60 Minutes did a great story this evening explaining Credit Default Swaps. You can see the video here. Essentially, the story pointed out that "credit swaps" are insurance for mortgage-backed securities. They are not called insurance, because if they were, they would be regulated. One of the biggest problems causing the latest financial disaster is that the companies issuing the credit swaps are defaulting on them, or could default on them in the future.

A great many people made a lot of money designing, issuing, and selling credit swaps. So much so that there are now approximately $63 TRILLION in credit swap obligations outstanding. Compare that to the total deposit accounts for the entire world, which stands at approximately $40 trillion, and you can see that we are out of balance!

At Resolve Legal, we have seen an increasing use of what we call an 80/20 mortgage. In other words, a borrower takes two loans -- one for 80% and a second position mortgage for the remaining 20%. It used to be that until you had 20% equity in your home, you would pay an insurance premium each month for private mortgage insurance. Well, the ever-creative mortgage industry came up with a way to avoid that insurance payment -- one which home buyers were only too eager to adopt as it gave them more cash to make a larger monthly payment. Now, when the mortgage is foreclosed, it is not insured, and rarely does the second position get paid in the foreclosure process. Thus, the borrower remains on the hook to pay that debt.

On both the macro and micro scales, the system has been failing. We will all be paying for that failure for a long time to come.

Labels: consumer, insurance, meltdown, mortgages

If you want to know what this bail out is all about, check this out:


more music charts

Thank you graphjam.com, and thank you Professor Nancy Rapoport for sharing it at http://nancyrapoport.blogspot.com/

In the face of such an overwhelming push to pass the Paulson bailout plan immediately, it's nice to know I'm not the only one having doubts. The New York Times editorial page published this today:

Show Us the Hope

At last count, six million people were expected to default on their mortgages this year and next, putting them at risk of losing their homes unless they can catch up in their payments or catch a break on their loan terms. And they're not the only ones at risk. As prices drop, millions of people who have never missed a mortgage payment stand to lose their home equity. Leaving these Americans out of the bailout bill is unwise and unfair, but neither Congress nor the Bush administration has ever shown anywhere near the sense of urgency to rescue homeowners at the bottom of the collapse as they have for the financiers at the top of it. Take, for example, a new government program that took effect on Wednesday with the aim of helping as many as 400,000 struggling homeowners keep their homes. Even before it got started, the program - called Hope for Homeowners - was looking like a lead balloon. Under the program, the government will insure up to $300 billion in new, more affordable loans for troubled borrowers. For the insurance to kick in, however, lenders must first voluntarily refinance the delinquent mortgages by reducing the loan balances to 90 percent of the home's current market value. In exchange, lenders would avoid the expense of foreclosure and uncertainty about being repaid. The government would stem the social and economic damage of more foreclosures, at presumably little risk to taxpayers.

There's just one problem. At a Congressional hearing in September, lenders were lukewarm about participating in the new program - reluctant, it seems, to take the loss that comes with reducing loan balances.The lenders, including JPMorgan Chase, Bank of America, Wells Fargo and CitiMortgage, a unit of Citigroup, all said they were taking other steps to help troubled borrowers, like reducing a loan's interest rate or extending its term. That's helpful, but the industry's efforts don't go far enough: defaults and foreclosures continue to outstrip efforts to rework bad loans. As home prices fall, the most effective modification is to reduce the loan balance; otherwise, borrowers are in the position of repaying a loan higher than the value of the property. That burden can become unbearable when combined with unemployment or reduced work hours or unexpected expenses like medical bills.

There are two sides to the mortgage mess. The mortgage industry, in pursuit of upfront fees, deliberately made loans to people who could not afford the payments over time. They justified their actions on the self-serving and unsound basis that rising home values would forever postpone a day of reckoning. Many borrowers - naively, foolishly or selfishly - took on those loans. Yet well over a year into the housing bust, the mortgage industry still calls the shots, as if it is a victim of the borrowers. Congress could change that dynamic, by amending the bankruptcy code to allow the court to modify troubled mortgages. But lawmakers still are afraid to hold the industry accountable. Instead, they are offering Hope for Homeowners that looks to be anything but.

http://www.nytimes.com/2008/10/02/opinion/02thu1.html?_r=1&ref=todayspaper&oref=slogin#

Labels: bankruptcy, mortgages, politics

Marie Antoinette is said to have replied, when told that her poverty-stricken subjects could not afford bread, "Let them eat cake." Although the story is likely apocryphal, it certainly captures the apparent attitude of our leaders today. While many of us struggle to make ends meet, and many are having particular difficulty making house payments, Congress is stuck in political bickering and maneuvering. The politicians that are supposed to be looking out for us seem much more concerned with their reelection campaigns or their party loyalties than what is in the best interests of the country or its citizens.

