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Thread: 'Sour Grapes' or an accurate prediction of future home mortgage costs

  1. #1
    Banned Melonie's Avatar
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    Default 'Sour Grapes' or an accurate prediction of future home mortgage costs

    from

    (snip)If local governments succeed in the fight against how banks have recorded the transfer of mortgage notes through the Mortgage Electronic Registration Systems, home loans could become as expensive as credit cards, K&L Gates Partner Laurence Platt said Wednesday.

    At the last panel of the Mortgage Bankers Association summit on the future of mortgage servicing, Platt and Adam Levitin, an associate professor at Georgetown University Law Center, discussed the validity of MERS. The company was created by major lenders to become the single title holder of a mortgage as the owners of the note made transfers back and forth through securitization.

    This, Platt said, was a solution to "antiquated filing systems" at the local level. In Chicago's Cook County, for example, it can take up to a year for a lender to receive a recorded mortgage back at the time of foreclosure, prepayments and other actions.

    But local jurisdictions such as the states of California and Virginia are fighting to void foreclosures completed where the lender lays claim to the enforceability of the credit – meaning if the lender can use MERS to prove it has the right to foreclose – on two basis, Platt said.

    One, MERS replaces the fees lenders used to pay to local governments for recording these notes, and these governments are claiming the banks still have to pay fees for the transfers. Second, Platt said, they are trying to score political points, which will only end up hurting borrowers in the future.

    "My biggest concern is that local jurisdictions are enacting laws that change the centuries old law on recorded assignments in their locales, and that would void all mortgages in their jurisdiction," Platt said. "But Virginia didn't require assignments in the past. So, if that law passes, you will not be able to foreclose in the commonwealth in Virginia. It's turning real property law on its head."(snip)

    (snip)Platt admitted there were issues with the system, but he warned that scoring short-term political points could be the end of affordable housing.

    "They are making secured credit unenforceable," Platt said. "If you think you're going to get 4% mortgages on unsecured loans, you're wrong. You're going to get credit card rates. (snip)


    The fairly obvious point being made by the author is that recent court rulings re foreclosures and recent changes in state real estate laws are, from the mortgage lenders' perspective, making it nearly impossible for the lender to 'retake possession' of a delinquent borrower's financed 'property' - as well as making it nearly impossible for the lender to 'liquidate' the underlying financed 'asset' to ( partially ) satisfy the delinquent loan amount. If this will indeed be the case going forward, then future mortgage lenders will have little choice but to reclassify future home mortgage loans as 'unsecured' loans ... since they cannot actually reap any real 'security' from the underlying asset in the event of a borrower going delinquent on mortgage (re)payments.

    Essentially, this will amount to a situation analogous to a delinquent credit card loan ... where the lender doesn't actually have legal authority to 'take possession' of any of the merchandise the borrower purchased with the credit card, nor the ability to 'liquidate' said merchandise to ( partially ) satisfy the delinquent credit card loan amount. As such, the lenders face a far greater degree of loss risk ... which must be compensated for by the lenders charging far higher interest rates. Thus, by extrapolation, the author is strongly suggesting that future mortgage lenders will be looking for credit card-esque 8-12-18% interest rates on future mortgage loans ( depending on the credit rating of the would be borrower ).

    Obviously, such interest rates would be untenable for the vast majority of would-be American home buyers. Thus the real world result is likely to be an end to traditional 'middle class' mortgage lending from private lenders anyhow - with associated further property value declines.

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    God/dess Zofia's Avatar
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    Default Re: 'Sour Grapes' or an accurate prediction of future home mortgage costs

    It's not recent court rulings or changes in the law that are the lenders problem. The problem is the lenders have not been following the law or even good banking practices like keeping good records.

    Z

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    Banned Melonie's Avatar
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    Default Re: 'Sour Grapes' or an accurate prediction of future home mortgage costs

    ^^^ arguably true, but unfortunately this doesn't alter the situation at hand.

    The central point is that, regardless of who is ultimately at fault, mortgage lenders now have reason to seriously doubt their actual ability to foreclose on and liquidate the 'secured assets' on which they had loaned money at comparatively low rates of interest if the borrower stops making payments. Without that actual ability, mortgage lenders now have reason to treat future mortgage loans in a manner similar to credit card loans or signature loans ... i.e. zero de-facto recoverable collateral thus higher loss risks, justifying the charging of much higher interest rates as well as much more scrutiny re the creditworthiness of the would-be borrower.

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    God/dess Zofia's Avatar
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    Default Re: 'Sour Grapes' or an accurate prediction of future home mortgage costs

    Quote Originally Posted by Melonie View Post
    ^^^ arguably true, but unfortunately this doesn't alter the situation at hand. The central point is that, regardless of who is ultimately at fault, mortgage lenders now have reason to seriously doubt their actual ability to foreclose on and liquidate the 'secured assets' on which they had loaned money at comparatively low rates of interest...
    NOW? No, they had every reason to seriously doubt their actual ability to foreclose when they quit keeping records. What you are doing is shooting the messenger.

    ... mortgage lenders now have reason to treat future mortgage loans in a manner similar to credit card loans or signature loans ... i.e. zero de-facto recoverable collateral thus higher loss risks, justifying the charging of much higher interest rates as well as much more scrutiny on the creditworthiness of the would-be borrower.
    No, what mortgage lenders have to do is what they did for centuries. Keep records. There is no increased risk, except that risk which the mortgage lenders chose to create for themselves by avoiding the good business practices that had served them for four hundred years on this continent and over a thousand years in Europe. Your analogy to the credit card industry is just as hollow. Failure to record a UCC-1 is not the borrower's fault. It's the credit card issuer's fault. As my grandmother used to say: "God helps those who help themselves."

    HTH
    Z

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    Banned Melonie's Avatar
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    Default Re: 'Sour Grapes' or an accurate prediction of future home mortgage costs

    No, what mortgage lenders have to do is what they did for centuries. Keep records. There is no increased risk, except that risk which the mortgage lenders chose to create for themselves
    I'm sure the mortgage lenders would actually agree with you ... if they were also able to control which would-be borrowers they could disapprove as they also did for centuries !!! Unfortunately, they haven't been allowed to do that for the past 15 years !!! This whole MERS / mortgage bond repackaging scenario ... and the resulting problems ... are arguably the direct unintended consequences of HUD mandates, CRA restrictions etc. which required those lenders to take on elevated degrees of mortgage loan risk ( without being able to adequately charge the borrowers an interest rate commeasurate with that elevated risk ) if they wanted to stay in the mortgage lending business.

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