You borrowers are screwing up the economy by not refinancing your toxic loans.

Who says?

Our Secretary of the Treasury, Henry M. Paulson, Jr.

“Most of the servicers have aggressive programs underway to reach borrowers who are having trouble paying their mortgages,” says Paulson. “But they are finding that the response rate isn’t high enough.”

If lenders are making “aggressive” efforts to protect the nation’s borrowers, then it must be borrowers who are failing to take advantage of gracious and concerned lenders.

Let’s address that matter of “aggressive programs.” It’s nonsense.

Just two weeks ago, Paulson said “not all servicers are staffed for aggressive loss-mitigation. Preventing foreclosures is in investors’ interest and investors must take an active role in demanding that all servicers, large or small, are pursuing all available loss-mitigation strategies. Today the industry doesn’t have a thorough, standardized set of loss-mitigation metrics with which to evaluate servicers’ performance. I expect the Hope Now alliance to quickly develop and begin reporting those metrics so investors, policy makers, and homeowners can measure results.”

If we don’t have a set of “metrics” then how can one know if lender, investor and servicer efforts are aggressive or not aggressive. Can someone define the magic number which demonstrates aggression?

Actually, we DO have a set of numbers — in fact we had a set of numbers well before October 16th when Paulson made his remarks.

On September 21st, Moody’s issued results from a study which determined that “despite much industry dialogue and heavy press attention on the topic of loan modifications as a mitigation technique to avoid foreclosure and reduce losses on defaulted loans, the survey results suggest that on average subprime servicers have only recently begun to materially increase the number of modifications as it relates to interest rate resets. Specifically, the survey showed that most servicers had only modified approximately 1% of their serviced loans that experienced a
reset in the months of January, April and July 2007.”

Moody’s conclusion?

“Moody’s is concerned that the number of modifications that will be performed in
the future by subprime servicers on loans facing reset may be lower than what will be needed to significantly mitigate losses in subprime pools backing rated securitizations. In light of this risk and the current performance of the collateral, Moody’s expects further negative rating activity on subprime residential mortgage backed securities issued in late 2005 and in 2006.”

Mr. Paulson, the former CEO and chairman of Goldman Sachs, surely knows exactly who is responsible for the growing mortgage meltdown.

Let’s review:

*Mortgages are made in the “lender’s usual form,” an expression which means that lenders get to make the terms for the loans they originate. Not borrowers, lenders.

*Lenders are sold by loan officers who, under federal rules, have absolutely no obligation to get the best possible rates and terms for borrowers.

*Loans are reviewed by underwriters or automated underwriting systems to ferret out fraud and overstatement. Lenders, however, popularized the “stated-income” loan application so that borrowers could “estimate” their income and lenders would not check. Incidentally, lenders get extra money for using shared appreciation mortgages, but of course that would not influence anyone.

*Appraisals are supposed to protect both borrowers and lenders — traditionally lenders will lend on the basis of the sale price or the appraised value, whichever is less. However, appraisers report huge pressure from lender to value to the market — that is, to the sale value. Watch for more on this one….

*Borrowers are entirely dependent on loan officers for information, counseling and options because loan terms change daily if not more often.

Of course, borrowers — having been completely screwed — have little interest in again dealing with the very people who screwed them in the first place.

Notice that — already — HUD has had to warn lenders about overcharging borrowers who hope to refinance. Nice.

All the PR in the world isn’t going to change the facts. The facts are that we are confronted with a vast national screw job, either the mortgage lending system needs to be fixed or the economy will continue to be imperiled.

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