I read the following open letter to elected officials and those who advise them and felt compelled to offer a retort;
To: The Honorable Josie Gonzales, Chair, San Bernardino County Board of Supervisors
The Honorable Brad Mitzelfelt, Vice-Chairman, San Bernardino County Board of Supervisors
The Honorable Janice Rutherford, Supervisor
The Honorable Neil Derry, Supervisor The Honorable Gary Ovitt, Supervisor
From: American Bankers Association
American Council of Life Insurers
American Land Title Association
American Securitization Forum
Association of Mortgage Investors
California Bankers Association
California Land Title Association
California Mortgage Bankers Association
Community Mortgage Banking Project
Consumer Mortgage Coalition
Inland Valleys Association of REALTORS
Investment Company Institute
Mortgage Bankers Association
National Association of Home Builders
Residential Servicing Coalition
Securities Industry and Financial Markets Association
The Financial Services Roundtable
The Housing Policy Council of the Financial Services Roundtable
RE: Joint Exercise of Powers Agreement
The eighteen organizations listed above write this letter to express our strong objection to the Joint Powers Agreement (the “Agreement”) that contemplates the implementation of a so-called
“Homeownership Protection Plan.” Based on publicly available information on the Agreement, we are very concerned that the good intentions of the Board of Supervisors will instead result in significant harm to the residents the Agreement intends to help.
The Agreement proposes the use of eminent domain to seize mortgage loans from private investors through condemnation, in order to force a restructuring of the mortgage. We believe that the contemplated use of eminent domain raises very serious legal and constitutional issues. It would also be immensely destructive to US mortgage markets by undermining the sanctity of the contractual relationship between a borrower and creditor, and similarly undermining existing securitization transactions. Such an action would likely significantly reduce access to credit for mortgage borrowers in the San Bernardino area and other areas that undertake similar actions.
We expect that credit availability for home purchases and refinancing of all San Bernardino loans would be significantly compromised if this plan would be put into effect. This impact would be borne by those very homeowners and communities that the proponents of this plan claim they are trying to help. If eminent domain were used to seize loans, investors in these loans through mortgage-backed securities or their investment portfolio would suffer immediate losses and likely be reluctant to provide future funding to borrowers in these areas. It is essential to remember that investors in mortgage-backed securities channel the retirement and other savings of everyday citizens through their investment funds. This program may cause loans to be excluded from securitizations, and some portfolio lenders could withdraw from these markets. In other words, this program could actually serve to further depress housing values in the county by restricting the flow of credit to home buyers.
The above represents our initial observations based upon the publicly available information on the proposal. We are aware that additional information is being selectively shared on a non-public basis, which concerns us and limits our ability to comment fully on the program. We recognize the County’s intention to assist homeowners who are facing financial difficulties, but inappropriately, and possibly unconstitutionally, using the power of eminent domain to abrogate a contractual agreement between borrower and creditor would have far greater and lasting negative effects on existing and future homeowners.
Please do not hesitate to contact any of our organizations for more information or further discussion.
Thank you.
cc: Mr. Jean-Rene Basle, County Counsel
Mr. Gregory C. Devereaux, Chief Executive Officer, County of San Bernardino
I have something to say about the above letter;
To:
American Bankers Association
American Council of Life Insurers
American Land Title Association
American Securitization Forum
Association of Mortgage Investors
California Bankers Association
California Land Title Association
California Mortgage Bankers Association
Community Mortgage Banking Project
Consumer Mortgage Coalition
Inland Valleys Association of REALTORS
Investment Company Institute
Mortgage Bankers Association
National Association of Home Builders
Residential Servicing Coalition
Securities Industry and Financial Markets Association
The Financial Services Roundtable
The Housing Policy Council of the Financial Services Roundtable
From:
Chris Sorensen
RE: Joint Exercise of Powers Agreement – “Homeownership Protection Plan.”
I find it shocking that all of these organizations were able to come together so quickly on a topic that has only recently surfaced. That is amazing in light of the fact that these very groups have been lamenting for years that the industry and the problems that surround it are so vast and they are so overwhelmed that they can’t return calls to their own mothers let alone the borrowers requesting assistance. This gives me hope.
Let’s focus on San Bernardino for the moment.
The very industries that appear to be concerned about “doing what is right” today seem to be only recently aware of this concept. Where was the call to action when many in this group where creating and securitizing specialized investment vehicles consisting of collateralized debt obligations which had multiple tranches consisting of over leveraged bonds? These bonds I refer to, that turned out to be leveraged on average 32 to 1 (See; FCIC.Gov). These bonds that were created through an incestuous relationship that will go down in written history as the greatest robbery in mankind is what we now wish to protect over a few individual San Bernardino homeowners? Is that what I’m to understand?
