Today, in addition to Treasury Secretary Henry Paulson’s expected announcement of a major mortgage modification plan through the $700 billion TARP, Barney Frank’s House Financial Services Committee is holding a hearing entitled “Private Sector Cooperation with Mortgage Modification.” However, despite the word “cooperation” in its title, it’s clear from letters Frank and others sent out that the hearing will be confrontational rather than cooperative. Specifically, Frank and some fellow committee members seek to villify investors in mortgage-backed secuties who assert their property rights under contracts with banks servicing the mortgages.
The harsh tone was set in a letter that Frank and fellow committee Democrats, including Carolyn Maloney, D-N.Y., and Maxine Waters, D-Ca., sent to investor William Frey. The representative wrote that they were “outraged” the Frey was opposing their “voluntary efforts” to “achieve a dimuntion in foreclosures” through the Federal Housing Administration refinancing plan mortgage bailout passed this summer. They then urged him to “reverse his position of trying to obstruct the operation of the bill.” So much for “voluntary,” huh.
But all Frey was doing was asserting the basic American property right of having a contract upheld. Because of securitization, many mortgages are not the banks to modify. Instead they are owned by investors, including pension funds holding the savings of the very middle-class families Frank and others are trying to help. In my OpenMarket post a few months ago, “Abrogating Peter’s Contract to Pay Paul,” I noted that according to investment bank Credit Suisse, 14 percent of MBS are owned by pensions and mutual funds that serve middle-class savers. So a big bailout, I wrote, “not only ‘robs Peter to Pay Paul,’ through taxpayers’ bailout of bad loans by banks and borrowers. It can also be said to ‘abrogate Paul’s contract to Peter.’”
