Today, about 80 percent of the $1.8 trillion in troubled mortgage loans belong to investors, according to Deutsche Bank. The rest are considered “whole loans,” held by banks or government-run mortgage giants Fannie Mae and Freddie Mac. Some people might not feel sorry for the investors, but others think investors were mislead about the safety of such loans. Either way, why are mortgage companies reluctant to help troubled homeowners? The fault lies with investors. It is a simple matter of contract law.
“Mortgage servicers report to trustees, which have fiduciary duties to the investors in (mortgage-backed securities) pools,” said Benjamin Allensworth, the senior legal counsel to the Managed Funds Association, told Frank’s committee. “Similarly, institutional investors holding (mortgage-backed securities) also have fiduciary obligations to their clients.”
While we (taxpayers like us) bail out Wall Street the lawyers are fighting to protect investors. The government, as of today, has done nothing to mitigate the contract law issue, but if they do it will no doubt cost taxpayers more money.
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[...] HSBC said third-quarter profit rose even as it set aside $4.3 billion to cover bad loans in the U.S. and forecast “further deterioration.” The U.S. unit “declined markedly” because of consumer and corporate loan defaults. The $4.3 billion total was more than analysts estimated, thinking HSBC would only lose about $3.7 billion. What’s a few million either way? Further detrioration is an interesting term as well. It means that the economy is getting worse, and HSBC Finance has a target audience that feels the effects more so than others. Investors are preventing some lenders from modifying mortgages, but it is unclear how HSBC is effected in that regard. [...]