What do an insurance agent in Tennessee, a homemaker in Ohio, a private investigator from Wisconsin and a helicopter stunt pilot in Hollywood have in common? Well, for one thing, they’ve all participated in some fashion in “Foreclosure Diaries,” the documentary that my company, Pacific Street Films, has been producing, in fits and starts, since 2006.
When work first started on the film, the original tag was “Follow the Money,” and the road seemed to lead towards a dark and confusing destination. There was all this talk in the industry about scads of money to be made in servicing “subprime” loans. There were seminars, conferences, it seemed all the rage.
Tuesday, August 2, 2011
10:00 AM – 12:00 PM
538 Dirksen Senate Office Building
The witnesses will be: Mr. Jack Hopkins, President and CEO, CorTrust Bank, on behalf of the Independent Community Bankers of America; and Ms. Faith Schwartz, Executive Director, Hope Now Alliance. Additional witnesses may be announced.
All hearings are webcasted live and Individuals with disabilities who require an auxiliary aid or service, including closed captioning service for webcast hearings, should contact the committee clerk at 202-224-7391 at least three business days in advance of the hearing date.
* Mr. Jack Hopkins
President and Chief Executive Officer
CorTrust Bank, on behalf of the Independent Community Bankers of America
* Ms. Faith Schwartz
Hope Now Alliance
This Article argues that a principal-agent problem plays a critical role in the current foreclosure crisis.
A traditional mortgage lender decides whether to foreclose or restructure a defaulted loan based on its evaluation of the comparative net present value of those options. Most residential mortgage loans, however, are securitized.
Securitized mortgage loans are managed by third-party mortgage servicers as agents for mortgage-backed securities (“MBS”) investors.
Servicers‘ compensation structures create a principal-agent conflict between them and MBS investors. Servicers have no stake in the performance of mortgage loans, so they do not share investors‘ interest in maximizing the net present value of the loan. Instead, servicers‘ decision of whether to foreclose or modify a loan is based on their own cost and income structure, which is skewed toward foreclosure. The costs of this principal-agent conflict are thus externalized directly on homeowners and indirectly on communities and the housing market as a whole.
This Article reviews the economics and regulation of servicing and lays out the principal-agent problem. It explains why the Home Affordable Modification Program (“HAMP”) has been unable to adequately address servicer incentive problems and suggests possible solutions, drawing on devices used in other securitization servicing markets. Correcting the principal-agent problem in mortgage servicing is critical for mitigating the negative social externalities from uneconomic foreclosures and ensuring greater protection for investors and homeowners.
AMICUS BRIEF IN SUPPORT OF APPELLANT’S PETITION FOR REVIEW
La Villita Motor Inns, J.V., Executive Motels of San Antonio, Inc., and S.A. Sunvest
Orix Capital Markets, LLC, Bank of America, N.A. LNR Partners, Inc., Capmark
Finance, Inc., Nicholas M. Pyka as Trustee, Michael N. Blue as Trustee, and Greta E.
Goldsby as Trustee,
This case involves a controversy about mortgage servicing. Mortgage servicing is the administration of mortgage loans—the collection of payments and management of defaults—on behalf of third parties. Mortgage servicing is an essential component of mortgage securitization, which is the predominant method for financing commercial mortgages in major metropolitan markets and for financing residential mortgages nationwide.
There’s been plenty of recent media attention to the prospect of investor lawsuits over fraudulent mortgages and mortgage securities. But investor lawsuits against mortgage servicers could be even more damaging than these other lines of legal inquiry. The four largest banks hold nearly half a trillion dollars worth of second-lien mortgages on their books—loans that could be decimated if investors successfully target improper mortgage servicing operations. The result would be major trouble for the financial system. The result would be major trouble for too-big-to-fail behemoths.
Mortgage servicers are the banking industry’s debt collectors. They accept payments and forward them along to investors who own mortgage securities– servicers themselves don’t actually own the mortgages they handle. This is a recipe for trouble for a variety of reasons, but one of the biggest problems is the fact that the nation’s four largest banks also operate the four largest mortgage servicers. Bank of America, Wells Fargo, JPMorgan Chase and Citigroup service about half of all mortgages in the United States. They also have multi-trillion-dollar businesses whose interests often conflict with those of mortgage security investors.
Gretchen Morgenson is a Pulitzer Prize winning journalist.Gretchen is one of the first journalist who began reporting on the mortgage crisis and understands exactly what is happening all around us. We thank Gretchen for all her hard work and we are proud to say she is aware of StopForeclosureFraud.com 🙂
Gretchen Morgenson, Pulitzer Prize winning New York Times writer, interviewed for Pacific Street’s upcoming feature doc on the financial crisis. Begun in 2007, this film (yet untitled) has strayed in many directions; covered much ground, and, when completed, will offer a very different perspective on the personalities and companies that have played the principal leads in the longest-running soap opera in this country’s financial history. A Ken Burns documentary it is not…