There were two "complimentary" articles yesterday - one in American Banker, entitled "MBS Trustees Push JPMorgan Chase for Access to Loan Files", the other from RealtyTrac's Agent Advocate newsletter announcing, "Record 2.9 million U.S. Properties Receive Foreclosure Filings in 2010...". It seems that the Trustees of the Mortgage-Backed Securities ("MBS") are demanding loan files from servicers, looking for bad underwriting, false documents, missing documents, but most importantly trying to force the MBS servicers/originators to "repurchase" or "buy-back" bad loans in the varying securitization pools that comprise the MBS.

It is all too common at this time to see a mortgage loan owned by "Deutsche Bank as Trustee for the ABC Mortgage Funding Trust Series 2005-34", with the loan serviced by some other company, like Saxon, or OCWEN, or AHMSI (America Home Mortgage Sevicing Inc), or JPMorgan Chase or....

What does this mean? Maybe the right to get a loan modification!!! The details are a bit confusing, but bear with me please.

Jeff Horwitz in his article in the American Banker states "They've (the Trustees) been called "braindead", "negligent", and "otiose"" (this rather obscure word simply means ineffective, worthless, or superfluous). He goes on however to state that it might be the Trustees which have the ability to force Servicers to repurchase the bad loans.

In an unusual legal twist, because of Washington Mutual Bank's ("WAMU") insolvency and momentary receivership (federal control during paper signing), Deutsche Bank as the Trustee, assumed the responsibilities of the Servicer, WAMU, which had breached the 30o+ page contract, detailing who does what and how much everyone is paid. The agreement is called the "Pooling and Servicing Agreement" or "PSA". In another case, Wells Fargo has sued EMC Mortgage, another servicer, for failing to turnover documents.

For homeowners, with a mortgage from WAMU or where they serviced a loan which was part of an MBS, this may give them a party to sue to get a loan modification. In short, the Making Home Affordable Program and HAMP do not give mortgagors/homeowners a right to sue. Now however, with Deutsche Bank taking the dual role of Trustee and Servicer and getting all of the responsibilities that goes along with both positions, it is quite possible that Courts will recognize the borrowers right to sue under what is called a "Third-Party Beneficiary" theory.

This theory states that if two parties make a contract to benefit a third party, that third party has a right to sue to enforce the contract, even though the third party did not sign the contract. Here, while HAMP may not give that status to homeowners, it does allow the parties to sue each other. When one of the parties to the contract takes on multiple roles, the protections that each party has may disappear. Basically, you cannot indemnify yourself or get insurance for your own actions.

Perhaps, even more direct would be the right to sue Deutsche Bank, in its capacity as Trustee and Servicer, under the premise that it now, due to its servicing role and assumption of liabilities, has a duty to the borrower, that it is acting for the Investors and the Borrowers.

The other article, from RealtyTrac which tracks foreclosures throughout the country, discusses the record number of foreclosures; 2.9 million!! Many of these foreclosure filings could have been avoided if modifications were granted. Remember, individual homeowners have not had a right to sue to enforce the HAMP modification program, and HSBC/Household/Beneficial does not participate at all. Just think about the situation if 15% of the 2.9 million foreclosures were modified loans instead - that would have been 435,000 non-foreclosures (almost 2 months worth of filings).

Hopefully, the information above is understandable and of use. Please contact us if you have questions -e-mail is best.

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

rii@isacofflaw.com

http://www.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/

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

Mortgage Modificiations To Get More Difficult?

Countrywide, now part of Bank of America was one of the major lenders to sub-prime borrowers (that only means a credit score below 680 (or 640 depending on the day). It also packaged and sold the loans it originated, as Mortgage-Backed Securities ("MBS"). It continued to service the loans (collect money and send bills from and to borrowers) and was paid by the owners of the MBS to do so. The owners were just investors - they bought $xxxxx of a bond, not any different than if they bought a corporate or municipal bond.

When the mortgage/housing crisis hit, in large part due to Adjustable Rate Mortgages ("ARM") there was tremendous pressure on the Servicers, of which Countrywide was one, to MODIFY loans so that they were affordable for the borrowers. Some servicers modified loans, which they may or may not have been permitted to do in their contract, called a Pooling and Servicing Agreement ("PSA"), with the "packager"/"owner" of the bond. Countrywide modified loans and then, ignoring its PSA, refused to re-purchase the loans that had been modified by lowering the interest rates or even putting payments at the back of the loan. In simpler terms, Countrywide altered the amount of interest the owners of the MBS would receive.

