Not that helpful

December 7, 2007

Atrios summarizes the Bush plan to prevent more mortgage defaults due to “exploding ARMS” (adjustable rate mortgage resets):

People who qualify:
— have an income and live in their homes
— are currently making their payments on time
— would default if their interest went up

— ARM mortgage has to have been taken between 1/05 and 7/7
— Has a rate reset between 1/8-1/10

And you don’t qualify if:
— have missed payment
[not exactly accurate, see Bloomberg below]
— can afford mortgage rate increase
— don’t have an income
— own homes which are worth less than their mortgage

The last one is the kicker, as it kicks out the class of people who might actually be able to refinance on their own.

I’m not sure what that last line means, but the general point — that this plan is only for a limited class of people with spotless payment records whose sole problem is that they were deceived (or oblivious) about the interest rate they bought into — seems pretty accurate. I don’t think it’s going to accomplish much in Cleveland. Hope I’m wrong.

Update: Bloomberg

More than 30 percent of borrowers with subprime adjustable- rate mortgages are behind on their payments before their loans reset at a higher rate, according to estimates from analysts at Credit Suisse Group. The bank projects 775,000 homes with $143 billion of mortgage debt will go into foreclosure in the next two years…

To be eligible [for the Bush-Paulson plan], borrowers must not be more than 60 days behind in their payments, have less than 3 percent equity in their property…

House Financial Services Committee Chairman Barney Frank said he told Paulson today that he opposed the agreement’s cut- off of borrowers with credit scores above 660 out of a possible 850.

Update 12/7: A small correction — “spotless credit record” is not a requirement, though “almost spotless payment record” is. As the quote from Barney Frank makes clear (Atrios as well, though in a confusing way), one of the criticisms of the “New Hope” plan is that it excludes borrowers with credit scores above 660. If you’re interested in the deep technicalities of why this might be (via a thrilling descent into the securitization twilight zone of REMICs and Pooling and Service Agreements), see Calculated Risk.

A more important criticism is that it’s going to help very few people who actually need help, especially in northeast Ohio. The NY Times this morning:

Although Mr. Bush unveiled the plan at the White House on Thursday, its terms were set by the mortgage industry and Wall Street firms. The effort is voluntary and it leaves plenty of wiggle room for lenders. Moreover, it would affect only a small number of subprime borrowers…

The heart of Mr. Bush’s plan is a cautious attempt to help troubled homeowners by persuading financiers to freeze mortgages at low introductory rates for five years, but without actually forcing the hands of lenders and investors who hold the mortgages.

One of the financial industry’s lead negotiators estimated that at most 20 percent of subprime borrowers whose payments will increase sharply over the next 18 months — 360,000 out of 1.8 million people — would qualify for rapid consideration of a special five-year freeze on interest rates.

The number of people who actually obtain help would be smaller, because each borrower would face tests aimed at weeding out those considered too hopelessly in debt and those who make too much money to justify relief.

A Reuters story quotes this assessment by Inez Killingsworth of ESOP

“Making this plan voluntary is like asking a crook to turn themselves in. With this meltdown of the subprime market, the mortgage industry has proven that it cannot self-regulate,” said Inez Killingsworth, President, Empowering and Strengthening Ohio’s People, Cleveland. “It is time to get serious about helping homeowners and saving the economy from a further meltdown. This just redlines everybody who is in trouble right now.

(c/p CCD)


U.S. close to subprime adjustable rate freeze deal with major lenders

November 30, 2007

(c/p CCD)

Wall Street Journal Online today:

U.S., Banks Near A Plan to Freeze Subprime Rates

WASHINGTON — The Bush administration and major financial institutions are close to agreeing on a plan that would temporarily freeze interest rates on certain troubled subprime home loans, according to people familiar with the negotiations.

An accord could reassure investors and strapped homeowners, both of whom are anxious as interest rates on more than two million adjustable mortgages are scheduled to jump over the next two years. It could also give a boost to the Bush administration, which is facing criticism for inaction amid the recent housing turmoil.

The plan is being negotiated between regulators including the Treasury Department and a coalition of mortgage-related companies including Citigroup Inc., Wells Fargo & Co., Washington Mutual Inc. and Countrywide Financial Corp. People familiar with the talks say the individual members have agreed to follow any agreement reached by the coalition, which is called the Hope Now Alliance.

Details of the plan, which could be announced as early as next week, are still being worked out. In general, the government and the coalition have largely agreed to extend the lower introductory rate on home loans for certain borrowers who will have trouble making payments once their mortgages increase…

Exactly which borrowers will qualify for the freeze and how long the freeze would last are yet to be determined. Under one scenario, the freeze could run as long as seven years. The parties are developing standard criteria that would determine eligibility. The criteria should be finalized by the end of year.

Read the whole thing, it’s very educational.

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Wall St. Challenged to donate holiday bonuses to stop foreclosures

November 29, 2007

From ESOP:

On Wednesday November 28th 2007, the National Training and Information Center, Empowering & Strengthening Ohio’s People (ESOP) and homeowners and community groups from around the country, joined by the NAACP, will ask the biggest U.S. investment banks to take part in the effort to prevent a catastrophic wave of foreclosures across America by donating their holiday bonuses to a foreclosure prevention fund. A report released today by the National Training and Information Center reveals how the top U.S. investment banks wielded extraordinary power in the subprime mortgage market, pushed it to unsustainable levels and reaped tremendous revenues and bonuses as a result.