True, many of the investors of these bonds are life insurance companies, pensions, public retirement plans etc. But, all who benefitted in the run up in real estate values must today accept the fact that this was all predicated on one thing; providing loans to those who based on historical metrics did not qualify. We moved US Homeownership from 64% where it hovered for almost four decades to 69.9% in less than six years. In retrospect we should all be embarrassed at how obvious all this is.
By pushing loans to those who never qualified, they created demand that should not have been available, thus creating an economic climate that was akin to the euphoria a crack user experiences and now we’re having to deal with the lows that come from withdrawals once there is no more crack to be found.
It is disingenuous for the crack dealer to send letters extolling the virtues of “just say no” when they created the drug, they sold the drug, they promoted drug dealers and paid them handsomely to push, cold call, send mailers, door knock and do whatever they could to get more non qualifying borrowers to borrow so they could make more money selling the securities.
We all made money. It was great. But at what cost?
My beloved industry, the industry that has served me well for over two decades, participated in the run up in values and we witnessed larger and larger commissions based on loans that we had trouble justifying in our own heads. We knew something was wrong but rationalized that if we didn’t participate, at least on a limited basis, we’d be out. Done. Finished. And so we participated and approved borrowers that ten years earlier could not have financed a Fiat let alone a $400k home in San Bernardino.
We drove values up 100-200-300% and now we have the audacity to threaten redlining if those who are elected to serve the public’s best interest investigate possible solutions for their constituents’ who the vast majority, DID NOTHING WRONG. They are truly victims of circumstances beyond their ability and control. They had no idea to the extent their neighborhood was being whored out. They had no idea that every fourth or fifth borrower, or more, had no business buying the home across the street driving up home values beyond anything we have ever witnessed in our lifetimes.
In 2007 had they read the expert opinions, many of them holding Doctorates in Economics from very prestigious schools and employed by the hypocrites lamenting about the perils of helping homeowners today, they would have discovered virtually universal sentiment that while values may not go up with the same voracity of the last six or seven years, values will most certainly continue to rise. Based on tax benefits and the fact they are not making any more land and other garbage, the experts spewed their bought and paid for rhetoric and we ate it up.
I don’t expect those who supposedly all got together and discussed this program to stand behind it and applaud it, but I do expect them to sit silently in shame while those of us who are left to clean up the mess attempt to do so.
I along with many who may read my words lost more than I could afford to, due to my belief that those in charge of the markets where not stupid, arrogant, greedy, numskulls who had no idea how to control the tiger they had by the tail. I lost not only the return on my investment; I lost my investment and much more. But, I am still better off than most.
I will not stand idly by while threats of redlining San Bernardino in the future for simply answering a call to action from their constituents are contemplated. That is reprehensible behavior and I am ashamed at my industry for participating in this hollow threat.
Come up with a solution. Don’t offer a complaint about one. That is simply too easy and childish.
Perhaps I’ve cried with too many grown men who have lost everything they have worked for, over forty, fifty years. Maybe I’ve read about one too many suicides by those who have lost their way due to this financial crisis. And maybe I am going through my own Jerry McGuire moment since 2008 after losing my father and wondering how we can be so callous as to implore elected officials to be concerned about a rate on return for investors when they have constituents who can’t buy food if they’re going to make their mortgage payment.
I have no doubt based on today’s underwriting criteria and the fact that investors are searching the planet for a decent ROI that money will be available for San Bernardino borrowers in the future. I’d stake everything on it.
In closing I would humbly submit that we allow those involved with exploring eminent domain or any other means to assist select borrowers the opportunity to do so and offer our collective expertise on how this might be done in a fair and balanced manner.
I suggest that if a borrower lied via a stated income loan and they cannot support the income they stated back when they acquired the property that they don’t qualify for relief. In fact, if you lied about anything in the acquisition of your home you should not qualify for relief. If you cannot afford your home, short sell and move on.
I suggest validation of a documentable hardship beyond one’s ability and control which has been the underwriting standard for decades be applied when considering using the extreme tool of eminent domain. This can and should be a pilot program and I raise my hand to offer assistance to those who have the difficult task of “splitting the baby”(Kings 3:5-14).
I ask all those who wrote this letter to reconsider their position and join me in assisting our elected officials and those who advise them in coming up with solutions and never again threaten redlining as we do not need the Black and Hispanics of San Bernardino to once again be subjected to that which The Fair Housing Act of 1968 and The Community Reinvestment Act of 1977 did away with.
Money wants to make money and will go anywhere it can do so. It will not discriminate. Only man can do that.
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