A federal court ruled that Countrywide's motion to dismiss the lawsuit brought against it by the investors would not succeed. The Court stated that the case was one which should be brought in State Court, the the modifications were not protected by the recent legislation and Congressional acts to force lenders and servicers to modify loans. Basically, the Court said that if there is a contract, Countrywide must observe it - any quarrels with that belong in a state court on a case by case basis. No "get out of jail card" was given to Countrywide.

WHY DO YOU CARE? Because Servicers, if they aren't protected when they make modification from the investors, who expect a certain percentage return, will refuse to modify citing the Court ruling but relying on the contract they made, and arguing that they cannot breach the contract! This means more difficulty getting Servicers, which are not participating in the Federal program to modify loans, now for fear of a lawsuit.

This issue was brought up months ago and detailed in my posts of 10/25/2008 and 11/9/2008 -
http://finance-for-us.blogspot.com/2008/10/foreclosure-crisis-how-to-stop-it.html and http://finance-for-us.blogspot.com/2008/11/who-is-bailout-helping-right-now.html.

This just points out the disconnect, the lack of communications and an efficient coherent policy to deal with the foreclosures. Maybe Congress would act if it the home of a member!!

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

Foreclosures Skyrocket - Help Doesn't

(NOTE: For reasons that are obvious to most of us, the majority of the financial information published, in print or by broadcast, has been about the economy in general, the mortgage crisis and the "fix" to it, the looming credit card disaster, or the stock market's on-going saga. Consequently, nearly all of the postings to deal with these issues. Other legal matters have not been forgotten)

We have all heard about the various federal plans to help homeowners keep their homes. Unfortunately, nearly all of the programs have had little impact to date, which has left borrowers who are in trouble at the mercy of the lenders/mortgage companies or the manager of the mortgage backed security ("MBS") that really owns the mortgage.

According to an article in the New York Times, published on May 14th, 55,000 homeowners have signed for assistance with one of the federal mortgage-relief programs. At first glance that may seem like a good response. Put into perspective though, in April there were 342,000 foreclosures. The point? The programs are not working. (see the chart from the New York Times above)

The Senate, without any support for the Senate Bill 61 from the White House to pass it, voted down legislation that would have made the mortgage lenders and the MBS managers pay attention and try to fix this country's biggest economic problem. The Bill would have given Bankruptcy judges the power to modify loans that were deemed unfair and predatory in nature. Lenders would have had to compromise or face the Courts. The Banking lobby killed it.

As long as the housing market continues to slide, and as long as foreclosures continue to climb, we will not see a major recovery in the general economy. One might argue that it is the 650,000 lost jobs last month that is the root cause of the recession (5,000,000+ jobs lost in the past 8 months). BUT, the crisis started when the mortgage market collapsed, loans that people could not afford adjusted, and the MBS that were being held nationally and internationally became worthless overnight. The MBS and CMBS (Commercial Mortgage Backed Securities), both of which are derivatives, represented trillions of dollars - yet the downfall of one "Bank", Lehman Brothers, began the chain reaction that has brought us to our knees.

There is little that can be done on the national political level, except for writing our elected representatives and asking that work for their constituents instead of the lobbyists. However, there are other steps that can be taken to help stricken borrowers.

The New York Federal Reserve Bank and the New York City Bar Assn. have set up a program to train lawyers to help victims of predatory lending practices, or the economy as it relates to home mortgages. The courses, offered at no cost to the participants provided each takes at least one pro bono (no fee based on the homeowners financial hardship) case in the next 12 months, will give the attorneys the knowledge to review all phases of the loan transaction to determine if the Lender/Broker/Originator took advantage of the Borrower, or if the Servicer is now committing violations of the Federal or State rules regarding collections, notices, foreclosure procedures, etc.

In Massachusetts, The Boston Bar Association has run similar type training, although not as comprehensive, as has The Mass Fair Housing Association in conjunction with the Hampden County Bar Assn ( western Mass) Foreclosure Task Force. Further, attorneys with experience in the field are handling those cases which come to them either on a pro bono basis, or if the borrower can pay, for a fee based on the ability to pay. The idea here is to do as much as we can to save houses.

At any given time, I have 5-8 predatory lending/hardship cases in process. The results are good so far, but each case takes a great deal of time, mainly on the telephone, on hold (listening to bad music). Each Lender and Servicer has different procedures that have to be followed; that is easy once you know what they are. The biggest issue is speaking to someone, on behalf of my client(s), who can make a decision or at least refer me to someone else who can do so. When I am doing a training course, I caution attorneys to just try to get their client(s) back to the place that the client really bargained for, and to have the attorney's fees paid by the Lender; not to try to get a big judgement against the Lender etc. The goal is to stop foreclosures and keep homes.

