By Moe Bedard
Today’s New York Times ran an article about the downsides of the incentivized loan modification plans citing potential contractual violations between lenders, servicers and the investors that expect returns on their investments. With the government paying $1000.00 or more to banks that play ball, that is, provide loan modifications per government guidelines, I’m sure a great deal of pooling and servicing agreements may be contractually violated.
I cite this story in the New York Times today because it takes an interesting slant. The vast majority of news on the subject of potential contractual problems regarding loan modifications typically takes the common Wall Street versus Main Street approach. Not today’s Times and it’s quite an interesting read.
The approach taken by the Times is that not every investor that expects returns from mortgage backed securities is a Wall Street Fat Cat. Indeed, MBS’s are play a role in the common 401k market as well as the market of mutual funds. The argument is, then, that government incentives on loan modifications may not just damage the returns to Wall Street, but they may also damage Main Street’s investments as well.
From The New York Times:
“Main Street investors need to know that banks who received their tax money through government bailouts are going to profit again from the safe-harbor loan modification provisions at the expense of their mutual funds, 401(k)’s and pension investments,” said Thomas C. Priore, chief executive of ICP Capital, an investment firm that specializes in credit markets.
One proposal that surely won’t benefit Main Street are safe harbor clauses in upcoming legislation. These safe harbor clauses would protect abusive lenders from litigation if they acted as their own servicers and modified loans. For example, predatory lender A offers a borrower an illegal, predatory loan. Predatory lender A also services their own loans. Predatory lender A, also Servicer A, modifies the predatory loan shielding Lender A from lawsuits. However you slice and dice this it means lenders that service their own loans can avoid prosecution by modifying their loans. Shouldn’t they be punished for breaking the law and not protected from their own wrong doing?
Your comments are dead on. The banking lobby is doing whatever it can to get their clients through this crisis unscathed for all the bad loans they made. The avg. consumer doesn’t see all the machinations going on behind the scenes affecting legislation protecting lenders.
Dodd, Frank, and others talking out both sides of their mouth are helping to cover despite wagging their finger defiantly at the lenders abusive practices. Most people have short memories and the appearance is politicians are looking out for them.
No one seems to care that Dodd had all the points waived on his Countrywide mortgage just before settlement, received just shy of $5mil in donations in 07-08 from financial services firms, nor that B of A settled the People of CA vs. Countrywide suit for $8.7 bil so it didn’t go to trial.
It seems so obvious to people in the real estate/loan mod business, but the general public doesn’t seem to have all the pieces to put together.
All the while the govt is touting “don’t pay, walk away…” and the media portrays all loan mod firms as a scam with little if any reporting on firms that get results.
I guarantee the lender lobby is influencing much of what is coming out of Washington and in turn much of the media (with little exception) since they are mouthpieces for this administration.
It seems that the mortgage companies always find a way to wriggle out of anything. A modification is not always in the consumers’ best interest. For example, a person who is behind on their mortgage can actually have their payment INCREASED. Which doesn’t help the mortgage holder, if they could afford their payment in the first place, would they be in default? So the lender offers a ridiculous mod that the consumer cannot afford and still safe guards itself from being sued for illegal practices? That doesn’t seem to be solving anything!
But, Moe . . . my lender and servicer are one in the same, and they (HSBC) are not doing any modifications. Maybe they will begin to do permanent modifications if they ARE protected from their own wrongdoing. Two wrongs don’t make a right, but at this point, it’s not my priority. I need a modification to keep my home.