Let's review: for many years, Wall Street investors have been making buckets of money by investing in (and marketing, and packaging, and brokering, and rating) mortgage-backed securities. The system is complicated, but essentially it works like this: a home owner takes a loan to buy a house. That loan is pooled with other loans and sold to Fannie Mae, Freddie Mac, or into a trust, and it is then "securitized." Investors purchase securities, which represent the right to receive payments from the mortgages in the pool. The amount of money in these transactions is staggering, and the fees, salaries, and bonuses generated made many people very wealthy -- private jets, yachts, New York penthouses kind of wealthy.

Now they tell us that we are going to pay for that. And we are not getting much in return. Not even cake. The fundamental flaw with the bailout plan, from what I can tell, is that it buys those very securities that were created for the benefit of the Wall Street investment companies, and does almost nothing to help the homeowners who are footing the bill.

The first version of the bailout plan, presented a few weeks ago, was only three pages long, and it was ridiculously overreaching. Under that original plan, the Secretary of the Treasury would have absolute authority to spend $700 Billion of our money however he saw fit, with no oversight by a court or Congress. The House version, voted down two days ago, was somewhat better, and included various provisions to limit executive compensation and restore any profits made to the taxpayers. Now the Senate has added even more provisions, but the basic underlying flaw is still there -- the money is going to pay for the securities, and not to buy the actual home loans. So long as the government does not actually own the loans, there is no reason to think anything will change between lenders and borrowers seeking loan modification or relief.

I have been urging my friends and co-workers to contact their elected officials and ask them to oppose this bailout plan. In recent days, I think that we have all been somewhat worn down. In the absence of any true leadership, we resign ourselves to the belief that this is the best we can do. But I do not believe that -- I think we can expect more out of our government, and I think we can continue to insist that we want them to work harder to find a better solution.

Of course, my friends then ask me the logical question: "What should we do then?" For several days, I have been saying I don't know, and I still believe that it is the responsibility of all those politicians to figure it out. But I think that at a minimum, any bailout should allocate funds to purchase the actual loans, and should set up housing counseling agencies that can arrange new terms for homeowners to be able to pay their loans. A recent New York Times opinion column really stated it best -- you can read it here:

http://www.nytimes.com/2008/09/27/opinion/27partnoy.html?scp=9&sq=september+27+2008&st=nyt

Even with all the amendments, and even though the economy is certainly in crisis and action is needed, I do not support the proposed legislation and I will continue to raise my voice against it. We can do better. In American, in the twenty-first century, we should not be required to pay taxes to refill the coffers of the rich.

Yes, individual homeowners need to be responsible for their own excessive spending too. But the system does not work at all unless homeowners are making their mortgage payments. The only real source of money coming into the securitized mortgage pools is the payments we make. And in my experience, working with people in distress every day, people WANT to be able to pay their mortgages! Any legislation to bail out the lenders must also help people pay their loans by instituting a program with teeth in it for making reasonable modification to those loans.

Labels: mortgages, politics

At Resolve Legal, we only represent individual consumer debtors. As consumer bankruptcy lawyers, we see the distress the mortgage mess has brought to homeowners up close every day. From this vantage point, it's quite clear that your federal government is not helping you, it's looking out for financial institutions and Wall Street.

Now, our economy does in fact depend on those banks and other financial institutions. But it also depends on those of us who are making our mortgage payments. As we have seen in the last few weeks, when homeowners can't pay their mortgages, the system does not work. In general, the people that come to see us who are in trouble with their house payment WANT to pay, they simply cannot. Nothing in the plans that are being considered in Washington will fix this problem and until homeowners are given some tools to help them make those mortgage payments, the whole system will continue to flounder.

A bankruptcy filing can give a homeowner a chance to catch their breath and catch up on their payments. But it is a shame, really, that the lenders cannot do a better job of helping homeowners who want to pay outside the bankruptcy system. In Seattle, at least, we are seeing homeowners who have simply been unable to find anyone at their mortgage company who can help them. And with the demise of Washington Mutual, that situation is sure to get worse.

Over the next few days, I think we will see some sort of legislation come from Washington, despite the fact that most of us taxpayers are opposed to the plans. What remains to be seen is whether the legislation will include any relief for those of us at the bottom of this pyramid.

Labels: bankruptcy, mortgages, politics

We took a break from blogging, trying to squeeze in a little summer during this very busy, chaotic time. This difficult economy is resulting in lots of new cases at Resolve Legal. So many people are struggling, and we are working hard to help as many of them as we can.

