Wall Street is forcing Banks and lenders to push for Home Foreclosures

geochem1st

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"On Oct. 23 last year, William Frey, the president of a company that puts together mortgage-backed securities, told the New York Times that he had been contacting banks and threatening to sue them if they renegotiated mortgages for homeowners facing foreclosure.

Providing better terms for homeowners, Frey explained, would mean reducing the value of the mortgage-backed securities held by investors like himself.

"Any investor in mortgage-backed securities has the right to insist that their contract be enforced," Frey, president of Greenwich Financial Services, told the Times."

Critics Assail Congress for Using Subpoena Powers and Strong-Arm Tactics - Political News - FOXNews.com

There use to be a time when if you fell behind on mortgage payments due to medical reasons or unemployment, you could talk to your bank and renegotiate. Those days are long gone.

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"In Boston, Massachusetts, WCVB-TV Channel 5 reports:

Scott Day and his wife, Vivian Martin, called themselves victims of outrageous harrassment by AIG American General Financial Services. The couple is one month behind on their mortgage payment. About 8:30 p.m. Monday night, they said someone from American General knocked on their door demanding the $2,000 payment. That was followed by what she called a nasty phone conversation with a woman from the mortgage company.
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Bruce Marks of the Neighborhood Assistance Corporation of America, which helps people facing foreclosure, said American General was using what he called strong-arm tactics usually associated with loansharks and the Mob. He said those tactics are now being employed by one of the largest insurance companies in the world."

"Mortgage lenders are refusing to cooperate with struggling homeowners - unless forced to re-negotiate terms by legal challenges. The root of the problem is that lenders are not agreeing to lower monthly payments, even to avoid foreclosures.

Instead, when homeowners submit financial information to renegotiate the terms of a mortgage or a short-sale, lenders are comparing their new request with the original loan application. If salary and employment information are inconsistent, many lenders are turning this information over to the FBI to prosecute homeowners for bank fraud.

A new study exposes the failure of loan modifications in general. Alan M. White (Valparaiso University - Law School), Deleveraging The American Homeowner: The Failure Of 2008 Voluntary Mortgage Contract Modifications, publication pending in the Connecticut Law Review. Professor White found that “more than nine out of ten voluntary mortgage modifications in 2008 involved no cancellation of principal, past due interest or even late fees or expenses. The typical modification requires the homeowner to capitalize unpaid amounts or to convert them to a balloon payment.” (Payments are merely shifted to the end of the loan term.) Because mortgage lenders are not genuinely providing any real relief, half of restructured loans default within 6 months.

Professor White's study found that servicing contracts encourage loan servicing companies to foreclose. “Mortgage servicer compensation (for securitized mortgages) is governed by pooling and servicing agreements (“PSAs”). Servicers receive income from a fixed portion of monthly interest payments actually received, from late fees and other default charges, and from the interest on funds held for investors or escrow.”

“On the other hand they typically must advance interest to investors when the borrower doesn't make a payment. They also advance funds to third parties, like lawyers, during the foreclosure process. The servicer recovers its advances only when the borrower eventually brings payments current, or when a foreclosure sale is completed. However, if a delinquent mortgage is modified, the servicer will not recover the advances made to investors on that account until the borrower repays the servicer. This is particularly problematic for the servicer when the advances are deferred in a balloon payment due in thirty years.”

So, these contracts misdirect actions toward destructive foreclosures. Dumping more houses on the market then drives down neighborhood market values even further, creating a “death spiral.”

Mortgage Lenders Bringing Criminal Prosecutions Against Homeowners In Loan Modification "Trap"


..... and before anyone posts about how responsible they are and how its the homeowners fault, first consider yourself lucky that you are working in this economy and second that there isn't a serious medical problem going on in your home. Insurance doesn't cover everything and the bills start piling up real fast in a chronic situation. If things are working out for you, you should truly feel blessed.
 

Makeitstop

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Bastards.

These guys are no better than the Mob.

- D
 

blakem

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In the words of the late great Chris Farley..
"Holy Schnikeys!"
 

SKATTERBRANE

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So how is a repossessed/foreclosed property worh more than one that has been renegotiated? I would think that to avoid default would make the securities more "secure"?
 

geochem1st

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So how is a repossessed/foreclosed property worh more than one that has been renegotiated? I would think that to avoid default would make the securities more "secure"?

Mortgage Backed Securities (MBS) are usually bought up in large quantities and rolled up into someting called a Collateralized Debt Obligation (CDO). The CDO generates money from all of the income streams from the individual mortgages. The value of the CDO is graded by the sum of those income streams. This is why investors like them. If in a situation like what is now happening, large numbers of mortgages are in need of renegotiating and that is allowed to happen the income stream becomes much less and the value of the CDO is no longer what the investor paid for. Being a smart investor, most of the Hedge Fund Managers insure there CDO's with Credit Default Swaps (CDS) just in case of the scenario above. Should a CDO start going downhill from lowered income streams it will trigger an predetermined event threshold in the CDS contracts to cause them to pay out to the investor.

If you were an investor, why would you wait that long for the CDS to payout. You instruct the mortgage servicers to NOT negotiate which causes Foreclosures, which trigger the CDS much quicker and you have your money from the CDS payout much faster instead of getting less and less from the income streams. You win from the insurance and the mortgage company wins because they get the asset. They are pushing this especially in home mortgages where there is a good deal of equity still in the house(where people did the right thing and put a large amount of money down on the house) and the mortgage value is lower, not in the 'underwater' mortgage scenarios.
 

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