Wednesday, November 28, 2007
Another Judge Gets Tough With Bank on Foreclosures

The sighting of a robin does not make a spring, nor do that actions of four judges constitute a trend. Nevertheless, the fact that some courts are taking a harder look at foreclosure practices may foretell a shift in attitudes.

Gretchen Morgenson, in "Foreclosures by Lender Investigated," appears to have her facts right. Morgenson is often criticized by Tanta at Calculated Risk for mischaracterizing mortgage finance practices, but here Morgenson is dealing with court filings, and she usually does a good job with them.

However, one can take issue with the headline and her emphasis in this piece. Indeed, one has to question why a mere two foreclosures merits attention from the New York Times. Morgenson thinks it's noteworthy because the United States Trustee decided to investigate Countrywide, the plaintiff in the two foreclosures.

While I enjoy Countrywide-bashing as much as the next guy, there is every indication that Countrywide was not alone in the practices at issue. So what makes this story interesting is that it is another example of a subtle shift in power in the judicial system. The plaintiffs have considerably more resources than the mortgage holders, most of whom cannot mount a fight. But judges may be starting to recognize that that power imbalance has led many banks to be sloppy, presumptuous, and at times extortionate, and at least a jurists are holding their feet to the fire.

In this case, the issue was charges Countrywide added to mortgage balance in two bankruptcy filings. When the borrowers objected, Countrywide did not appear at the hearing, leading the judge to remove those costs. Countrywide's failure to respond piqued the interest of the bankruptcy trustee, leading to the investigation. Note the judge ruled against Countrywide's objections to trustee's subpoenas
Another Judge Gets Tough With Bank on Foreclosures « naked capitalism

And to think only yesterday Plosser was saying that the Fed was not going to lower rates...or at least that the Fed can't solve these problems.

Things must be much worse than any of us outsiders know.

Cheers,

you mean "raises the dollar value", but if the $ depreciates as a result it doesn't raise the value viewed internationally, does it?

The Fed, in its attempt to protect the "economy", will quite directly trash the dollar.

Feels like the 70s. Now, where are my bellbottoms.

Kohn today compared to Evans and Plosser yesterday - big split. That big split was also evident in the decision to ease in October - it almost didn't get done. YTL draws a reasonable conclusion - when in doubt, ease. Kohn said something today about policy leaning when there is "risk in the tails" which seems right along the line YTL suggests. Another, more simplistic rule would be "you got your way last time, Donny!" That would mean the Fed standing pat.

My guess is also that the Fed will ease by 25 bps, but I don't think they have come close to deciding that yet. If they had, they'd go ahead and tell us. That is the business they are in these days.

What I suspect is holding some back is this notion that they are following market pricing rather than their own judgement. If, after a split decision in October and lots of protestation since, they ease in December in accordance with money market pricing, they are going to have a very hard time convincing anybody that they do anything more than follow market dictates. That is a very bad position for a central bank to be in. Over the long haul, giving market expectations a good smack now would probably pay dividends. I'm just not sure these guys have what it takes to pay a short term price to make long-term gains, especially in an election season.

Jack be nimble,Jack be quick,JACK,please put a condom on that candlestick,OUCH!

I meant to add:

It doesn't matter if I pay 4%, 5% or 6% interest on a house that's vastly overpriced. I can't afford it.

That doesn't mean I can't buy it, with a dangerous loan, but I can't afford it. Unless I can guarantee continual employment for 30 years, no illness, above inflation pay rises, no accidents, no kids, no holidays, and no discretionary spending.

At this point, interest rates are pretty irrelevant to me. It's the price that counts.

Sebastian: lowering the interest rate on a 30 year fixed by 50 or 100 basis points won't get people back in the market when it has been driven by interest only/option arm/teaser rate/ultra high LTV and DTI for the past couple of years. A 30 year fully amortized loan at 5% will still have a much higher payment than an option ARM at 7% with an initial teaser.

I'm talking the worst-off bubble markets here, which we would all expect to have the most downside. Smaller markets that didn't have such drastic increases might indeed be goosed a bit by lower rates.

...but it'll be enough to arrest the slide in home prices.

Baloney. The builders went apeshit to satisfy the demand for property among 1) people who never should have gotten loans in the first place, under any conditions, and 2) speculators. The borrowers formerly known as "subprime" are not returning to the scene of their crimes, and prices are falling which removes speculators from the scene. Home prices will continue to fall well into 2009, if not beyond. And there is nothing the Fed can do about it.