For example, I have a couple who Borrowed from Wells Fargo through a Broker, Direct Finance, whose representative (originator) promised a $1,200 per month payment, matching the existing loan. My clients were getting cash out of the closing to payoff credit card and medical debt. The closing where my clients actually signed all of the paperwork was a farce. The attorney that actually was the settlement agent (closing attorney - all of whom represent the Lender technically) was filling in for the Lender because the attorney that was supposed to do the work had a conflict in his schedule. The closing lasted 15-20 minutes. There was no way that the attorney could explain all of the documents and the terms of the loan to the borrowers in that time. In fact, the borrowers, my clients now, were just given paper after paper to sign - the attorney had another appointment.

When my clients finally received documents with the actual figures on them, the payment was $1,900 per month PLUS taxes and insurance, for a total of $2,200. This was $1,000 above what had been promised. My clients had been told that the rate would drop from the 7.75% they had, to 5.75 % which would make up the difference for the "cash out" portion of the refinance. Further, the Originator cannot be found - by me, the Broker, or the Lender. However he did the same thing, working for a different broker, to a couple to which he was referred by my clients. This indicates that there was a pattern and practice of fraud and deceit, at least by the originator and quite possibly by the Broker.

My sole job in the matter above is to make a deal so my clients can keep their home. We are not asking for punitive damages, or compensation for the stress, anxiety and "conscious suffering" my clients have been enduring since receiving a foreclosure notice. e simply want was my clients thought they were "buying", and my fees which a nominal in the context of the loan itself and the Lender's attorneys' fees.

If you are facing a foreclosure and the reason is not simply that you haven't paid the mortgage company, but could have, but is because of irregularities in the lending process or what you believe were problems, contact your State or local bar association for a referral to an attorney who is handling these type of cases. If you cannot find an attorney, feel free to contact us at the email address below, and we will try to get you a referral to competent counsel

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

rii@isacofflaw.com

http://www.isacofflaw.com/

Money For Foreclosure Relief: An Expensive Fiction

An Associated Press story in the New York Times on April 16, 2006 headlines "SIX LENDERS TO GET HOME LOAN AID", specifying in the body of the story that the recipients of the $9.9 billion are JPMorgan Chase, Wells Fargo & Co, GMAC Mortgage (which owns the Ditech entity), CitiMortgage, Select Portfolio Servicing, and Saxon Mortgage.

A FRONT PAGE story in the Wall Street Journal the day before read "BANKS RAMP UP FORECLOSURES". Guess who this article refers to as "ramping up": JPMorgan Chase, Wells Fargo, and FannieMae and FreddieMac. Citigroup stated that it had stopped foreclosures until March 12th at the request of the Obama administration but has gone back to business as usual. If a borrower is a "good candidate" for a modification as determined by CitiGroup, which means that it must own the loan - no securitization - it will wait and see what happens. GMAC too had stopped actions at the Administration's request, is back foreclosing. It stated that 10% of the mortgages in some state of foreclosure may be eligible for a federal program.

It seems that the government is rewarding lenders to foreclose. They are giving additional $$billions to the same companies that are not using the funds to help homeowners, but rather are using the funds to beef-up their balance sheets. It is not even being done under the guise of some Federal program like "HOPE NOW", which has had little impact on solving the problem, but at least gives the aura of respectability. One can at perhaps admire the honesty of these companies which do what they want, with seeming impunity. Select Portfolio and Saxon Mortgage are two of the most difficult entities with which to deal. Wells Fargo, while professing to be helpful is a throw-back to the old joke about banks lending you money when you don't need it - the have taken that addage to heart with mortgage bailouts.

Why is this issue being dealt with here, where the posting have tried to educate and explain? Because this is an education also. The much publicized "homeowner relief plan" was just for PR. If you have a home in danger of foreclosure, DO NOT WAIT for the government to help you. Assume that money is being spent, but more likely than not, to pay for the deficiency balance which remains after a family is evicted from their home which just went through foreclosure, fetching 60%-70% of the outstanding balance of the mortgage. We cannot have the Banks losing any more money, can we?

Your best bet is to contact an attorney who has experience in debt counseling, foreclosure prevention, and depending on your situation, bankruptcy. A competent lawyer can answer your questions about your risk of losing your home and can suggest several courses of action which might bring you a good resolution. At least, you will have someone on your side!

