Edward Harrison

Why Mortgages Aren’t Modified and What a Ruling Stopping Foreclosures Means

One thing I should note is that the Appeals court decision specifically said this is NOT a ruling on whether MERS can represent the mortgagee:

"We do not attempt to comprehensively determine all of the rights or duties of MERS as a nominee mortgagee."

That means the decision had a more narrow focus as to whether MERS was a 'necessary party' in this particular case. The finding is that it was not. The Kanas Supreme court agreed that MERS was not 'contingently necessary.' They went further in concluding that the fact that MERS neither possessed the promissory note or had authority to assign it means it cannot file suit.

"indirect monetary benefits do not establish protection under the Fourteenth Amendment"

However, because this is NOT a comprehensive judgment as to MERS' role as nominee, clarification is needed. That's why I think this is going to the Supreme Court.

Why Mortgages Aren’t Modified and What a Ruling Stopping Foreclosures Means

The question this now brings up is what is MERS' legal right to act on behalf of mortgage holders to enforce foreclosure. If MERS is limited, as this verdict suggests it is, then any homeowner could contest a filing. This gives them the right to continue in the foreclosed property until other means to force foreclosure are found by some interested party.

Ultimately that is good for the homeowner and bad for the investors/banks holding the securities linked to these assets.

I would expect this case to be contested.

Fannie Mae and Freddie Mac Go Junk

Bruce, I am with you on this one. Mortgage debtors are going from a non-recourse loan to a recourse refinancing at a significant premium of up to 25% more than the value of their house.

In effect, one becomes shackled to the house in a way that one was not previously. This is being touted as a way to help people stay in their houses. In reality, it is a way to help banks keep from writing down assets while they earn enough money to increase their capital base.

If we really wanted people to stay in their hoses, we would allow them to go into foreclosure and help them find alternative housing. Moving them into a 125% LTV recourse loan is setting them up for disaster and setting taxpayers up to take on more losses.

And, of course, this is predatory because most people will not know that they are going from non-recourse to recourse.

Nationalization of the U.S. Mortgage Problem

Silver Leaf and User 260928, I appreciate your kind words. When it comes to the financial meltdown, I am very conflicted. A close friend was let go at Bear after they were rescued. He also lost a shed load of money on the stock fall. Another friend just got the axe at Lehman. My mother-in-law was heavily invested in one of the regionals that is down 70 some percent and my sister just took a bath on Fannie and Freddie.

Long story, short: some people very close to me are affected. I see the human cost every day and its heart breaking. While we may talk about these things rationally and objectively, we must always remember that people's lives are at stake here.

That said, I have seen this train wreck coming for sometime. Others, even some close family members, have not understood the magnitude of the problem even though I have counseled them. I will continue to report on this as the story develops. My hope is that industry consolidation and bankruptcy will force a sharp and painful correction and then we can get on with business. My worry is that politics will rule the day and we will be in for a Japan-like scenario or worse.

Silver Leaf, as for seeing this way ahead of time, the problem in the 1980s and early 1990s were not as acute. Only in the last 10-15 years have FNM and FRE really spiraled out of control. Here is a list of Washington Post stories on the two dating back to 2005.

www.creditwritedowns.c...

Thanks again for your comments and feel free to visit my website or subscribe to my blog feed.

All the best.

Edward