128,980 New Listings - Last update: February 09, 2010 - 08:02 AM EST
The housing rescue operation seems to have come to a cul-de-sac with no exit route in the face of securitization of mortgages. The solution then lies in saving foreclosures that are swimming in this pool of mortgages that have been cut up and sold to investors across the globe.
A borrower was facing inordinate delay in refinancing her housing mortgage loan because of the problem of ‘pool insurance’ that the servicer would have to pay, for this Freddie Mac Loan that had been made in 2006.
The mortgage insurance gives protection to the lender if the borrower defaults. When the mortgage runs into rough weather the servicer has to face extra expenses like legal costs. Another loss occurs if the house is sold at a price that is less than the loan amount. The mortgage insurance gives protection to the servicer and the lender from such types of losses. Generally one loan is covered by one insurance.
Some of the mortgage insurance policies are said to be in a pool. The investor who buys from this pool is protected from losses incurred by the pool as a whole. It means that up to a certain level the investor has to endure the loss but beyond that insurance protection is there.
Individual mortgage coverage by insurance is one to one. Pool insurance is somewhat like group medical covering by which the employer purchases one policy that covers a number of employees belonging to a group.
Making Home Affordable refinancing plan is not working because of the issue of mortgage insurance. The securitization of mortgages and insuring of the same did not take into account the failure of individuals. It has become complex and sorting out the mess time consuming.
In the last week of April the Senate negated a suggestion that would have empowered bankruptcy judges to alter mortgage terms. This proposal was meant to help those whose loans had become higher than the worth of the house. A ‘cramdown’ by the judges would have been of great help to ease the foreclosure situation. The Senate gave priority to protection of investors and jumbo banks over the common borrower.
After the failure of the bankruptcy clause, its initiator Senator Dick Durbin (Democrat) said, “And the banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created - are still the most powerful lobby on Capitol Hill. And they frankly own the place.”
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[...] notices against borrowers in Long Island. These included residential and commercial mortgages. The loan amount involved total to $4 billion. This was matched by a drop in sales indicating the collapse of the [...]