Memoirs of a Former Fat Cat Executive

…While Innocent Homeowners end up as Collateral Damage.

Politicians are complaining and moaning mistakenly thinking that embarrassing banks will make them step up the pace for loan modifications, obviously that isn’t working. How do you put a fire under the rear end of banks and get them picking up the pace of loan modifications?

I mentioned in a previous post that politicians need to get their cabooses in motion to start legislating. 

After discussing it with Bernie (he’s the disbarred lawyer on the Board of Directors with us and he absolutely hates it when I call him Bernie.) he seemed to think that politicians may be seriously handcuffed to legislate against the banks because of several underlying factors.  For instance bank loan servicers have voiced concerns that they may be sued by investors for being too generous in loan modification activities. 

Remember that I mentioned in a previous post that the check you make payable to your bank each month for your house payment is not necessarily owned by your bank.  A mortgage loan could be owned or guaranteed by Freddie Mac, Fannie Mae, or by a private investor.  Investors may have purchased slices of your mortgage (or the whole thing called mortgage-backed securities) and a loan servicer may need to seek permission from the investor to modify your loan.  If you investor says no, you may be floating down the creek without a paddle.

That also may be an additional reason for the slowdown of loan modifications: Servicers could be forced by court order to take back (buy them back from the investors) the crappy loans they made in the first place. (That’s exactly what FAT CAT Bank loan servicers are afraid of)

Not wanting to be on the hook for a bunch of crap they force fed investors (I like to call it toxic loan dumping) the FAT CAT banking industry juggernaut unleashed their lobbying arm to see if they could muster legislation that would give them protection from greedy FAT CAT investors who seemingly would rather that a home be foreclosed upon rather than modify a mortgage loan, so politicians came up with:

Helping Families Save Their Homes Act (Public Law 111-22)

Initially the banking industry lobbying arm was successful in dictating to Congress exactly what they need to be able to modify loans without the threat from lawsuits from investors, they needed bullet proof lawsuit protection from investors who they were about to stab in the back by modifying loans.

The original draft of the bill had terminology that essentially gave the FAT CAT banking industry carte blanche.  They could not be sued for modifying a mortgage loan owned by an investor. However after FAT CAT Investors got wind of how the FAT CAT Bankers were about to stab them in the back, mysteriously as if by magic that provision was deleted from the final bill. (At the behest of FAT CAT Investors)

So the Fat Cat Bankers were outmaneuvered by FAT CAT Investors and now it seems like homeowners are exactly where they were before, collateral damage. This is why it might be impossible for politicians to get their act together to legislate to protect homeowners.  Talking to the FAT Cat Bankers doesn’t work; Shaming FAT Cat Bankers obviously is going nowhere fast, what’s next?  The next super secret strategic method politicians will implement:

Do nothing and hope the problem goes away on its own.

“Just because you ignore the lion in your backyard doesn’t mean it won’t eat you later.” -Matthew Lexus Former Fat Cat Executive

Filed under Banking.
Comment • Trackback • Subscribe

« Where is the Public Outrage over Shaming Bank Servicers? | Homeowners are seeing RED (Real Estate Upside Down Syndrome™) »