Al’s got a post up about the latest effort to get us out the housing mess. The feds are rolling out HAFA, set to take effect April 5, which will solve all of our problems! by giving financial incentives! for borrowers, servicers, and investors!
In exchange, creditors must release borrowers from any deficiency liability on the 1st mortgage, must protect the Realtors fees, and must comply with standardized processes meant to speed up the short sale process.
Here’s my take, and I’m saying this as someone who is not at all trying to line my pocket because I’m a fledgling Raleigh bankruptcy lawyer. Honest!
This should’ve been run through the Bankruptcy process. Certain other debts can be crammed down in the Chapter 13 consumer bankruptcy process, meaning that the total amount owed on the loan can’t exceed the market value at the time of the bankruptcy. For people under water, this would’ve basically meant that the loan amount would’ve been adjusted down to the value of the house at the time they went through bankruptcy.
That would’ve brought mortgages in line with the way other kinds of secured debts are treated in the Bankruptcy Code, and it would’ve permitted an individualized look at each case (by bankruptcy lawyers, trustees, and judges) in a process that works reasonably well.
As it is, whole new administrations have been set up to handle these jury-rigged and ultimately flawed approaches to fixing a problem will require a little more than $1,500 to the borrower, $1,000 to the servicer, and $1,000 to the investor (HAFA guidelines) to fix.
Don Reedy says:
Damon, you’re making too much sense.
Treat mortgage debt as an equal to other debt?
Administer jurisprudence based on established and accepted moral and legal principles?
Face the music, be you debtor, mortgager or insurer?
Yikes man, you’re a heretic. 🙂
March 9, 2010 — 7:57 am
Al Lorenz says:
Damon, if I understand that doesn’t sound like a program that would take a bunch of taxpayer money, but just changes in regulation. It would actually help solve a problem. For politicians, where is the fun in that?
March 9, 2010 — 10:39 am
Tom Johnson says:
This makes too much sense. The reluctance in writing the assets down is due to the holders of the underlying securities. If the trillions of mortgage backed securities were written down to current market values, all holders of that paper would have to face the music. The biggest holders of this paper are defined benefit pension plans. In english, the majority of these plans are state and local governmental pensions and union pension plans. Anybody see a campaign cash machine in the public and labor unions? There is nothing like a possible campaign cash and vote drought to make politicians kick a can down the road. All the too big to fail banks, Fannie and Freddie and probably the Federal Reserve bank itself would have to recognize trillions in losses as well. So, we pretend the mortages have face value and the pensions are soundly funded.
I saw this this morning: Credit default swaps on US Treasuries are now being demanded with gold as the collateral:
http://www.huffingtonpost.com/janet-tavakoli/washington-must-ban-us-cr_b_489778.html Our money is no good. It also appears that there is a little hanky panky going on in the gold market as well. Seems the bullion banks and possibly some sovereign central banks are short more gold than exists. http://jessescrossroadscafe.blogspot.com/2010/03/are-traders-demanding-us-credit-default.html
If all the MBS derivatives were to be marked to market, the public outcry would be quite loud as boomers looking at retirement find out they are no better off than a Bernie Madoff victim.
March 9, 2010 — 11:26 pm
jimi says:
That would work in Raleigh but not in Vegas, Miami or Pheonix. The defaults are highly concentrated geographically and would overwhelm the BK court system.
March 10, 2010 — 6:11 am