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

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

How Money is Derived from Derivatives Called "Mortgage Backeds"

The Chart above shows how Mortgage Backed Securities "MBS" come into existence.
(Chart author/designer unknown)

Terms used - (Green = $$$):
a. Originator=Lender
b. Arranger=the "putter together" of the mortgages
c. Trust=Holder of the MBS money
d. AAA-Purple=the MBS itself
e. Investors= buyers of the
MBS/I.O.U.s
f. Manager= Loan servicer
g. Houses= collateral for the MBS)

Hopefully, you have some idea of what a "Derivative" is and that a "Credit Default Swap" is really a kind of "Derivative". Further, that "Mortgage Backed Securities" are just sophisticated I.O.Us, where the "Arrangers" of the MBS say to the investors (mutual funds, banks, of just retail investors) that the "Arranger" wants to borrow money and will pledge mortgages as collateral. But, rather than pledging a mortgage at a time, the creators group thousands together and sell them as one big I.O.U. The pieces may be $1,000, $10,000 or $10,ooo,ooo (Think of a large pie sliced into some large and some tiny pieces).

Here is a restatement of the past posts about these topics:

1. Thousands of mortgages are put together.

2. The creator of this pool of mortgages offers to sell the right to receive income from the pool at a pre-determined rate of interest.

3. An investor can buy up to 100% of the pool.

4. The investor will be paid interest on the amount of the pool he/she buys

5. No one actually is buying any of the mortgages that make up the Pool, just the right to receive income from the Pool, based on the average of the interest rate for all of the mortgages in the Pool, after all costs, losses, and profits are deducted

6. The creator of the Pool/Mortgage Backed Security will sell the investor the I.O.U. based not on the actual cash received from mortgage payments, but merely on his/her/its promise to pay. (It's not like all of the money gets collected and someone divides it up into a thousand or two thousand little piles).

7. In case all else fails, IN THEORY, there is collateral for the Creator of the Pool, not the investors. The collateral is the homes that are mortgaged. The Creator of the Pool can liquidate homes that are the collateral for the mortgages that default, and use that money to pay the investors each month.

8. The Creator/Seller of the MBS, is selling the right to receive an I.O.U. which pays interest to the "Buyer" of the I.O.U. (Investor) based on the hopeful profit from the mortgage payments.

THIS NEXT PIECE IS WHERE I MIGHT LOSE YOU (if I haven't already) - IF THAT HAPPENS, READ 1-8 AGAIN PLEASE!

9. The right of the Investor to receive the money for the I.O.U. is DERIVED from the Mortgage Backed Security, which has the right to collect money DERIVED from the underlying Mortgages, which is DERIVED from the Mortgagor's (the original borrower/homeowner) I.O.U. to the Bank/Lender. All of this is based on the sale value of the real estate that has been mortgaged by the Homeowner.

If you are still confused, refer to the chart at the top of the post. If you are still confused, join the ranks of MOST lawyers, accountants, stock brokers, and most of Congress.

The next post will deal with the Administration's first step to getting some of the BAILOUT mortgage money to regular homeowner-type people.

Author's Copyright (Text Only) by Richard I. Isacoff, Esq, April, 2009

rii@isacofflaw.com

http://www.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/

Mortgage Rescue Plan - What's Missing?

The last post entailed a discussion of the President's basic loan modification plan to help 1 in 9 homeowners. The plan is comprehensive and deals with loans that are owned by a bank, FannieMae (FNMA), FreddieMac (FHMC), or the Federal Housing Administration (F.H.A.). The problem arises, as often stated here, when the mortgage loan is sold into a securitization pool which strips the mortgage loan of its individuality.

It is no longer a "regular" loan; it is part of a large pool of loans, each loan providing a small part of the means to pay interest to the people who buy the pool by buying little pieces of it called bonds (fancy name is Mortgage Backed Securities), and each mortgage itself, giving the collateral to be certain the interest will be paid. After all, home loans are the safest in the world! Right?? Remember, the loan (or mortgage loan) is the I.O.U. that you give to the lender; the mortgage is you giving your house as collateral for the I.O.U.

Currently, the housing market and the loan market are in a downward spiral. Even if there is a loan modification to make a mortgage loan more affordable, by lowering the interest rate, thereby lowering the payments, if the house has decreased in value from $200,000 to $160,000, the Borrower is paying for value that has disappeared. Sure, the Borrower took the money and the evaporation of value is not the Lender's fault. However, Borrowers could probably pay the normal interest rate if the amount of the loan was reduced to the actual market value.

