Loan Modification

Shame on you, President Obama

By Chip Parker, Jacksonville Consumer Attorney

Our politicians? and our financial institutions? inability or unwillingness to fix our real estate market should disgust every Middle Class American.  The result has been the continued destruction of homeownership and community by the foreclosure cancer.  It is a cancer that began attacking the weak cells of the low-middle class and has spread to a much healthier socioeconomic class that includes the backbone of this country.

One of the central platforms of the Obama campaign was support for a modification to the bankruptcy code that would allow for the restructure of residential home mortgages by bankruptcy judges.  I have written ad nauseum about how bankruptcy reform is the only way to solve the single greatest domestic catastrophe since the Great Depression.  In the end, President Obama did precious little to convince middle-of-the-road ?Blue Dog? Democrats that bankruptcy reform is THE real solution to prevent the tidal wave of foreclosures.  Instead, we get impotent programs with catchy names like TARP and HAMP that promise far more than they deliver.

Why can?t our elected leaders get it right?  The mortgage industry, comprised of a sea of securitized trusts, has no incentive to reduce mortgage balances.  Servicers make more money servicing non-performing loans, and in many cases, there is default insurance in place to compensate the trust in the event of a deficiency balance.

Not to worry.  Obama’s got a plan.  Shame is the latest weapon used by the administration to force lenders to engage in meaningful modification of mortgages.  No, I?m not kidding.  The New York Times reports that the administration will ?try to use shame as a corrective, publicly naming those institutions that move too slowly to permanently lower mortgage payments.?

?The banks are not doing a good enough job,? Michael S. Barr, Treasury?s assistant secretary for financial institutions, said in an interview Friday. ?Some of the firms ought to be embarrassed, and they will be.?

Um, has Mr. Barr actually met any of these financial institutions?  I?m pretty sure nothing embarrasses them.  As a matter of fact, I would bet that they wear their steadfast myopia as a badge of honor.  They run this show, and they do not care what happens in the end.

My office is overflowing with clients who want to modify their mortgages and are actively seeking assistance from the servicer.  The problem is that the servicer wants only to use the Treasury program as a tool to get a few extra buck out of the homeowner prior to dropping the foreclosure hammer.

Servicers lose paperwork or claim to have never received it.  They claim that trial payments were late or not in the correct amount.  They create a smog of confusion to frustrate and demoralize honest Americans languishing in homeowner purgatory.

Our politicians have proven they are inept and unwilling to make tough decisions that will stabilize the economy and return our country to prosperity.  They seek cover behind the Wall Street executives who opine that a wholesale adjustment to mortgages will destroy financing in this country.  Well currently, we?ve done nothing to correct the market, and last week, the FDIC reported lending by U.S. banks plunged by 2.8 percent in the third quarter, the largest drop since at least 1984 and the fifth consecutive quarter in which banks have reduced lending.

What?s my point?  The middle class can count on no one and must take control of this crisis.  The leverage held by the mortgage industry isn?t real, and the average homeowner is capable of beating back the banks.  As the middle class learns how to shift leverage through litigation, these securitized trusts and financial institutions will be forced to negotiate an equitable resolution on an even surface.

Shame?  You can have it.  I?ll take the big stick instead.

Related posts:

1. Will Obama reform bankruptcy laws to stop foreclosures?
2. Obama Housing Plan
3. Obama needs April Charney to lead the fight against foreclosures

Full post as published by Mortgage Law Network on November 30, 2009 (boomark / email).