Financial Regulatory Forum

By Al Yoon

NEW YORK, April 12 (Reuters) – On March 17, 2009, a group of mortgage bond investors worried about the losses they could suffer as a result of U.S. foreclosure prevention plans asked top bankers to share the pain by taking some write-downs on $450 billion in home equity loans.

But the bankers said they would talk only after the investors first allowed modifications on their primary loans as prescribed under the Obama administration’s Home Affordable Modification Program, according to a trader who attended the meeting at the American Securitization Forum in New York.

Thus began a year of frustration for the investors, such as asset manager BlackRock Inc, who claim their rights as primary mortgage holders have been trampled by the foreclosure program that let second-lien holders off the hook. Most agreed that the program, known as HAMP, was good policy, but balked at who sustained losses and when.

“It doesn’t make sense,” said Scott Simon, a managing director at Pacific Investment Management Co., in Newport Beach, California. “You’d think if you are first lien holder you’d be in first lien position.”

More than a year later, investors whose losses would be lessened if banks took write-downs on second-lien mortgages are getting some attention, after being stonewalled by banks and regulators, according to the trader who attended the meeting with bankers. The change comes as they are being asked to help restore private credit to the U.S. housing finance system, which is costing taxpayers a bundle.

– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –

By Rolfe Winkler

NEW YORK, April 7 (Reuters Breakingviews) – The biggest U.S. banks hold tens of billions of dollars of underwater second-lien loans. By all rights, these look like risky credits. Lenders have managed to avoid writing them down because borrowers are making payments. But muddling through is a risky strategy. Regulators would be wise to force them to hold more capital against these loans.

In total, U.S. commercial banks hold more than $700 billion of second-lien mortgages, also called home equity loans. Many were used to turn houses into ATMs, others to finance down payments. Typically subordinate to first mortgages, many of these look vulnerable to write-downs, as the homes are worth less than debt owed on them.

By Al Yoon

NEW YORK, Feb 17 (Reuters) – The federal regulator of Fannie Mae and Freddie Mac on Wednesday proposed an overhaul of government rules on how the mortgage funding giants serve low-income homeowners while limiting their risks.

The Federal Housing Finance Agency wants new goals that would target borrowers with lower incomes than in the past — including families with incomes at or below 80 percent of their area’s median, down from 100 percent — while giving Fannie Mae and Freddie Mac more flexibility in measuring success.

In a twist from past practices, the proposals would prohibit Fannie Mae and Freddie Mac, the two biggest sources of U.S. housing finance, from buying home equity loans and Wall Street’s mortgage securities to satisfy the goals.

By Jonathan Stempel
NEW YORK, Aug 3 (Reuters) – A U.S. regulator said on Monday banks may need to boost their reserves for losses on home equity loans, after housing prices fell by roughly one-third from their 2006 peak. (more…)