On the other side of the matter of fault, assume that the lender is one of the good ones and has done nothing wrong. The lender is being asked to lose $40,000 (in the example). Who would want to do that and it isn't fair. Life isn't fair. The was no contract at the time of your birth that you, or a parent-type person, signed stating that "LIFE WILL BE FAIR". Not trying to be humorous or cavalier, that is reality.

What is also reality is that a borrower who owes 20% more than a house is worth, is likely to just walk away if the borrower's financial situation gets worse. Why try to save a house that won't have equity for 10.5 years ($200,067 loan principal at 5% interest for 30 years will not pay down to $160,000, the amount of the value of the house for 10.5 years). Yes, there is no appreciation of value in the house calculated so maybe in 9 years the mortgage and house will have the same value.

Reality check: If someone is pushed to the wall because of a loss of income, or increased energy costs, or due to illness/healthcare expenses, WHY WOULD THAT PERSON KEEP A HOUSE THAT IS NOT WORTH THE MONEY HE/SHE OWES??

The current Presidential plans do not address the problem of the Loans that are part of securities ("MBS"). The difficulty is that there are dozens of contract involved in each one. NO ENTITY IN THE CHAIN OF OWNERSHIP HAS THE RIGHT TO MODIFY THE LOANS UNLESS SPECIFICALLY ALLOWED IN ALL OF THE AGREEMENTS.

The House of Representatives has passed a bill that would allow Bankruptcy Judges to modify the loans, essentially changing the contracts. These same judges do this every day on virtually every other kind of contract, including mortgages - just not mortgages on primary residences. Hopefully, the Senate will pass the same bill or once that conveys the same powers to the Courts.

There are no easy answers to the mortgage crisis, especially since it was allowed to get out of hand. Yes, there are bad borrowers who will "milk" the system. But, there are millions of borrowers who were swindled when they got their mortgages, and have been hit hard a second time with prices plummeting.

Links are provided below for further information on the Senate Bill, and the effects of the issues on several homeowners.

************************************************************

Bloomberg News Article on the Senate Bill

http://www.bloomberg.com/apps/news?pid=email_en&refer=home&sid=akFgFGFBhDp0

************************************************************

Reuter's Article on the Effects of the Bill and a Bankruptcy Judge's Opinion

http://www.reuters.com/article/GCA-Housing/idUSTRE5247PZ20090306?pageNumber=1&virtualBrandChannel=10112

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

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

Mortgages, Mortgages, Everywhere, Yet Not A Drop For Me

We finally have the basics of the Mortgage Bailout for Homeowners -at least for some homeowners. The Administration crafted a plan, touted in the mainstream media as "Plan Could Aid 1 in 9 Homeowners". This program is designed to help people who might face foreclosure, keep their homes. This is great news! With inertia being the strongest force in the universe (at least ours), a step forward is truly a huge one. There is at least one significant gap however. BUT FIRST, the good news -PLAN BASICS:

1. Plan applies ONLY to primary residence
2. Mortgage balances cannot exceed $ 729, 750.00 - (this doesn't affect my clients)
3. You will only qualify if your total monthly mortgage payment (principal, interest, taxes, insurance) is more than 31% of your PRE-TAX monthly income. Example - you (and spouse if married) take home $750 every week, but your wages BEFORE TAXES are $900 every week, Using the BEFORE TAX figure of $900-

a. multiply it by 52 (number of pays in the year), which equals $46,800 (yearly PRE-TAX income;
b. divide that by 12 (months in the year) to get the monthly PRE-TAX income amount, here equaling $3,900;
c. multiply that figure, $3,900 by 31% (.31) = $1,209

If your total monthly mortgage payment is more than $1,209 , you would be eligible for the program. It does not matter if you are current in payments or behind, but you cannot have a large stash of cash in the bank or under the mattress.

Income WILL BE VERIFIED - Borrowers will have to sign a form allowing the Servicer/Lender to get a copy of the Borrower(s)' federal tax transcript (Form 4506-T) AND, if you are employed you will need 2 months of pay stubs; If self-employed then third-party proof of earnings in addition to the tax information. Everyone will be on the lookout for fake income figures and other FRAUD.

The concept behind this approach is to have the Lender reduce the monthly payment to an amount of not more than 38% of BEFORE TAX income, with the Treasury sharing the cost of reducing the payments to not more than 31% of BEFORE TAX monthly income.

