Inquiring minds are
investigating provisions of a foreclosure prevention plan working its way
through Congress. The plan throws away more taxpayer money while shielding
servicers from misconduct. In other words, the bill does exactly what one
might expect from this Congress and this administration.
Please consider the Washington Post article Foreclosure Prevention Plan Expanded to
2nd Mortgages.
The Obama administration
unveiled an expansion of its $75 billion foreclosure prevention plan
yesterday, providing new subsidies to mortgage lenders and investors. Under
the expanded plan, some homeowners could see their payments fall
significantly and the interest rate on their second mortgage pushed down to 1
percent.
The administration's housing plan pays lenders to help borrowers stay in
their homes by modifying their mortgages to an affordable level. But, the
plan as first announced in February applied only to primary mortgages. Now,
lenders will be eligible for payments when they modify the terms of a second
mortgage, including a home-equity line.
Under the new plan, lenders would receive $500 for modifying the second
mortgage, plus $250 a year for three years if the loan remains current. The
borrower would be eligible for $250 a year for five years to lower their
principal balance. The borrower could have the interest rate lowered to 1
percent, depending on the type of loan, with the government sharing the cost
of the rate reduction.
Senior administration officials said they expect the second-mortgage program
to help 1 million to 1.5 million of the up to 4 million households expected
to be covered by the wider loan-modification program. The program, which will
take several weeks to get running, will be paid for through bailout funds
already allocated to the program, officials said.
The Treasury Department also is attempting to breathe new life into another
government foreclosure prevention program, called Hope for Homeowners. That
program, launched last year, refinances homeowners into more affordable
mortgages. But lenders have balked at requirements that they cut some of the
principal that borrowers owe. Only one homeowner has received a government-backed
loan under the program so far.
My Comment: Hope for Homeowners
is the best housing bill in history. It did absolutely nothing. If only all
legislation could be so good.
Now, lenders will receive $2,500
to refinance a borrower into Hope for Homeowners and $1,000 a year for up to
three years as long as the borrower stays current.
My Comment: This just goes to
show you: On the extremely rare occasions when Congress produces perfectly
fine legislation, they always end up tinkering with it, undoubtedly making it
worse.
Meanwhile, a coalition of
mortgage investors is fighting a provision in a housing bill that would
shield lenders from lawsuits. Lenders have said they are unable to change
some mortgages because they fear being sued for breaking their contracts with
investors who own pools of mortgages.
The safe harbor provision was included in the House version of the housing
bill without much controversy. But in recent weeks, investors have begun
organizing against it, including a coalition that hired lobbying firm Patton
Boggs.
"The safe harbor provision protects mortgage servicers from lawsuits
alleging misconduct in the past and future," said Micah Green, a Patton
Boggs lobbyist.
Green declined to name the
coalition's members, saying the group is still being formed, but that so far
it represents about 10 firms that manage more than $100 billion in mortgage
investments.
The Senate is expected to vote on the provision as part of a larger housing
bill tomorrow.
The bill hugely rewards servicers
for every loan they modify. This creates an incentive for servicers such as
Countrywide (Bank of America) to modify loans whether or not that is in best
interest of the mortgage holders. Worse yet, the Safe Harbor Provision goes
one step further and shields servicers if they do commit such fraud.
I am not a lawyer, but I believe both the servicer incentives and the safe
harbor provision are unconstitutional. President Obama, like president Bush
before him, appears to have no concern for the constitution.
Mish
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