2009-03-05 — cnbc.com
" Deep deep in the pages of the plan, is paragraph vi. Second Liens: While eligibly loan modifications will not require any participation by second lien holders, the program will include additional incentives to extinguish second liens on loans modified under the program in order to reduce the overall indebtedness of the borrower and improve loan performance. Servicers will be eligible to receive compensation when they contact second lien holders and extinguish valid junior liens. Servicers will be reimbursed for the release according to the specified schedule, and will also receive an extra $250 for obtaining a release of a valid second lien. "
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Lowdelta at 00:59 2009-03-06 said:
Wake up! This is the very reason why the banks have been dragging their feet on the entire mortgage modification discussion/effort. This affectively "forces" a bank to "write down" the value of their second mortgage assets....something very few of them have wanted to do. Why? Take Washington Mutual as just one example: just after the acquisition by Chase Jamie Dimond announced they would be taking a $39 bill write down...which was curiously the exact size of WaMu's second mortgage/heloc portfolio! The feds realize that even though some of these bank have written the second mortgage values down it does not even compare to what those assets are really worth = ZERO! The resistance if due to the fact that if you write them to zero the banks net worth dissappears and the bank collapses without fresh capital to shore it up. So, the banks play a game where they take strategic writedowns in small increments and hope to stretch this out long enough for the market to come back so they can recoup some of their loss. Time is no longer on their side. Curiously, same thing happened back in the early 80's and the FHLB, at that time the main regulator of Savings and Loans, would provide banks wanting to dump underwater assets with what they called "net worth certificates" that would maintain the net worth levels with guarantees from the Fed so that this money could be put back into good earning assets at current rates. Unfortunately, in this current market there does not appear to be enough "good" risks to lend that money to at current market rates so this strategy doesn't appear to be useful. Permalinkadd a comment | go to forum thread
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