Here is the bad news: While Borrowers with loans through FHA, VA or owned by FannieMae (FNMA) or FreddieMac (FHMC), will have no problem if the otherwise qualify (above guidelines), IF YOUR LOAN IS IN A MORTGAGE-BACKED SECURITY, and if there is a Servicer, the modification can be done only if the agreement( called the Pooling and Servicing Agreement or "PSA") among the investors, lenders, servicers, trustees, etc. allows the changes. Keep in mind, that as explained in earlier posts, no one expected this collapse, so most of the PSAs are not written to allow much in the way of modifications. Also, participation is voluntary. The majority of the Adjustable Rate Mortgages made to so-called sub-prime borrowers are in this category.

The full details of the plan, the "HOME AFFORDABLE MODIFICATION PROGRAM GUIDELINES", are available at http://www.financialstability.gov/ which is the official Treasury website. It is 19 pages, most of which gets fairly technical. At the same site there is a Summary of Guidelines called "MAKING HOME AFFORDABLE".

If you are in trouble with your loan, or soon will be, call the company that sends you the monthly statements. If they are of no help, call the "Hope Hotline" at 1-888-995-4673, or contact my office.

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

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

Mortgages, Foreclosures, and Other Monsters Under Your Bed

NPR had a piece on the 13th discussing the issues dealt with here in days past, namely the mortgages servicers/securitization problems. Specifically, the inability for anyone to do anything until the "government" passes a law or buys the Mortgage Backed Securities from investors at "market value" and then passes that savings to homeowners in a refinance.

The issue is that the investors, which may be individuals or mutual funds or retirement funds etc., who own the securitized loans, want the high returns they were promised; they do not want to take less, nor do they want to have the MBS sold for less than 100% of the "face value" (the outstanding balances of principal and interest of all of the loans in the MBS) of the security. Remember, as confusing as this is, that a MBS is like a corporate or municipal bond. It is merely a way for mortgage lenders to spread the risk, of loans they have made, among literally thousands of individual or corporate investors. (see 1/3/09 posting ).

Congress carefully avoided the question in the most recent stimulus package. The President is at a loss because of all of the competing interests, both in government and out. "Wall Street" wants the Government to guarantee 100% of the investment, as do all of the pension plans, mutual funds, and others who own Mortgage Backed Securities. (Ownership, as I write of it here, may mean nothing more than $1,000 of a worker's 401K, invested in the XYZ Mutual Fund that owns $5 million of MBS out of a fund of $100 million. The individual therefore owns 1/1000th of 1% of the $5 million of MBS that his/her mutual fund owns. The more staggering numbers are that the $5 million of MBS that the worker's mutual fund [the ENTIRE FUND, not just that worker's share] owns is only 1% of the entire Mortgage Backed Security which was worth $500 million when it started.) So, some "shares" or ownership rights are as small as 1/100th of 1/1000th of 1%

The others who have a stake in the outcome are the brokers who buy and sell the MBS as securities, the companies who service the loans in the MBS, the Banks who act as Trustees for the MBS, and the HOMEOWNERS / BORROWERS who are being foreclosed, and the lobbyists for all of the aforementioned.

Right now, nearly all of the Lenders have put a hold on foreclosures - some under March 6th (JP MorganChase, Morgan Stanley, Bank of America), some until the 12th (CitiGroup) and others, voluntarily, maybe, as requested by John Reich, who is the out-going Director of the Office of Thrift Supervision (Federal Savings Banks "FSBs", state-chartered Savings Banks with FDIC Insurance, Savings and Loans "S&Ls" etc) in a memo to all regulated thrift institutions on Feb 12th.

Mr. Reich summed up what we the issue with which we have to contend. Everyone is hoping that the President's team will have a plan - within weeks. The problem took years to get where it is and our new administration is supposed to have the quick fix ready by March 6th?. Perhaps the banks and Thrifts that have made loans and still own them can work with a simple payment reduction formula. They still own and control the loan so it is a case by case decision made by the LENDER.

Congress has not been able to agree on much of anything - they are now going to try to tackle the Wall Street conundrum of Mortgage-Backed Securities and all of the voices that will be shouting, "Let someone else take the loss - we just made the investment and we WILL NOT ALLOW any reduction in our return on our investments. By the way, everyone who has his/her retirement money in mutual funds that own the MBSs will say the same thing. Someone has to accept a loss or the federal government will spread the loss to all of the taxpayers in the country.
What's fair? Nothing, but we have to do something.

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

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