This is a must read story published in the NY Times by Joe Nocera of a breakfast meeting he had with Laurie Goodman, a senior managing director of Amherst Securities.
Enter Laurie Goodman. One of the country’s foremost authorities on mortgage-backed securities, she is also one of the most data-driven people I’ve ever met; at breakfast, she was constantly pointing me to one chart or another that backed up her claims. “She’s not into politics,” says my friend, and her client, Daniel Alpert of Westwood Capital. “She is using data to tell us the truth.”
It always seemed to me that in order to correct his crisis, writing down everyone’s principal would be the only solution. For those that do not have mortgages on their homes and own them free and clear some sort of tax break would be in order to compensate them for the decline in the value of their home.
Values declined not because of the market, they declined because those very same banks who oppose these write downs created this mess by providing mortgages to almost anyone creating a housing boom that was destined to crash. Yes, they know what they were doing but greed took control of corporate governance and patriotic spirit. The attitude of let’s rake in as much cash as we can then when it all fails we can take back all those homes and rake in even more cash for homes we have no investment in.
The housing crash was created by the banks unlike what New York City’s Mayor Bloomberg says. He says blame it on Congress (and Fannie Mae who he says makes loans – wrong!). Yes, while I believe it was a direct mandate from the White House beginning with Bill Clinton, the banks could have and should have used their better judgment and declined the push from above. But GREED is a very dangerous intoxicant. Given the green light by those high up in our political circles – the ones in charge – they quickly did what they believed was their patriotic duty to comply and fill their own pockets
The idea of helping struggling homeowners by writing down some principal on their mortgages — as opposed to reducing the interest or reconfiguring the terms to lower the monthly payments — is much in the air right now. Banks loathe the idea of principal reduction; they fear that people who are current on their mortgages will start defaulting just to get their principal reduced. They also don’t want the hit to their balance sheets.
Yes, of course banks would “loathe” the idea of reducing principal. For one, the reduction of principal to real value would lower their net worth and show that many of them are actually insolvent. Their solvency is basically falsified books whereby they keep real estate owned on their books at its value when they first financed it. We all know that most of us will never see housing values come back to these artificially high values.
Second, the fact that most of the banks REO’s – real estate owned – is also a falsified book entry. This is where my gripe continues with the greed and dishonesty of this entire industry.
The “bank” made a loan. The “bank” SOLD the loan to a Wall Street firm who in turn packaged that loan with thousands of others into a security which they sold to investors around the world. NOTE: It is the security owned by thousands of investors who actually own the note – NOT THE BANK.
In addition, the bank taking all the action is NOT REALLY A BANK! You see, the entity taking the foreclosure action is actually a servicing company – a collection agency if you will – that is owned by “the bank” but is not in itself a bank under any situation or charter be it federal, state or local.
The servicing company often uses the same name as “the bank” and lead everyone to believe that it IS “the bank”. They have everyone convinced including the courts – judges and Clerks of the Courts as well.
When a servicing company like – listen now – Bank of America Home Loans (not “the bank”) gets the court to award the foreclosure, the court just hands them the title because they are falsley led to belive that they are the bank, they own the mortgage note and therefore can claim the property without paying.
Once they take – no – STEAL the property, the non bank servicing company everyone thinks is the bank – which in the illustration above would be Bank of Amercia – then takes the property and gives it to “the bank” (illustratively Bank of America) who now owns the property free and clear on their books valued at an inflated artificial value.
Not only are the banks using these artificial values to bolster their books (fraudulently inflate their net worth) they are using stolen property to do so as well.
Of course they do not want to write down mortgages. Actually they CAN’T. Neither the bank nor the banks servicing company has the authority to do so. Only the investors who own a share of the bond issue that the mortgage note resides in have the authority to do so. In fact, only these same bondholders (and it would take 100% of them to do so) can initiate a court action to foreclose. They are the true owners who along with the rest of American have been swindled – a milder term the screwed – out of their money by “the banks”.
But the states’ attorneys general who sued over the robo-signing scandal have made principal reduction the central plank of the settlement they are close to completing. The settlement will force the big banks to begin a sustained program of principal reduction, and will heavily penalize banks that don’t comply. From what I hear, the goal of the states is to prove to the banks that principal reduction will not cause the sky to fall — and is, ultimately, less damaging to bank profits than foreclosures.
In spite of all I say above, I feel forcing the write downs is a positive. Not only will it stop the bleeding of continued declining values due to continued massive foreclosures, it will right the wrongs to many of the investors worldwide. By writing down the mortgages thus allowing homeowners to continue living in their homes and making payments – albeit lower payments – it is a win – win situation for everyone.
The homeowner wins for obvious reasons. The neighborhood wins as there will no longer be vacant and unattended deteriorating homes. The investors win as they will get some return of their investment which is better then the zero they are getting now. The economy wins as it will begin to turn the entire housing market around. America wins as we can then begin to move forward again and make the American Dream of homeownership possible once again. And we all know if the housing market is moving the economy moves.
Read Joe Nocera’s entire article To Fix Housing, See the DataPublished: November 4, 2011…click here