About Me

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Did Socrates say "Know Thyself", or was he misunderstood, as all are. Show Thyself is all we can do. The knowing is unknowable.  

I am filled with joy.  It can't be helped.  

Became a Farmer, Builder, Musician, Tank Commander, Librarian, Lawyer and Minister. I have failed at many things. And now retired.  Filled, just filled, with Joy. 

Sunday, October 04, 2009

Verbs and Loan Modification (not modifying lending)

I pulled over to think about the month. In mid-September my Office Manager and Department Heads met with me to brain-storm solutions to the fact that the income into our Practice had fallen off a cliff. It occurred to me that we had all become nouns, and we now needed to be verbs. Law Firms can become remarkably complacent.

It is our geography. Lawyers are isolated. We live on an archipelago populated by a fractious and internecine tribe, with its own language which we frankly boast is unintelligible. We are willing to change, to twist a word, so that it has no place at the table, or means the opposite. Contract is a type of breach. Negligence is never accidental. Proof is a mirage. Process is substance to us, our meat.

What our Clients really need, should be obvious. But what is that need when viewed through the lens of the Law?

For example, in Ojibway, many nouns can be turned into verbs. The tongue is filled with the possibility of action. In law, we turn verbs into nouns. We don't really "argue", we make "arguments". Ideas become things.

In 2008, most of the real estate lawyers in Orange County had home loan clients coming to us asking what they could do about the fact that they were faced with loan obligations secured by their homes. Most of the recent loan terms were predatory -- the monthly repayments were triggered to double or even triple, and borrowers could never ever pay off such loans.

The Lenders, not content with placing homeowners into inappropriate obligations, proceeded to offer the mortgages to investors, in layers of securitization. The amount of money seeking investments in the world doubled (Global Money Supply), but the places to invest did not. Bankers sought to service this expanding "market" (for investments) with "new" securities, and mortgages looked attractive. Since Bankers needed more mortgages, with the same number of people, they made the mortgages easier to obtain.

Curiously, however, the Bankers also made the "easier" mortgages impossible to pay off. The Bankers lobbied for laws removing restrictions on Pre-Payment Penalties. (The California Field Code had a provision outlawing penalties in excess of actual costs.) The Financial Industry re-introduced Option-ARM terms and credit default swaps that had been abolished since the 1930s. And to make these new loan forms easier to market, the Banks offered "teaser rates" and promised to "re-finance" the balloon payments. In most States, the Finance Industry eliminated lawyers -- on the consumer's side -- from the loan origination process.

When the Option-ARMS began to trigger -- when the loan repayments doubled or tripled -- the consumer borrowers appeared in lawyers' offices. Lawyers assisted the consumers in seeking "modifications" for the loans. Ideally, this would eliminate the predatory terms, but leave the obligation otherwise intact. The borrowers would be able to keep their homes, and the investment pools (the retirement plans, etc.) would still have cash flow from the income.

However, the Banks are not content with having sold loans to consumers who will never ever be able to pay them off. Nor are Banks content with having sold mortgage securities to investors in forms which have no marketable value (toxic). Nor are the large Banks content with taking tax payer bail out money.

Bankers have foreclosed on huge swaths of homes in neighborhoods across the country, and the benefits of home-ownership are compromised. The victimized families are torn by financial stresses. When the consumers to go lawyers, we tell them that the best of all the bad alternatives is to try to "modify" the loans. The Obama Plan provides guidelines and "commissions" to Lenders who modify the predatory loans. HUD and Fannie Mae provide "free" assistance to consumers.

However, the Banks are taking the Obama Plan commissions, and then they are refusing or delaying the Loan Modifications. They place the borrowers in a Twilight Zone of delay. One tactic is to offer the consumers a three-month "trial mod", after which they require another round of documents because the previous financials are "stale dated". More delays.

Almost all "loan modifications" done by homeowners without law firm assistance go into default within six months. The banks are not really modifying their predation. No one is modifying Lending. We only have bail outs and laws written by the Loan Industry, and consumers losing their homes.