Mortgage Modifications – The latest chapter in the “Great Deception”

12 Jul Mortgage Modifications – The latest chapter in the “Great Deception”

Joe Nocera’s article in Saturday’s New York Timesdemonstrates the futility of the Obama Mortgage Modification program, Home Affordable Modification Plan. It simply has no teeth. It dangles a pitiful carrot at the lenders – a measly $1000 per loan modification – and no stick if the banks don’t take it. Without court ordered modifications of mortgage in chapter 13 – the “dreaded cram-down” that the banks spent another $50,000,000 to defeat in Congress – the banks have no incentive to modify loans. And in general, they are not. Moreover modifications which are being made rarely reduce principal. They might reduce interest or stretch out the term of the loan. But they reduce the so-called “homeowner” to a perpetual renter of the property with little or no hope of ever regaining equity.

You can see my comment as well as the comments of many other thoughtful readers here

Now, years after I’ve been fighting this fight, I’ve finally figured out what really happened. Here’s the first chapter of the story.

Wall Street looked at the trillions of dollars in home equity which had built up in the hands of ordinary Americans and said to themselves, “How come they have all this wealth and we don’t?” So they asked themselves, “How can we get it for ourselves?After all, we are the masters of the universe and we deserve it far more than ordinary people.” So they decided, “Let’s make homeowners an offer they can’t refuse – they’re stupid anyway and don’t know better.”

And so they created ARMS, Option ARMS, HELCOs, 80/20 loans, Pick-a-pay loans, Balloon Mortgages and a wide variety of other mortgages which allowed homeowners to cash out all the equity in their homes, buy houses for no money down, and in general make deals that over time were doomed to fail.

And that’s what they wanted. So far as they were concerned, housing prices never went down. And if they did, no worries, they had credit default swaps to protect them. And they organized a system which pretty much covered up their fingerprints anyway.

Tune in tomorrow for the next exciting chapter in the ‘”Great Deception”

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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