mortgage

Todd Zwicki has a take on government rewriting mortgage contracts over at WSJ this morning.

The implications of this are obvious and potentially severe: The uncertainty will exacerbate the already existing uncertainty in the financial system, further freezing credit markets.

If Congress wants to deal with the rising number of foreclosures, it should not create a new mess by converting the mortgage crisis into a bankruptcy crisis. Doing so will open the door to a host of unintended consequences that will further freeze credit markets, raise interest rates for new home buyers, and spread the mortgage contagion to other types of consumer credit. Congress needs to reject this plan and look for better solutions.

 Reminds me of another warning about government rewriting contracts I read somewhere . . . .

Buzz in CT today is that we are about to see the biggest whitewash job since Tom Sawyer had at the fence in 19th century Missouri

Remember out old friend Chris Dodd.  The rumor is that he will stop this clock running by doing the classic public relations approach of someone trying not to relate to the public. Which of late, isn;t all that fond of the Senator for Life.

Yes, late tomorrow afternoon, on a Friday before a holiday weekend, in the dead of winter and right when the Obama inaugural is going to dominate the media, we may actually be treated to some documentary evidence of how the Senator got his sweetheart mortgages from Angelo Mozilo's Countrywide Financial. 

Now why, besides the timing intended to blunt public response, do I think this is going to be a whitewash worthy of  Mark Twain?  Well, Senator Dodd has been spending heavily on criminal lawyers of late.   Well over $180,000 of legal fees ought to generate a very well scrubbed document, I would say.

But Bryan DeAngelis, the senator’s press secretary, confirmed Tuesday night that the firm is also offering Dodd “ethics advice” – a term that includes representing the senator in the Countrywide matter. No word on how much of that total bill is for other than electoral matters, or how much that bill is growing. 

In passing, State Republican Chairman Chris Healy notices that Dodd is using the same law firm that sued the government over Gitmo.  Well, there are all types of clients I suppose. I hope the detainees aren't embarrassed they hired the same lawyers Dodd uses.

Apart from his funky loans from Mozilo on his stateside properties, maybe we will be treated to some light on how Dodd financed his third home in Ireland. 

In surveying the ordinary course of political business, I see our Senators approved sending away the second installment of $350 billion of TARP funds, after of of course, the immeidate crisis has passed and the first installment embarassed its sponsors.

Then again, Countrywide's new owners, Bank of America, need $20 billion of additional bailout loans No conflict of interest, here...naw?

Perhaps the reason Countrywide/BOA need the money is they have thoroughly botched the loan modification business. Check out this shocking story from a NH lawsuit.

  In marketing, advertising and testimony before Congress, Countrywide Home Loans has said repeatedly that it is working hard to modify the mortgages of financially strapped borrowers caught up in the subprime meltdown. But in a New Hampshire court, attorneys for the lending giant are singing a different tune, describing such assurances as “mere commercial puffery.”

Gary and Jessica Raymond are the plaintiffs in the suit, which seeks unspecified damages. The Raymonds say they lost the home of their dreams in Canterbury, N.H., after Countrywide strung them along for eight months in the belief their loans could be modified. They say the company then flatly rejected their efforts to negotiate an interest-rate cut.

“The one thing we wanted was to save the house,” Jessica Raymond, 30, told msnbc.com. “We never imagined … that we’d be sitting here in a lawsuit and talking to a reporter about it.”

Maybe tomorrow afternoon Dodd will explain why he decided new legislation to control Countrywide wasn't necessary back in 2007. Maybe that's because unlike the Raymonds, he was a "Friend of Angelo"

I'm betting against the explanations. My money is on white paint.

Chris Dodd and his friends are at it again. Evidently the new silver bullet to the irresponsible mortgage lending over the past decade they promoted is to allow borrowers to stiff creditors in the bankruptcy courts.

http://finance.yahoo.com/news/Citi-reaches-deal-with-apf-14010721.html

Now, I'm not familiar with all the details herein. The bill is not final.  But the larger point is that Congress about thirty years ago decided first mortgages should be made inviolate in bankruptcy. The reason was to guarantee the other creditors bore the brunt of the borrower's misfortune. By placing first mortgages in a superior position, lenders could charge less on interest rates and points since they had a greater chance at asset recovery. See the Supreme Court's take on this

Now we see decades of good policy that benefited a generation of honest homebuyers thrown away to reward the profligate and inept. The worst of this is that the courts needn't get involved here.  After a bankruptcy filing, the bank and borrower can do a  "reaffirmation agreement" to preserve the old mortgage. At that point, the interest rates can be reduced and arrearages deferred until the property is sold or refinanced.  Mutual benefit for bank and borrower.

