Last week President Bush and Treasury Secretary Paulson announced that the major players in the mortgage credit disruption had come to a consensus on how to move forward. They pointed to a statement put out by the American Securitization Forum which represents the people who own and who service the vast majority of American mortgages.
The General and Financial press sprung into action, labeled it a bail-out, and went on to debate the same old hackneyed questions about whether the ‘bail-out’ went far enough. The left was assigned its traditional ‘c’mon, have a heart’ role, while the right was assigned the Marie Antoinette ‘let them eat Cato’ part. Lefties complained that ‘predatory lenders’ were getting away with something, while Righties gave monologues on the death of personal responsibility.
We could have been spared all of this if the press had published this sentence:
The servicer will not take any action that is prohibited by the pooling and servicing
agreement (“PSA”) or other applicable securitization governing document, or that
would violate applicable laws, regulations, or accounting standards.
It’s from principle one of page one of the plan (aka the Executive Summary of the Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans). In other words, any reasonably literate reporter who decided to read the plan would have learned that it does not violate the contract rights of the lender or the borrower, and they could have done it in less than two minutes reading time.
This confirms my long-held suspicion: The reporters don’t actually read the reports! I can understand why. These guys are j-school grads, not biz school grads. Plus, the reports are long. I would not have read 40-plus pages of material but for one thing – I wanted to know the truth.
This plan was written by the people (primarily bankers) who issue, service, and in many cases still own mortgages. It is not designed to take away their right to enforce the contracts. It is designed to protect them from frivolous lawsuits when they decide to renegotiate with borrowers who cannot afford to make their payments. It is a simple acknowledgment of the practical fact that bankers don’t want to foreclose when they can avoid it.
They don’t want to own houses; they want to own mortgages, and it’s in their interest to change the terms to give breathing room to troubled homeowners. The industry has been saying for months now that they want to renegotiate, but that they are afraid to do so in the litigious environment that is American securities law.
