- CBS News – Obama On Economic Crisis, Transition
Since Barack Obama was elected the 44th president of the United States 12 days ago, he has largely remained out of sight, getting high-level government briefings and conferring with his transition team. But he surfaced on Friday afternoon in Chicago, alongside his wife Michelle to give 60 Minutes his first post-election interview. It covers a wide range of subjects including the economy, the ailing automobile industry, the government’s $700 billion bailout program, their visit to the White House, the emotions of election night and the quest for a family dog. You’ll hear all of it. But we begin with the president-elect and his thoughts about the new job. - (CBS) Kroft: Once you become president, are there things that you’ll change?
Mr. Obama: Well, you know I think we still have to see how this thing unfolds over the next couple of months. One area that I’m concerned about, and I’ve said this publicly, is we have not focused on foreclosures and what’s happening to homeowners as much as I would like. We have the tools to do it. We’ve gotta set up a negotiation between banks and borrowers so that people can stay in their homes. That is gonna have an impact on the economy as a whole. And, you know, one thing I’m determined is that if we don’t have a clear focused program for homeowners by the time I take office, we will after I take office. - Barron’s – Dear Mr. President
Our open letter to Barack Obama outlines eight steps he should take to restore order to financial markets and bolster the economy.
3. Help Homeowners
Barron’s believes the government should kick in $100 billion to reduce the principal on mortgages in serious arrears as of Dec. 1, drawing on the $700 billion financial bailout approved by Congress. Participating banks, mortgage servicers and holders of mortgage securities should contribute another $50 billion.
Comment
Psychologists tell us that one forgets 95% to 99% of all input. This is why we repeat history over and over again.
In October 2007, renegotiating mortgages was a hot topic. It now seems to have returned. Let us remind everyone what the story was during that period:
October 24, 2007: Restructuring Mortgages – Who Gets To Decide?
Renegotiating resets and delinquent mortgages is a lot easier said than done. In a world where practically every mortgage has been securitized into a tradable asset, who owns the mortgage? Who has the power to renegotiate the mortgage?
October 25, 2007: Renegotiating Mortgages
In a response to Chairwoman Bair, the Consumer Mortgage Coalition (CMC) described a structure devoid of any warm bodies to make decisions. For private securitizations, the CMC complained that there is simply no active manager the servicer can call to get approval on a loan mod or a waiver of restrictions on mods typically found in the pooling and servicing agreements. “While this passive structure may appear to give the servicer more discretion, in fact, because of the lack of an active decision-maker from which the servicer could obtain waivers of the usual requirements, no entity exists with the authority to grant waivers,” the CMC said in its letter. “As a result, a servicer that violates the terms of the PSA faces potential legal action from the securitization trustee and even from the securities holders themselves.”
October 29, 2007: Renegotiating Mortgages – Can It Actually Be Done?
October 26, 2007: Realty Check: Countrywide’s Mortgages: They Can’t Really Change A Thing
But then, finally, two hours into the earnings call, Howard Shapiro, one of my favorite mortgage experts (of Fox-Pitt Kelton Cochran Caronia Waller), asked the question flat out. Who has the legal authority to change these loans? There was a short: “The servicer,” from one of the C’wide underlings. “So you guys can do that?” Shapiro asks. Answer: “Yes.” My, not a lot of elaboration there. But then, after a question on something else, Mr. Mozilo himself jumps in and says he wants to clarify the earlier question: “We have the authority to modify the loans within the parameters of the servicing contract…this will vary from investor to investor.” In other words, if the contract says they can’t modify the loans, then they can’t. Precisely what several experts told me yesterday. So all this talk that Countrywide is going to save every borrower in trouble is, in part, just a lot of talk. By law, by legal contract with at least some of the Wall Street folks who bought the loans as nice big packages, they can’t change a darned thing.
A year ago we were not ready to have the government come in and tear-up private contracts between borrowers and lenders (which is what a mortgage is). Are we now ready to throw away contract law?
Mortgages can be renegotiating under the existing contract. Government action is not needed. In recent weeks we have seen J.P. Morgan and Citibank announce they will renegotiate hundreds of billions of mortgage without the Government involved.
Why have the banks been so slow to renegotiate mortgages? Let us repeat what we wrote last week:
History tells us that 50% of all mortgage modifications eventually default and go into foreclosure anyway, or “re-default.”. If one needs a mortgage “mod” then they are not in good financial shape to begin with. Unfortunately a mod just keeps half of the borrowers in their house another 12 to 18 months. It is not the “permanent fix” many investors hope it is.
So, what exactly does Barron’s and Obama want to do and preserve contract law is not exactly clear.