But now we will have a judge present to impose terms. And in this environment, expect banks to be perceived as the fall guy. This can take the form of interest rate reductions     (not so bad; especially when predatory lenders gouge) and elimination of some of the principal balance (a/k/a "lien stripping")   which is absolutely horrible and inequitable.

Why?  Well it rewards people who borrowed too much money, that's why.  Let's say I borrow $200,000 and default, and my house is now only worth $150,000. If I can "cram down" the mortgage to the current, depressed principal value and the value of the house goes back up to $200,000, I can sell the place, pocket $50,000, and stiff the bank for the $50,000 the bankruptcy judge took off the mortgage.

This has been the bane in some jurisdictions of lenders on 2-4 family homes where courts did not follow Nobelman.    I speak from experience defaulted borrowers walked away with windfalls...espcially if they got the judge to buy a lowball appraisal.

So, a new law that penalizes thrift, rewards defaults, and gives some people sweetheart deals. Can you say "moral hazard" ?

Perhaps the biggest irony here is Chris Dodd wants the bankruptcy courts to give a windfall to people who bought McMansions they couldn't afford     but refused to sign off on a proposal that would allow bankruptcy courts to save GM 

When it comes to the subject of bankrupcty, perhaps Senator Dodd is an expert.

UPDATE:  Evidently the Banking industry in general (much if which is NOT Wall Street) is NOT aboard this plan, and is blasting Citigroup as kowtowing to the DC politicians who bailed them out.

I suppose this is what happens when Dick Durbin and Chris Dodd become the executive committee of a money center bank

Bank industry slams lawmaker-Citi mortgage dealWASHINGTON/NEW YORK (Reuters) - A top bank industry group said on Friday that it opposes an agreement between Citigroup Inc and Democratic senators that would rewrite U.S. bankruptcy law to help troubled mortgage borrowers avoid foreclosure, saying it could make home loans more expensive

 http://www.washingtonpost.com/wp-dyn/content/article/2009/01/09/AR2009010901646.html

 Thank you House of Representatives for doing the right thing.

It is very, very important that all of us re-contact our Congressional representatives who stepped up to the plate and did the right thing and thank them for their courage. It's the proper thing to do.

 US Treasury Secretary                                 Chairman of the Federal Reserve

                                                                       

   Henry Paulson                                                            Ben    Bernanke 

I intend to also suggest to them that along with taking off the table spending $700 billion of taxpayer's money on bailing out Wall Street as a step towards a compromise bill, calling for the resignation of Treasury Secretary, Henry Paulson  and Fed Chairmen, Ben Bernanke must be included.

If these men had any real professional integrity, they should have resigned prior to the House vote today. The bill they were responsible for drafting was outrageously unprofessional and amateurish -- and believe me, I am being reserved here when I describe these two gentlemen's efforts. I could easily say criminally negligent as well.

ex animo

davidfarrar

Promoted. -Patrick

Twenty-eight members have signed onto a letter to Nancy Pelosi on members of Congress receiving preferential treatment in the "Friends of Angelo" program.

Thus, we demand that the House of Representatives undertake an investigation with open hearings to determine: (1) the validity of these charges, (2) whether the described practices were widespread, (3) the extent to which this scandal might have affected public policy, and (4) what steps might be necessary to assure the public that elected officials do not receive such preferential treatment in the future.

And later, they connect it to ordinary Americans:

At a time when millions of Americans are struggling to repay their mortgage debts while coping with $4/gallon gasoline and soaring foods prices, they will be outraged to learn that some Members of Congress may have personally profited from their official positions through secret sweetheart deals on their mortgages.

While the GOP house isn't exactly in order on corruption, the Democrats have traditionally put them to shame when it comes to shady backroom deals.  Democratic corruption was one of the paths to power for the GOP in 1994, and if we can get serious about our own ethics, we may yet again gain the high ground.

I remember well Phil Rizzuto's scream Need Money?..Call the Money Store! as a TV staple.

There's a new Money Store now, and it offers below-market rates to a handful of Democratic DC senators

http://www.portfolio.com/news-markets/top-5/2008/06/12/Countrywide-Loan-Scandal

Countrywide's Many 'Friends'

 

by Daniel Golden Jun 12 2008

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Senators Dodd and Conrad are among the government officials who scored V.I.P. loans from C.E.O. Angelo Mozilo. An exclusive Portfolio investigation.

Most of the officials belonged to a group of V.I.P. loan recipients known in company documents and emails as “F.O.A.'s”—Friends of Angelo, a reference to Countrywide chief executive Angelo Mozilo. While the V.I.P. program also serviced friends and contacts of other Countrywide executives, the F.O.A.’s made up the biggest subset.