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Borrowers and Bankers Relief? Congress, No One-Sided Bailouts!

The US mortgage problem is to big to leave uncorrected. There are approximately 120 million residential mortgages in the US, with about 64 Million of them in MERS.

To start, no one will countenance writing down 120 million, 64 million or even 1 million mortgages. If this was acceptable, it would be under way now, and the HAMP program would be being hailed as a great success, and Obama’s popularity would be at 60% in the polls. The largest securities pool on the planet is not about to be liquidated. Not. Going. To. Happen.

To renegotiate all these and get new documents signed would take about $2,000 per mortgage, and who’d pay that? The borrowers, the Loan Servicers, MERS or the Trust (Mortgage Bundle) managers? In addition, to get 64 million mortgages documents re-issued or correct would probably take a decade, if the borrowers cooperated – although one might suspect they would not. The Retail solution is no solution at all, and no one wants to re-open negotiation with borrowers; that would yield too much control to those in debt.

The “Technical” problem with MERS will have to be handled en mass. The servicers appear to not have the authority (they are not the owners, and as the owners are not defined cannot be agents for the owners). The Mortgage bundlers are passive conduits for money, and are not owners of the notes, in order to avoid having to pay taxes on the revenue stream. Also, they want to be able to shuffle the note around between bundles of securitized mortgages WITHOUT HAVING TO RECORD ASSIGNMENTS FOR THE NOTES WITH THE LOCAL COUNTY RECORDERS — which was the whole objective for MERS.

There are then two mechanisms that can resolve this mess: 1) Congress with Legislation, or 2) the Courts of Equity. Congress can step in because the constitution specifically enables them to take action that affect the “Welfare of the United States,” and personally I doubt there is a single person on the planet who’d argue that resolving this mess does not fall within the category of the “Welfare of the United States.”

A court of equity could step in – but this would be a major step for such a court and it would probably be making new law, and with the CDOs splitting up the mortgage bundle revenue it might be impossible to identify an equitable (receiving the payments from) owner of a specific mortgage.

What would congress do? The least expensive and quickest fix is to make MERS legitimately the agent (the nominee) of the mortgage owners, with the power to delegate responsibility. They’ve been paid a fee for their services, and there needs to be a quick resolution for their 64 millions mortgages. This should be completed by March 2011 at the latest, either in the lame duck session of the current congress or as the first item for the new congress. However, there is no reason to believe Congress or the administration would act in the interests of the borrowers. Congress didn’t do that with TARP, and the administration with HAMP, even though they had abundant opportunity to do so.

It is in all our interests to resolve this mess quickly, efficiently, at least cost, and without further disruption to the economy. I’ll repeat what was written above: The largest securities pool on the planet is not about to be liquidated.

It’s easy to see how the banks and real estate businesses can win. Just give them MERS. But they’ll want more. More than they’re entitled to, since they’re the ones who CAUSED this mess with their “shortcuts” and fraudulent behavior. If we are going to let the banks have MERS, the borrowers have to win too. This cannot be a “one-sided solution”, which Congress is so fond of dealing out. So, what do we, the consumers get for the rescue? Here are my suggestions as to the price for fixing this broken system:

  1. All mortgages must have an agent or owner specified in the country records, or a publicly accessible MERS database.

  2. The owner or agent has the authority to negotiate permanent mortgage principal and payment reductions, and is charged with reducing foreclosures.

  3. No one can profit from a foreclosure: not the loan servicer, not the bond holder, not the home owner, nor the trustee of the mortgage bundles.

  4. Cramdown must become allowed for residential mortgages in Bankruptcy.

  5. Any and all criminal prosecution must be pursued. False affidavits and lying to the courts must be punished. No amnesty for banksters, whatsoever.

Here’s our chance to fix this mess, get our fellow citizens some relief, and step back for the abyss: a completely destroyed financial system. The alternative, the meltdown and liquidation of the RMBS market will result in a financial catastrophe – Your money and my money is in there somewhere.

WE NEED A FAIR FIX. Last time, Congress bailed out the banks and left home owners drowning. THIS TIME, NO ONE-SIDED BAILOUTS! We want a fix that is good for both the borrowers and the banks.

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