mortgages

The bank will pay $4 billion over mortgages but not a penny more! The ghost of John Pierpont Morgan hath put his foot down! Read more »

The city of Richmond, CA, is trying to use eminent domain to seize and refinance underwater mortgages, and yesterday the trustees of some mortgage bonds holding those mortgages sued to stop them. On its surface the lawsuit is about constitutional law but really it’s about option valuation. To stylize it a bit, the plan is for Richmond to:

  • use eminent domain to “seize” a performing mortgage with a balance of, say, $300,000, but on a house worth $200,000;
  • pay the owner of the mortgage $200,000 in compensation;
  • issue a new mortgage to the homeowner for $200,000; and
  • sell the new mortgage to an investor for $200,000, funding the costs to pay off the old mortgage lender.

The main stylization there is that actually the compensation will be more like $160,000, not $200,000, to account for the expected costs of foreclosure, and to provide a profit margin to the new investors (and fees to Richmond’s financial advisor).1 That is important for the lawsuit but not that important for our purposes so let’s ignore it.

The question is then: is a $300,000 performing mortgage on a $200,000 house worth $300,000, or $200,000, or something else? Read more »

In recent times, when one spoke of housing crises and victims, it was generally in reference to those who’d found themselves homeless due to foreclosure proceedings; those who’d seen the value of their homes cut in half; and those who were not in default but nevertheless had a lock put on their front door, all their earthly possessions confiscated, and their best friends kidnapped due to a trigger-happy bank that, for the record, never apologized for setting off a chain of events that resulted in a person needing to be prescribed anxiety medication for emotional distress.

These people, with all due respect, have no fucking clue what it means to suffer. Read more »

Bloomberg has an absolutely amazing story this morning about political economy and going the extra mile to build a successful business. Specifically it’s about a guy who

  • worked as a mortgage banker,
  • left to be a senior banking consumer-protection regulator,
  • wrote regulations prohibiting big banks from providing certain kinds of mortgages because they were too predatory, and
  • then left to start his own company to provide those mortgages.

That’s pretty much the American dream is it not?

The story is unimprovable so go read it; I have exaggerated but only slightly.1 The guy is Raj Date, a former Capital One and Deutsche Bank2 banker who became deputy director of the Consumer Financial Protection Board, wrote rules making it hard for banks to make mortgages that don’t satisfy certain bright-line requirements, and then left to start a company called Fenway Summer LLC that will do what banks can’t: Read more »

Over on the imaginary stock markets where Fannie Mae and Freddie Mac trade they’ve had a rough day, with FNMA and FMCC common stock each down almost 13% and the preferred … um … down surprisingly small amounts but, y’know, on light volume. The impetus is presumably this:

A bipartisan group of senators on Tuesday introduced a bill to abolish Fannie Mae and Freddie Mac and replace them with a government reinsurer of mortgage securities that would backstop private capital in a crisis. … Under the bill, which is being led by Tennessee Republican Bob Corker and Virginia Democrat Mark Warner, the two companies would be liquidated within five years.

Here you can read the announcement, summary, and text of the bill, and I suppose we should discuss it at some point. Read more »

It’s becoming easier to get a mortgage if you’re the sort of person who should be getting a mortgage. But it seems it will take banks longer than five years to forget an economic crisis caused/fueled/exacerbated by universal mortgage eligibility. Read more »

Ninety percent of what happens in the typical lawsuit is (1) a lawyer for one side sends a letter to the other side asking for some information to prepare for a trial that will never happen, (2) the lawyer for the other side sends back a passive-aggressive letter refusing to provide that information, and (3) the lawyer for the first side sends a passive-aggressive letter to the judge saying “NO FAIR.” Seriously, that’s what happens. It’s called “discovery,” and it goes on until the lawyers’ bills have gotten big enough that everyone decides to settle the case.

In that milieu, someone sending an aggressive-by-passive-aggressive letter qualifies as huge news, and so there is a lot of excitement over this rather tart mandamus motion that fifteen big banks filed to overturn some discovery rulings that Judge Denise Cote made in a mortgage-backed-securities lawsuit. I will not attempt to convince you that its tartness is all that interesting; I just want you to have context for why some people think it is.

The case is interesting though. The FHFA, the regulator that oversees Fannie and Freddie, is suing the fifteen banks1 for selling crappy subprime residential mortgage-backed securities to Fannie and Freddie. Being a securities-fraud lawsuit, the basic claim is “you lied to us in the offering documents for these RMBS, and we relied on those lies, so we bought your RMBS, and then we lost money because of your lies.” And the lies in the offering documents are not “these mortgages will never default!,” but rather lies to the effect of “we bought these loans from originators, and reviewed those originators’ underwriting practices, and we believe that the originators underwrote them carefully and didn’t just stuff them full of fraud.”

The banks make a pretty good point, though, in this motion: Fannie and Freddie, who were being deceived by the big underwriter banks into buying all these RMBSes stuffed with crappy mortgages from crappy originators, were also separately buying similar mortgages directly from the same originators. And, presumably, doing whatever due diligence they expected the underwriter banks to be doing: Read more »