Thursday, March 12, 2009

HELOCs Are Causing Housing Plan Problems

Could our beloved HELOCs be causing problems with Obama's Housing Plans? Sure looks that way. We were looking through rose-colored glasses forgetting that this HELOC thing was actually a second mortgage. Yes another mortgage. The marketers did such a good job making HELOCs and HELs different to consumers.

And with mortgages come complex contractual obligations. Yesterday we looked at the hold-ups due to resubordination issues. Today we find another problem - mortgage investors. From this article in the Wall Street Journal titled Mortgage Investors Call for Change in Rescue Plan we see new problems emerging -

Investors who hold billions of dollars of residential mortgage-backed securities are pressing the Obama administration to make changes in its housing rescue plan.

Participation by these investors will help determine the success of President Barack Obama's $75 billion plan to reduce foreclosures and help stabilize the housing market. But many investors are critical of features of the program and have been meeting with Treasury officials in an effort to influence parts of the plan, such as how it treats second mortgages.

Some investors say they are contemplating legal action because they think the administration's plan and legislation before Congress would violate their rights. They are particularly concerned about measures that would prevent lawsuits against mortgage servicers, which collect loan payments for the investors and are responsible for modifying loans with homeowners.

"Investors are given rights through the contracts in the securities, and we expect those rights to be honored," said Jeffrey Gundlach, chief investment officer of TCW Group Inc., which manages roughly $52 billion in residential mortgage-backed securities.


Administration officials say they are trying to address the concerns of investors and others as they work out details of the program. The range of investors in mortgage-backed securities includes hedge funds, insurance companies and pension funds.

Another snag to the road to foreclosure reduction. Sometimes trying to clean up messes can make things even messier...

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