“In 2003, Dianne Brimmage refinanced the mortgage on her home in Alton, Ill., to consolidate her car and medical bills. Now, struggling with a much higher interest rate and in foreclosure, she wants to modify the terms of the loan.
“Lenders have often agreed to such steps in the past because it was in everyoneâ€™s interest to avoid foreclosure costs and possibly greater losses. But that was back when local banks held the loans and the bankers knew the homeowners, as well as the value of the properties.
“Ms. Brimmage got her loan through a mortgage broker, just the first link in a financial merry-go-round. The mortgage itself was pooled with others and sold to investors â€” insurance companies, mutual funds and pension funds. A different company processes her loan payments. Yet another company represents the investors as the trustee.
“She has gotten nowhere with any of the parties, despite her lawyerâ€™s belief that fraud was involved in the mortgage. Like many other Americans, Ms. Brimmage is a homeowner stuck in foreclosure limbo, at risk of losing the home she has lived in since 1998.
“As the housing market weakens and interest rates on adjustable mortgages rise, more and more borrowers are falling behind. Almost 14 percent of subprime borrowers were delinquent in the first quarter of 2007. Investors, fearful that these problems will hurt the overall economy, have retreated from the stock and bond markets, creating major sell-offs.
“And the very innovation that made mortgages so easily available â€” an assembly line process known on Wall Street as securitization â€” is creating an obstacle for troubled borrowers. As they try to restructure their loans, they are often thwarted, lawyers say, by strict protections put in place for investors who bought the mortgage pools.
“This impasse could exacerbate the housing slump, pushing more homeowners into foreclosure. That would lead to a bigger glut of properties for sale, depressing home prices further.
“‘Securitization led to this explosion of bad loans, and now it is harder to unwind and modify them even where it is in the best interests of both the borrower and the investors,’ Kurt Eggert, an associate professor at the Chapman University School of Law in Orange, Calif., said in an interview. ‘The thing that caused the problem is making it harder to solve the problem.‘”
Mortgage Maze May Increase Foreclosures, by Gretchen Morgenson, The Ledger, August 6, 2007-08-07
Wait… you can sell off your bad decisions instead of living with the consequences of them? Hey, how do I get in on some of that action?
Oh, c’mon, America. Since when can banks just slough off their bad loans on someone other than the Fed? This is all kinds of stupid and immoral.
Related: Even I could understand this: How Credit Got so Easy, Brad Delong, August 8, 2007
“FRANKFURT, Germany â€” Central banks around the world injected more cash into the international banking system Friday as problems that began with U.S. subprime mortgages rattle the global economy.
“The ECB injected a further 61 billion euros ($83.8 billion) Friday morning, while the U.S. Federal Reserve later announced a three-day repurchase agreement to inject liquidity into the market.
“The Fed said it would accept $19 billion in mortgage-backed securities after its Fed Funds rate, the rate that banks charge each other for overnight loans, ticked above 6 percent â€” well above the Fed’s target of 5.25 percent.
“Later, the U.S. central bank said it would pump as much money as needed into the U.S. financial system to help overcome the effects of a spreading credit crunch.
“The moves did little to mollify world markets, with major indexes falling from Tokyo to London.”
ECB, Fed inject cash to ease fears, by Matt Moore, Aug. 10, 2007, 10:36AM, AP Business (via Dr. Delong)
The bail-out begins.