Wall Street Needs to Modify Their Attitude Towards Loan Modifications

[Moe Bedard]

It's amusing to me that many on Wall Street still are living in this bubble. They act as if they understand how real estate and foreclosures affect local economies and what "really" happened in the mortgage market over the last few years. They voice their opinion on how they are opposed to any kind of bail out or massive loan modifications of these cancer ridden adjustable rate mortgages. They don't care that good borrowers are stuck in and can't get out of because of the tightening of the credit market and the vanishing loan programs.

Take for instance this article from a Bloomberg. com titled, `Subprime Chuck' Schumer Plays Fool in Crisis: By Jonathan Weil. Jonathan Weil goes on to bash Senator Schumer, calling him "Subprime Chuck" for asking the big four accounting firms, PricewaterhouseCoopers, Deloitte & Touche, Ernst & Young, and KPMG to clarify to lenders and servicers the accounting rule that was publicly announced by the SEC that states "lenders and servicers that modify loans where a default is reasonably foreseeable, will not suffer adverse accounting consequences." Meaning they will not be taking loses when they do this. All the Senator Schumer wanted in the letter was for them to "advise" them and inform them.

Here's an excerpt from that article.

To see why, let's take the senator's request to its logical extreme.
First, we have a subprime lender about to send default notices to thousands of people who can't afford to pay their mortgages now that the introductory teaser rates have expired. Then, hark! A partner from the company's ``independent'' auditing firm swoops in, brandishing an apple pie, and implores: ``Give the poor folks a break. Chuck wants it that way.''

Bowing to the auditor's pleas for patriotism, the lender softens up. ``Of course,'' its chief executive says. ``We shall extend the teaser rates indefinitely, never mind our investors. That should make you and Chuck happy.'' And it does.

Yes, these borrowers (people) were in "teaser" toxic mortgages that have "now" adjusted and they can't afford the "new" payment. They try to refinance Mr. Clueless Weil, but they can't! Their equity is gone, zilch, nada because homes are being foreclosed on and sold everywhere at discount prices and in fire sale auctions. Driving values down further for "everyone", including you!

Let's do this "Clueless Weil's" way.

"I'm sorry Mr. Borrower we can't work with you. I know you have had great payment history, I know your ARM is now at 10% and your payment went up $1,000, your home has no equity and you can't refinance to pay us off because there are no more mortgage programs out there." "Here's what we are going to do Mr. Borrower. We're going to ruin your credit even more and take back your house. Who cares if it costs $50,000 out of my pocket to foreclose and then hope it sells in this sluggish real estate market that just keeps getting worse and I am going to make it even more terrible by taking your home and driving your neighbors home down, so now he can't refinance either and bring money into the economy. I don't care about a recession because you owe me money. You know why? Because I know it all and you didn't pay us on time, so we're doing what big bad debt collectors do. Be big bad tough guys. Even if it make us look like total idiots and eventually costs me my job and ruins our countries economy because I'm an ignorant buffoon.

I'm sorry "Clueless Weill", but doing it your way will bury our country into a financial recession like it's never seen. You have no idea how many "bad" mortgages are out there. Your job is also to educate and inform your clients on accounting issues. So, do your job and get a clue that loan modifications are the only way to solve this mess.