Mortgage Lenders Want Their Loot

The insistence by lenders to homeowners who got placed in bad loans, that they the lenders should suffer no losses, has been an obstacle to efforts to forestall the housing crisis. In Maryland the state has been a leader in those efforts, and Governor O'Malley writes an op-ed today in WaPo detailing how their efforts have been fought by lenders.

A continuing claim of lenders that allowing judges to revise mortgages so that homeowners can pay them off is unjust and will force them to raise new mortgage rates has been and is a ruse to burden the mortgage holders with all the losses. It is a standard that we have pointed out at cabdrollery previously.

We strengthened lending and licensing standards for mortgage professionals and banned prepayment penalties and other defective features of loans. We eliminated the fast track to foreclosure to give homeowners more time to work with their lenders and develop alternative solutions that could allow them to stay in their homes.

These reforms addressed the problem prospectively, but homeowners with toxic loans continue to try in vain to get real help from their lenders. We created a hotline for citizens and convened an army of housing counselors and pro bono attorneys to provide advice. We reached agreements with six mortgage servicers to provide meaningful loss mitigation to homeowners in the state. Yet too many Marylanders still have been unable to access sustainable solutions. Our reach is limited, and most of the largest servicers fall under federal regulation. As a state, we've exhausted our options. Although we're helping more people than ever, more people than ever need our help.

Maryland's experience can provide lessons as the Obama administration prepares to implement its plan. Maryland was the second state to require loan servicers to report data regarding loan modification efforts. The data are startling: Many homeowners are receiving modifications that result in the same or even higher monthly payments because of a failure to forgive fees, penalties and arrearages. Few modifications result in a reduction of the principal balance. As long as servicers continue to refuse to reduce principal, meaningful relief will be impossible for all too many homeowners.

During our negotiations with servicers, we learned that in most cases they have substantial discretion to alter the terms and conditions of loans, including the ability to reduce principal. They all say they want to reduce foreclosures, but too many servicers lack the will to do so.

Homeowners need leverage to counter this lack of will, which is why the Senate must act quickly to reform bankruptcy law to allow judges to alter the terms of home loans. The House passed such legislation last week. Bankruptcy judges can alter the terms on car loans, boat loans and other consumer loans -- but not loans on a person's primary residence. This exclusion must be removed.

Congress should also require institutions receiving funds from the Troubled Assets Relief Program to demonstrate progress in providing sustainable modifications. These institutions should be required to report detailed data and should be held to benchmarks, including having to demonstrate a significant number of loan modifications that result in lower payments.

The greed that financial industry members has shown in the economic meltdown is prevalent in many of their claims. The insistence that they must not be made to suffer losses that they have brought on is evident throughout the foreclosure brouhaha. The lenders sold a faulty product, but they are determined they will not suffer for it.

The ideology of the greedy is that they should receive all the rewards for their innovation, but those who fell for this should pay all the costs. This is the thinking that has robbed the world of prosperity, and it needs to be shut off now.

Bankruptcy is a desperate state, and the court should be enabled to make the conditions bearable. Highway robbery by lenders has to be punished, rather than rewarded.