While cities around the country are experiencing record-high foreclosure rates, investment banks are looking to reap another round of huge bonuses this year. In 2006, the top five investment banks in the U.S. gave out a record 36 billion dollars in holiday bonuses. “The trail of money and greed leads straight to Wall Street. The big investment firms plan to cash in on big holiday bonuses while our neighborhoods are destroyed by foreclosures. Wall Street must do the right thing and forego their lavish bonuses to help families stay in their homes. It’s time they clean up their mess.” states Inez Killingsworth, ESOP President and NTIC board member.

As part of the Save the American Dream campaign, ESOP and other groups from around the country are demanding that the major investment banks pledge this year’s bonuses to a national foreclosure prevention fund that will provide immediate relief to homeowners in danger of foreclosure.

ESOP press release.

NTIC Report:Wall Street and the Making of the Subprime Disaster.

Undocumented foreclosers: Another Federal District heard from

November 17, 2007

The Daily Bellwether again:

A federal judge in Dayton says 26 of the 27 mortgage foreclosure cases pending before him lack proof the claims are valid. U.S. District Judge Thomas M. Rose said the same lawyer filed the 26 incomplete cases and is warning of sanctions that include dismissal for lack of good faith. Rose said he has been assured records supporting the foreclosure filings exist, but said he will toss the cases out by mid-December if the records are not produced. He said he has had “extensive discussions and argument” over the records, and is concerned that banks and the lawyer may be trying to game the legal system….

Rose said he has been waiting for the records to appear at the Dayton U.S. Courthouse. He said he agreed with U.S. District Judge Christopher A. Boyko of Cleveland, who late last month dismissed foreclosure without proof. Rose said Boyko correctly noted at the time that the integrity of the federal court system was on trial, and there could not be any shortcuts taken in foreclosure actions.

(c/p CCD)

Boyko: “A condescending mindset and quasi-monopolistic system”

November 15, 2007

Here’s a copy of Judge Christopher Boyko’s October 31 decision to throw fourteen Deutsche Bank foreclosures out of Federal District Court in Cleveland.

From Footnote 3:

Plaintiff’s, “Judge, you just don’t understand how things work,” argument reveals a condescending mindset and quasi-monopolistic system where financial institutions have traditionally controlled, and still control, the foreclosure process.

Typically, the homeowner who finds himself/herself in financial straits, fails to make the required mortgage payments and faces a foreclosure suit, is not interested in testing state or federal jurisdictional requirements, either pro se or through counsel. Their focus is either, “how do I save my home,” or “if I have to give it up, I’ll simply leave and find somewhere else to live.”

In the meantime, the financial institutions or successors/assignees rush to foreclose, obtain a default judgment and then sit on the deed, avoiding responsibility for maintaining the property while reaping the financial benefits of interest running on a judgment. The financial institutions know the law charges the one with title (still the homeowner) with maintaining the property…

Counsel for the institutions are not without legal argument to support their position, but their arguments fall woefully short of justifying their premature filings, and utterly fail to satisfy their standing and jurisdictional burdens. The institutions seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance. Finally put to the test, their weak legal arguments compel the Court to stop them at the gate.

Deutsche Bank has filed over 500 foreclosure complaints in U.S. District Court for Northern Ohio, Eastern Division, since the beginning of 2007. A large proportion of these cases undoubtedly had the same defects as the the thirty-eight just dismissed by Judge Boyko and Judge Kathleen O’Malley. Will the Court’s other judges follow suit? Will Deutsche Bank appeal? Stay tuned.

Federal judges toss foreclosures, say “Prove you own the mortgage”

November 15, 2007

(c/p CCD)

Courtesy of The Daily Bellwether:

A federal judge in Cleveland tossed out 32 foreclosure cases in a mass dismissal today because banks and other lenders failed to file a complete set of documents showing their claims were legitimate. U.S. District Judge Kathleen M. O’Malley said the cases could be refiled if the proper paperwork was filed with each lawsuit. Her ruling means the courts are going to give foreclosures increased scrutiny…

O’Malley said she was enforcing a specific requirement of the federal court rules that demand detailed information about the identities of lenders — and the history of a loan — involved in foreclosure actions. She said a review of cases pending before her showed that some of the plaintiffs seeking foreclosure have not been directly named in the loan documents that are at the heart of the cases filed in Cleveland. O’Malley said she wanted to see the complete history of a loan.

TDB doesn’t say what bank or banks were thrown out of court. I can hardly wait for the rest of the story.

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Meanwhile, in Washington…

November 3, 2007

Dems urge faster subprime response

Subprime: Bankruptcy bill faces roadblocks

Common Cause: Why do home foreclosure rates remain so high? Updated report shows mortgage industry has continued to spend generously on federal lobbying and campaign contributions as subprime meltdown deepens (h/t Free Times)