Daily Archives: October 5, 2013

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What Do Subprime Securitization Agreements Say About Mortgage Modification?

What Do Subprime Securitization Agreements Say About Mortgage Modification?

This paper presents the results of the only publicly available empirical study of what agreements governing subprime securitized mortgages say about mortgage modification.

The mortgage and foreclosure crisis continues to transfix the nation, even as housing markets across the country show signs of improvement. 2  The government has tried to promote mortgage modifications to allow homeowners to stay in their homes. 3  One particular focus of these efforts has been subprime loans that are securitized, that is, transferred into pools held by trusts and administered by servicers on behalf of investors who buy certificates.  For securitized mortgages, a contract called the pooling and servicing agreement governs what the servicer may do to modify the mortgages in the pool. 4

Throughout the crisis, an important factor in policy analysis has been what the pooling and servicing agreements that govern securitized subprime mortgages say about mortgage modification.  Do these agreements forbid mortgage modifications, so that the most effective modification programs have to trump these agreements, raising all the issues that attend government modification of private contracts? 5  Or do the agreements by and large permit mortgage modifications, so that policymakers designing modification programs should concentrate on other possible rigidities that frustrate modification?

Whether and how pooling and servicing agreements constrain mortgage modification is relevant to current policy debates.  It is still an open question whether the federal government should take action to trump anti-modification provisions in private securitization agreements, for example by trying to establish the supremacy of federal servicing standards over these agreements.  Another question currently under debate is whether local governments should exercise the power of eminent domain to take securitized mortgages and modify them.  Municipalities across the country have considered or are currently considering this idea. 6  Proponents of such a strategy argue that securitization agreements limit the modification of securitized mortgages, so local governments must step in. 7  Another open question is whether differences in terms across securitization agreements impede an effective policy response to problems in the mortgage market, so that the agreements should be standardized. 8  The findings reported here suggest that subprime securitization agreements are in fact heterogeneous, so the results bear on this question as well.

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IN RE: RAMOS | U.S. BANKRUPTCY COURT IN NEW YORK – BANK OF AMERICA SANCTIONED $10000.00 A MONTH UNTIL IT CORRECTS THIS MATTER PAYABLE TO THE DEBTORS THROUGH THEIR ATTORNEY + ATTORNEY FEES

IN RE: RAMOS | U.S. BANKRUPTCY COURT IN NEW YORK – BANK OF AMERICA SANCTIONED $10000.00 A MONTH UNTIL IT CORRECTS THIS MATTER PAYABLE TO THE DEBTORS THROUGH THEIR ATTORNEY + ATTORNEY FEES

In addition, particularly given that Bank of America knows how to do this properly, as evidenced by the two Western District of Virginia cases that I’ve cited, coercive sanctions are warranted, and they’re especially warranted given the fact that Bank of America apparently has ignored this matter notwithstanding being served twice and having been given an opportunity to correct the problem, which it has not done. Instead, it has continued to send the bills. So it will be sanctioned $10,000.00 a month until it corrects this matter payable to the debtors through their attorney. My reasoning behind that sanction is that this is not just a stupid mistake. This is a policy. And frankly, $10,000.00 a month plus attorney’s fees may not mean much to Bank of America, but at least it will send a message that other attorneys may pick up on.

 

Senate Subcommittee Investigation & Findings: WAMU carefully and willfully selected loans it would identify as likely to default to securitize them

The Senate Subcommittee Investigation and Findings Washington Mutual Bank was the largest bank failure in history. AC ¶ 10. In April, 2010, the U.S. Senate Subcommittee on Investigations initiated an investigation into “some of the causes and consequences of the financial crisis,” focusing squarely on WaMu’s origination and securitization of mortgage loans “as a case study in the role of high risk loans in the U.S. financial crisis.” Shulman Dec. Ex. A (Wall Street and the Financial Crisis: Hearing before the Permanent Subcomm. On Investigations, April 13, 2010, Hearing Ex. 1a); AC ¶ 65. The Senate Subcommittee found that “WaMu selected and securitized loans that it had identified as likely to go delinquent, without disclosing its analysis to investors who bought the securities,” and that WaMu “securitized loans tainted by fraudulent information, without notifying purchasers of the fraud that was discovered.”

Complaints from wealthy neighborhoods fill the CFPB database

There is a certain irony emerging when looking at theConsumer Financial Protection Bureau, the Washington Post says. While the subprime crisis was blamed for taxing the lower class the most, the CFPB’s database is surprising not filled with complaints from less well-off communities. In fact, analysis of the Consumer Financial Protection Bureau’s database found that wealthy neighborhoodscomplain a lot more about all aspects of the mortgage process, from brokers to servicers to underwriters. The paper explains:

One could imagine any number of reasons for the disparity (the Bureau itself declined to speculate). Rich people tend to be more Web-savvy and have more time on their hands, but the CFPB also takes complaints via phone and fax, so it’s broadly accessible. The more likely explanation is that word of the complaints database — and those of other regulators that feed into the CFPB’s — has simply penetrated further in wealthy communities. (And yes, it could just be that rich people feel more entitled to the help.)