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Paul Kiesel
Paul Kiesel
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False "Hope Now" in Foreclosure Relief Plans

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Before the federal government helped facilitate the purchase of Bear Stearns by JP Morgan Chase last Monday, a pennies-on-the-dollar sale of Bear Stearns stock, Treasury Secretary Henry Paulson had said that he, “adamantly opposed spending government money on any ‘bail-out’ plans,” (CNNMoney.com, 3/13/08). People change their minds all time, and it’s reasonable to suggest that maybe Secretary Paulson received information (trends that show greater losses on Wall Street if financial firms like Bear Stearns aren’t helped out) that precipitously changed his thoughts on government aid. But why was he so receptive to helping rescue Bear Stearns and providing financial backing to Freddie Mac, Fannie Mae, etc. (a $200 billion proposal to financial and mortgage related firms to invest in the housing market), yet he has been inexorable in listening to further proposals from economists in regards to helping out homeowners who have been troubled by subprime mortgage resets? The math doesn’t add up.

When reports come out later this month that the percentage of homeowners defaulting on their mortgages and allowing foreclosure has gone up, maybe double from Q4 of 2007 (based on trends that had 8% of jumbo Option ARM mortgagees over 60 days late on payments in January of this year), those stats will have a ripple effect across the financial sector. It only makes sense that government aid, then, should be on the way for homeowners. But it’s not. Before Bear Stearns had been saved by JP Morgan, a proposal to combat foreclosures was being circulated around Washington. The plan, called “Help Now,” was introduced by the National Community Reinvestment Coalition and the plan suggests that the government buy up at-risk loans, restructure the terms to make them affordable and then sell the rewritten loans back into the secondary market. Paulson rejected this plan just ten days before he helped trigger the Bear Stearns/JP Morgan deal, and considers the Hope Now plan, that was introduced six months ago by the Bush Administration, to be so superior of a solution, that he has rejected every other homeowner relief proposal brought to him.

Unfortunately, Paulson’s decision to stick with Hope Now and ignore other economic plans that would benefit homeowners is being lauded by lending firms on Wall Street, because the losers of a homeowner bailout are the investors and loan servicers. The investors in particular have a huge stake in this mess, as most of their money that was invested into mortgage-backed securities is now frozen, and the lenders and servicers are very afraid to violate any contracts they have with the investors who own their loan portfolios. Yes, the investors might lose even more if the government came in and bought mortgages in a reverse-auction process (at prices below face value of the loans, so they can rework subprime mortgages into fixed mortgages or even lower the amount owed on a mortgage), but its better than the government standing back and allowing this situation to avalanche to a point where many people on all sides become losers (homeowners, financial firms, loan servicers and investors).

There is only one plan that Paulson is in favor of currently and that is Hope Now. Hope Now basically provides housing and credit counseling to mortgagees who are having trouble making their mortgage payments on time or who are stuck in underwater mortgages. Over 4500 people call Hope Now every day and few of them appear to be getting help at all, making Hope now seem like “False Hope Now.” One reason is that the financial powers behind Hope Now – the same mortgage lenders, loan servicers and investors that are lobbying against “Help Now” – are tremendously apprehensive to adjust loan terms if they’re not to benefit. It appears that the one tool to help prevent a boom of foreclosures, Hope Now, which was set up by the Bush Administration, is in fact a mirage of hope to mortgagees seeking immediate relief. How can people who have been funneled into subprime loans, via attractive teaser rates (through vague wording and fraud), expect to find help when it’s obvious that the people who are suppose to be looking out for them in the Bush Administration are stagnant in their policy-making and prefer to appease Wall Street rather than Main Street?

It is important that any borrower who has taken out a subprime mortgage since 2003, and particularly those who chose “teaser” rate payment options, to seek counsel from an attorney, like the ones at Kiesel Boucher Larson LLP. The attorneys at Kiesel Boucher Larson LLP can help borrowers understand what their options are in finding mortgage relief.