The news is overwhelming for those of us trying to keep up with the meltdown in our economy. We spend time every day studying to understand what is happening in the housing market, the credit markets, and the overall economic environment. One thing is clear -- our government has not reacted quickly or decisively to stem the crisis. Now that they have begun to take action in Washington, it seems that while the investment banks and insurance companies can get bail out money from the government, middle class homeowners and working people are not going to get any such assistance.

There are ways to get help. At Resolve Legal, we can sort through your options with you and provide you with information about how to improve your financial outlook. Some resources are on our web site, and information can also be found at the National Consumer Law Center, the Center for Responsible Lending, and other great websites. Please call us if you would like to talk to a lawyer. And keep reading -- we're back for fall and eager to hear from you.

Labels: bankruptcy, consumer, politics

The news has been full of scary stories in the last couple days about IndyMac Bank, Fannie Mae, and Freddie Mac. If you are a homeowner with a late mortgage, or worse, a defaulted loan, what impact does all this have on you? Maybe none, but maybe it will make the situation that much worse.
Fannie Mae and Freddie Mac are directly involved with about half of all mortgages in the United States, usually conventional, prime mortgages. Long before private funds started buying large blocks of mortgage loans, Fannie Mae and Freddie Mac were in the business of buying loans from banks on the secondary market, and thereby creating liquidity for those banks to make more mortgage loans. Unfortunately, as has been widely reported in the last few days, these insitutions were a little bit out of control for many years now, bloated and arrogant, and making far too much money for far too many people who were not really all that concerned with their borrowers.
If Fannie Mae and Freddie Mac are not able to raise capital, either through stock sales or borrowing money themselves, mortgage loans will definitely become more difficult to obtain. If you are in the process of trying to refinance to avoid a foreclosure, this could have a serious impact. Moreover, the much-vaunted housing legislation that has been winding its way through Congress depends on Fannie Mae and Freddie Mac to refinance troubled loans. Hard to say at this point what effect all this turmoil might have on their ability to perform that role.
The failure of IndyMac Bank at the same time seems to have created a great deal of fear, almost panic. Most depositors will be insured by FDIC, and so their accounts will be covered. But if you are a borrower of a loan held by IndyMac, its demise might make it much more difficult to obtain any assistance with your loan or to reach some accomodation with them. Worse yet, if you have a claim against IndyMac for predatory lending or other consumer rights violations, those claims could potentially be cut off by the government takeover.
In Seattle, mortgage foreclosures have only recently started to pick up, and relatively few homeowners have sought bankruptcy protection or assistance from their lender. If you are facing foreclosure, bankruptcy may be an option. There are other possibilities as well, such as refinancing your loan, going through a loss mitigation program with your lender, or investigating whether you have consumer rights claims that could mitigate your losses.
In light of all the bad news over the last few days, it does not seem that the problems of homeowners in distress are likely to go away any time soon.

Labels: bankruptcy, consumer, mortgages

I attended two funerals this week for lawyers, both good friends. Although they were almost a generation apart, the two men were similar in their stellar professionalism, work ethic, and generosity to other lawyers.

Bill Hines practiced for more than 20 years in Seattle as a federal criminal defense lawyer. Bill was smart and funny, and a passionate defender of civil rights and the Constitution. We were told that Bill was the first criminal defense lawyer to be memorialized at the Federal Courthouse, a tribute to his integrity and the respect the entire federal bar held for him, including prosecutors, judges, and court staff as well as fellow defense lawyers. I think my favorite image of the event was the bike messenger who came and mourned Bill's passing along with all the suits in the room. How like Bill, to develop a relationship with the bike messenger.

They don't make men like Bill Hines anymore. He grew up in rural Florida and worked in many different jobs over the years, including mechanic and boat electician. He could build or fix almost anything. He earned his doctorate ABD (all but dissertation) in political science. He went to law school to change the world, and change the world he did, not in the least for the hundreds of defendants he represented. He also quietly "adopted" an ever-expanding network of nieces, and was the best husband he could possibly be to the love of his life, Amy Hines. We will miss him terribly.

Willard Hatch was the dean of the Seattle bankruptcy lawyers for the last 50 years. Almost every bankruptcy attorney in Seattle has some connection to Willard. I am proud to be connected through my partner, Cynthia Kuno, who was Willard's last protege from 1992-1997 when we started Crocker Kuno. Willard consulted with Crocker Kuno after he retired from Foster Pepper for several months, before he decided to give up his license, and he and I worked on a case together, representing a debtor in a workout. At Crocker Kuno and Resolve Legal, we aspire to re-create the Hatch & Leslie of old -- a true Seattle bankruptcy boutique and a family, too.

