STOCK MARKET WATCH - Friday, 17 February 2012

[Demeter]

13. HUD’s Donovan Tells Remarkable Whoppers About Settlement to Mortgage Investors

http://www.nakedcapitalism.com/2012/02/huds-donovan-tells-remarkable-whoppers-about-settlement-to-mortgage-investors-and-pari-passu-101-or-why-this-matters.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

If you are going to lie, it appears the Obama Administration believes there is nothing to be lost by telling a Big Lie.

Late Tuesday afternoon, HUD Secretary held a conference call with member of the Association of Mortgage Investors. His remarks were consistent with previous rumors we have heard about how the settlement deal is supposed to work.

Several items stood out. The first is that Donovan claimed that the settlement respected the creditor hierarchy, when that is a patent falsehood. He has, in other calls, described the treatment of second liens as “at least pari passu”. As we have discussed, second liens are to be written off when they are more than 180 days delinquent, but banks can pretty much arrange that that does not happen (they can put the loan into negative amortization or increase the credit line on HELOCs, so the borrower is paying with newly-lent money). The treatment of second loans is set forth starting on p. 3 of this “General Framework” document from late January. You don’t need to understand the formulas. All you need to know is anything other than “second liens are extinguished before undertaking any modification of a first lien” is contrary to the payment priority of second liens. And that is most decidedly not what is happening.

Second is that Donovan claimed that the servicers would not violate their existing agreements with investors. There is verbiage to that effect in the General Framework document: MUCH DETAIL AT LINK

CONCLUSION:

It is nevertheless yet another sign of Obama Administration brazenness: to have officials tell lies to an audience that will KNOW it is being lied to, with no concern about backlash. They clearly assume that they have sufficient control over the media that they need not worry about disgruntled participants spreading word of the offensive conference call. Even if negative stories leak out, the officialdom is apparently confident that it has enough paid or brainwashed cheerleaders to drown them out.

WELL, WE WOULDN'T KNOW ANYTHING ABOUT "PAID OR BRAINWASHED CHEERLEADERS" AROUND HERE, WOULD WE? AS A POLITICAL STRATEGY, THIS SUCKS.