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Old 10-31-2007, 08:03 AM
elva
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Post A House bill would impose legal liability on the mortgage-backed bond industry

THE SUBPRIME mortgage crisis spirals on: Last week, Merrill Lynch admitted that it had lost $7.9 billion on mortgage-backed securities and structured credit products during the third quarter of 2007, a tide of red ink that swept chief executive E. Stanley O'Neal right out of his office. For its part, Countrywide Financial Corporation, the nation's biggest subprime lender by volume, reported a $1.2 billion loss. Countrywide has been so shaken by financial problems and bad press about its allegedly predatory lending that it has agreed to team up with one of its critics, the nonprofit Neighborhood Assistance Corporation of America, to renegotiate up to 52,000 loans worth $16 billion.

Great news! Well, not really: These developments mean a lot of pain for borrowers, the firms involved and the people who work for them (or are about to get laid off). But the losses at Merrill and Countrywide show that the market economy is working as it's supposed to. Companies that made overly risky decisions are having to pay for them, and to adjust their business models accordingly. Over the long run, everyone should be better off as firms learn from the subprime mistake.

The question is whether market discipline is enough, or whether government needs to reinforce it. House Financial Services Committee Chairman Barney Frank (D-Mass.) is working on a comprehensive bill that would impose legal liability on the "securitizers" of mortgage debt. Mr. Frank's proposal would let borrowers sue issuers of bonds that are backed by "no doc" mortgages or other products that do not meet "minimum standards for reasonable ability to pay." To those who suggest that this would chill the mortgage-backed securities market, Mr. Frank notes that the proposed penalties are not unduly onerous. The most a borrower could sue for would be cancellation of a loan and court costs; there are "safe harbor" provisions for securitizers who generally follow sound practices or offer to settle with a borrower out of court. And Mr. Frank candidly replies that, given the recent excesses, the market could use a little chilling.

Still, we wonder if his cure might hinder rather than help the industry's long-term recovery. The bill does not yet clearly preempt state-law liability, meaning securitizers would have to assume that Mr. Frank's proposed standards would be a floor upon which states could pile additional requirements. The vast majority of securitized subprime mortgages are still performing; delinquencies are concentrated among loans that were made in the last two years, when Wall Street's demand for new debt began to outstrip the supply of capable borrowers -- and home prices stagnated. Prior to that, securitized subprime debt looked like an innovative way to bring homeownership within the reach of many people who otherwise would have been shut out. The latest estimates of the economic damage from the subprime collapse and the attendant housing slump, while depressing, are manageable: about 1.25 percentage points off gross domestic product growth in the next six months, but no recession, according to the Institute of International Finance, a global bankers organization.

Wall Streeters have coined a term for bills such as Mr. Frank's: "legislative risk." And legislative risk has its uses. Along with the clear and present danger of more losses, the threat of federal action can force the financial industry to clean house and move on. If they really want to make the case against federal intervention, that is just what the banks and mortgage companies will do.


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http://www.washingtonpost.com/wp-dy...7103001952.html
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Old 07-09-2010, 08:41 PM
abha
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Fake pay stubs can put you in jail. Itís a no noÖ Maybe next time someone needs to record this dudes activity. Probably a sting operation by the RCMP.

Laeeque Ahmed offered my husband fake pay stubs. He created them for him and now we are in trouble. Laeeque says he had no involvement and do not recall doing any such thing. The banks called us in because they found out. What should we do ? We do not know where to complain and lawyers cost a lot of money.
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