Willard's family generously shared their memories of their father (and their struggles with him) with us in a very moving memorial service. I was surprised to hear of his shortcomings as a father, particularly since I have known him primarily through the devoted eyes of the lawyers who ardently admired him. Where at home he may have been remote and cantankerous, at work he was supportive and cantankerous. He was famous for his brevity, known for answering the phone last name only with no other greeting -- "Hatch!" I got to know him in the last decade of his life, when he had softened considerably, but he was still taciturn, never one to waste words.

Although I doubt they ever met, Willard and Bill shared a passion for justice and civil rights, for liberal causes, for craftsmanship and the Northwest, and for the profession of Law. In addition, they each passionately loved their wives, Bill for almost 25 years, and Willard for almost 50 until Ginger passed away some years ago. When men like these leave us, it is our obligation to remember them and to sustain the values they taught us -- to pass those values on to the next generation of lawyers. May their memories be a blessing to us.

Labels: Personal, professionalism

Memorial Day weekend is coming to an end and summer is unofficially beginning. Shoppers seemed to be out in droves today, but I was surprised how it seemed that everywhere I went today, there were more items on sale than at regular price. People are shopping, but maybe we are not spending as much. Gasoline was over $4.00 all weekend, and I had to put gas in my car. I couldn't bear to fill it up, hoping the price will go down a little when the holiday is over. I went to buy tomatoes today, along with some other vegetable starts and some seeds, and I went to a discount store instead of my favorite specialty nursery. I wonder how many of you made similar choices in the last few weeks or months.



For some, making spending adjustments will be enough to ride out this difficult economic period. But many of you are beyond that point already, and the bills are really becoming unbearable. Home mortgages are resetting rates at a rapidly increasing pace which is scheduled to peak in 2009, and some of you are probably facing the reality of a mortgage you simply cannot afford. At Resolve Legal, we are seeing people every day facing these problems, and summer sun is unlikely to shine down on any improvement anytime soon.

Labels: bankruptcy, consumer, mortgages

Much has been made of our government's efforts to help stem the foreclosure crisis, but little seems to be actually helping the people who need it. Two articles in the April 30, 2008 Sunday business pages of the New York Times report on two such failed attempts.

The first measure Congress passed to assist homeowners back in February was included in the economic stimulus package. Rules were instituted to increase the ceiling for mortgages that used to be considered jumbo. In other words, for people whose mortgages were more than $417,000, they could refinance from a jumbo mortgage (which are usually more expensive) to a conventional mortgage. Although it varies by location, in some cities the ceiling was raised to $730,000. Unfortunately, the program has been a failure, since lenders have not actually lowered the rates as lawmakers had expected, and mortgage brokers quoted in the article say they are unable to find lenders willing to utilize the new program.

In the meantime, the Federal Housing Administration (FHA) has been touting the benefits of FHW Secure, a program to help alleviate foreclosures. The New York Times reported, however, that of the 150,000 the FHA claims to have helped, only 1,729 were actually behind in their mortgage payments. In 2008, while FHA Secure will assist approximately 400,000 homeowners refinance their mortgages, only 4,000 of those are expected to be delinquent in their payments. In other words, the FHA will help, but the assistance that is available is largely going to those borrowers who don't really need the help.

At Resolve Legal, we are doing our best to keep up with the dizzying array of temporary fixes and band-aid solutions proposed by various agencies in charge of monitoring our country's financial institutions. If we are able to discover any that actually will help the people most in need, we'll be sure to let you know.

Labels: mortgages, politics

I'm new at blogging , and so I've just started reading other blogs about housing, bankruptcy, and the economy. I have to say it is all pretty intimidating and overwhelming. For instance, today I ran across the blog called Calculated Risk by a retired executive and his/her trusty sidekick Tanta: http://calculatedrisk.blogspot.com/. It is quite amazing, really, and I hope you read it. I can't imagine how they find the time to research and write such compelling and thorough material. I just spent the last hour or so just reading what they have written in the last couple days!

We are not academics or scholars, nor are we experts on the economy or financial markets. We spend our days talking with people like you -- individuals who find themselves in financial trouble and do not know where to turn, who are mystified by the sudden reversal in their fortunes, who have never had bad credit before, and now they are looking for someone who can help.

