Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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Paulson: Subprime help needed - but no bailout

Treasury Department is walking a tightrope on help for mortgage borrowers.

By Les Christie, staff writer

NEW YORK ( -- Treasury Secretary Hank Paulson is walking a fine line, pushing the need to help troubled mortgage borrowers without rewarding past risky behavior.

"I have no interest in bailing out lenders or property speculators. Still, we must recognize the very real harms to families affected by the housing downturn," Paulson said in prepared remarks for a speech given Tuesday at Georgetown University.

Treasury Secretary Hank Paulson
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"We must take steps to minimize the neighborhood effects and the macroeconomic effects of this housing market correction," he continued.

Paulson pointed out that President Bush charged him, along with HUD Secretary Alphonso Jackson, to work closely with market participants to "modify" at-risk mortgages.

Paulson noted that as many as 50 percent of failing borrowers never contact their lenders to address their problems. Paulson said the industry must increase its outreach efforts.

Last week, Paulson announced the creation of a new alliance of mortgage servicers, counselors and investors called "Hope Now" that was designed to get to more troubled borrowers and find solutions to their mortgage problems.

Tuesday, he called for more flexibility in loan modifications and refinancing.

"For many families, this is the only viable solution," Paulson said. But he pointed out that many servicers are not well staffed to provide "mitigation" services even though preventing foreclosures is in the best interest of investors in mortgage-backed securities.

Loan servicers, who handle billing and payments after a loan has been made, must put more trained credit counselors in place to deal with the increases in volume of borrowers in need of help.

Paulson also called upon Freddie Mac and Fannie Mae to work closely with private lenders to make affordable mortgage products more available and to increase funds so those in risky adjustable mortgages can refinance.

Starting in April 2007, Freddie Mac began to dedicate billions to buying refinanced mortgages designed to help troubled borrowers stay in their homes. Paulson would expand on initiatives like this.

Offering affordable mortgage products, through such agencies as the Federal Housing Administration (FHA), is part of Paulson's prescription. In August, President Bush announced a plan to make these loans available to more Americans.

FHA loans carry competitive interest rates, require little in the way of down payments and are popular with lenders because they are backed by the Federal Government. They are aimed at increasing home-buying opportunities for low- and moderate-income Americans.

Changes in laws and regulations on mortgage borrowing was also addressed by the Treasury head. He pointed out that the patchwork of rules governing state and federal institutions make regulation more difficult.

Looking forward, Paulson stressed the need for more transparency in mortgage lending. "We need simple, clear, and understandable mortgage disclosure," he said.

He pointed out the complexity of paperwork at closing, many of which are designed to shield lenders from liability rather than provide borrowers with useful information.

Paulson advocated for a single-page summary of the most critical facts that borrowers need to know, including actual interest rates and schedules of payments. To accomplish this, the Treasury Department is reviewing the Truth In Lending Act.

To improve integrity among mortgage originators, Paulson wants to establish nationwide licensing, education and monitoring systems for mortgage broker and loan officers.

That should also help combat predatory lending and Paulson wants regulators to assert more authority in defining and prohibiting unfair and deceptive practices. The rules would apply to the entire mortgage industry.

Paulson did not allow borrowers to escape without their share of blame. "Buying a home today is a complex process, but that in no way excuses home buyers from their obligation for due diligence."

Although the speech seemed to mark a step up in activism on the part of the Treasury Department, Paulson was quick to point out the limitations of the government's approach during the question and answer following the talk.

Referring to HopeNow, he said, "This is a 100 percent market-based solution. I believe in markets. The government is doing nothing here but facilitating people coming together."

Paulson also downplayed the possibility that the housing crisis could plunge the nation into recession. "I've seen turbulence in the market a number of times and I can't think of any situation where the backdrop of the global economy was as healthy as it is today," he said.

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More Housing Hanky-Panky

By Seth Jayson October 16, 2007
I'm shocked. SHOCKED
What else do you expect from a former Goldman Sachs (NYSE: GS) honcho who's presiding over an epic housing crash? Tough love? Free market economics? Please. It's all about keeping people happy, no matter what the cost.

Today, at Georgetown's law school, Treasury Secretary Hank Paulson made that plain. He followed up on yesterday's Wall Street bailout debacle by telling the world, "Let me be clear, despite strong economic fundamentals, the housing decline is still unfolding, and I view it as the most significant current risk to our economy."

You think, Hank?

Late to reality
He's right, of course. But what took him so long to figure this out?

Where was he when his Wall Street buddies at Goldman, Lehman Brothers (NYSE: LEH), Bear Stearns (NYSE: BSC), and Citigroup (NYSE: C) were raking in hundreds of millions in profit bonuses on the backs of trading in ever-more dangerous, ever-more-leveraged, black-box mortgage derivatives? Where was he when outfits like Impac Mortgage Holdings (NYSE: IMH) and Novastar Financial (NYSE: NFI) were building houses of cards from cheap Wall Street money that was sure to dry up as soon as the lousy loans stopped performing?

He surely wasn't calling for "orderly" markets (as he did yesterday) while the greatest housing bubble we've ever seen was inflating homebuyer egos and Wall Street paychecks. It's only now that the party is over that "order" must prevail. But in my opinion, "order" has come to mean "increasing."

Gotta be some way out of this other than the way we came ...
Now, Paulson -- like all the other politicians in Washington -- is scrambling for a way to fix the mess without any pain for anyone. Obviously, this is absurd. Billions of dollars in fictional equity were created via the housing Ponzi scheme, and these guys are dead set on preserving as much of it as possible, no matter what the cost.

"We must help as many able homeowners as possible stay in their homes," Paulson said. "Foreclosures are costly and painful for homeowners."

Yeah, well, too bad. That's what happens when you allow people who make $50,000 a year to buy $500,000 homes on gimmicky loans that apply a pretend interest rate up front.

Now, Paulson says lenders should work with home owners to refinance these overpriced houses before the interest rates reset and they can no longer afford them. Surely, he knows that the funding for those loans was provided only on the condition that they would someday reset at rates that make medieval usurers look kind.

That's kinda dishonest, but that's what naive, deluded, or greedy buyers signed on for. Take away that reset, and you take away the incentive to lend the money in the first place. If Paulson thinks he's got a credit crunch now, just wait and see what happens in a world that dictates new loan terms as soon as it's politically expedient. Lending will get even tighter and home prices will drop like rocks.

Paulson tried to give a nod to the old-fashioned notion of personal responsibility by telling the kids at Georgetown, "When investors are relieved of the cost of bad decisions, they are more likely to repeat their mistakes. I have no interest in bailing out lenders or property speculators."

Ha! C'mon, Hank! Pull the other one. We know that's a bunch of bunk because it comes on the heels of the sleight-of-hand bailout plan you brokered and announced yesterday. OK, you didn't offer a bailout specifically aimed at the lenders or speculators, but you're doing anything you can to shore up the books at the wellspring of credit.

Foolish final thought
Answer us this, Mr. Paulson. How do you propose to encourage liquid lending markets while simultaneously relieving overstretched homebuyers of their contractual obligations to the (regrettably) lousy ARMs they took out in order to buy those overpriced McMansions?

Someone's gotta pay. And if it's not going to be the debtors leaving the homes, and if it's not going to be Hank's buddies on Wall Street, who does that leave?

Us. The responsible majority of Americans. Remember us? The people who didn't go out and do stupid things with our money?

Naw, of course not. We're not the ones making all the noise.

Seth Jayson -
The Motley Fool who needs to get educated on Mortgage Servicing Fraud.
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