At Resolve Legal, we are dedicated to working with individuals in financial distress. Recently, most of our clients are confronted with mortgage issues. Many of them are faced with an increase in their payment on an adjustable rate mortgage, at a time when refinancing is virtually impossible. Others have been staying current on their mortgage payments, but only by falling behind on their other debts. Many clients come to us to deal with their debts through a bankruptcy, and we discover that they have been the victims of a predatory loan. If you have a problem with your mortgage, whether you are currently in a foreclosure proceeding or just afraid it could be around the corner, or if you are facing overwhelming debt, contact us for a free initial consultation. We want to help.

The House of Representatives finally passed legislation this past week to try to help homeowners facing foreclosure. The proposed bill is quite mild, and would likely prove to be totally inadequate. The Office of Budget Management estimates that the bill could help 500,000 people prevent foreclosure, but over 2.5 million people will likely lose their homes to foreclosure this coming year.

Nevertheless, even though Banks would act voluntarily under the proposed legislation, and even though it does not include the modifications to bankruptcy law that the administration has vehemently opposed, President Bush still promised to veto the bill if it survives the Senate.

Rep. Barney Frank, the chair of the Financial Services Committee, has been working very hard to compromise on legislation so that something can be done to help distressed borrowers. He is obviously becoming tired of the whole process. The New York Times reported (May 7, 2008) that he reacted to the veto news by noting that President Bush seems to be abandoning troubled homeowners:

"I think it would be a declaration that he's stopped trying to govern," Mr. Frank said, "as if the president were saying: 'I'm through governing, let's just yell at each other for the rest of the year.'"

Labels: mortgages, politics

Congress has been playing politics with the mortgage crisis, and so far at least, nothing at all has been done to alleviate the stress on middle class homeowners since the jumbo ceiling was raised a few months ago. One problem with this whole mess is that there are many causes and there will not be any one solution that will solve it. What do I mean by that? Assume that the current crisis was brought on by an increase in mortgage defaults, particularly by "subprime" borrowers. One way of looking at the issue is that too many people borrowed more money than they could afford to repay, and they got inflated appraisals to support those loans, and they exaggerated their income to convince lenders to give them more money. Further, most of these loans were on adjustable rate mortgages, and now that the adjustments are being made, they can't pay.

On the other hand, what were the lenders doing over the last few years? Lenders were competing vigorously for exactly those borrowers, and then they were packaging those loans together and selling them to Wall Street. At the top of the food chain, investors were looking for a return on their money higher than they could get in traditional markets, and so they were willing to believe that no matter how much those interest rates were adjusted, the borrowers would continue to pay. Like the borrowers, they did not stop to think about what they could really afford to lose.

Over the next few months, we will look at the underlying causes from both the borrowers' and the lenders' standpoint. Many words have already been written about the subprime mortgage crisis, but as I talk to people, I find that few of those words have illuminated the topic for the average reader. Most people I talk to about this issue want to understand the causes and implications for their own finances, and for the impact the mortgage crisis is having on our country's economy. We're not entirely sure that we can do better, but we are going to try! Keep visiting, and let us know how we're doing.

Labels: mortgages, politics

Resolve Legal website is an ongoing project. Originally, it started out as a substitute for a brochure, and we have continued to add features and content to help individuals in financial distress who are looking for legal help. Many years ago, we determined that Google was going to take the place of the Yellow Pages, and that we wanted to be associated with the former and not the latter. We've always been turned off by Yellow Pages ads and their bigger-is-better look and feel. And we've always had too much to say to prospective clients to fit inside a box on the printed page.

If you've come to this blog, you probably are experiencing some sort of financial distress (or you may be a colleague or professional in the field - and we welcome your participation too!). Perhaps you have scrolled through the web pages and are looking for something more specific, or perhaps you are looking for recent news related to consumer bankruptcy, predatory lending, the mortgage crisis, or other consumer rights issues. We started this blog to get involved in the national conversation underway on these issues, as well as discussions about consumerism and sustainability, the general economy, and the role of politics in our financial lives.

You'll find that we have lots of opinions, and we hope that doesn't offend you. As attorneys, we certainly understand the role we play as advocates of our clients' positions, and we are able to put our own personal opinions aside to represent our clients' interests, so long as it doesn't directly contravene our core principles. Some of those principles are as follows:

We believe that individual consumer clients deserve the best possible legal representation from lawyers with impeccable credentials. We believe that quality counts, even in smaller cases and even for individual clients, not just corporations. We believe that consumers deserve a fresh start. We believe that sometimes people simply are unable to pay their debts, and that they need a chance to start over. We believe we can help.

Please join the conversation, let us know what you think, ask questions, tell us where we go wrong. Welcome to the Resolve Legal blog!

Labels: bankruptcy, consumer, welcome