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Barney Frank Asks Top Four Banks To Write Down Second-Lien Mortgages, Claims Have No Economic Value

Tyler Durden's picture


Full Barney Frank letter:

Mr. Brian Moynihan
Bank of America

Mr. Vikram Pandit

Mr. James Dimon
JP Morgan Chase

Mr. John Stumpf
Wells Fargo

Dear Messrs. Moynihan, Pandit, Dimon and Stumpf:

The mortgage foreclosure crisis that began over two years ago, and which continues to be a prime contributor to our nation's current economic downturn, burdens millions of hard-working American families. Congress and the Obama Administration have worked hard to address foreclosures by enabling and encouraging loan modification s, but the private sector's response has fallen far short of the need. Many homeowners are eager to save their homes despite being "underwater," but find that lenders and servicers are unable or unwilling to make necessary modi fications. These homeowners are increasingly deciding to walk away and thus foreclosures continue to mount, deepening the crisis.

To save homes on a large scale, we must move past temporary modifications in interest rates or terms and focus on permanent principal reductions that result in truly sustainable mortgages. There is no more important priority for me in our efforts to restore stability to our mortgage market.

Many investors in first-lien mortgages have indicated that they are willing to accept the fact of significant losses on those investments in order to move on and use their money for other purposes, rather than having it locked in underwater mortgages with a high and growing likelihood of foreclosure. With the interests of homeowners and investors aligned in this way, it should follow that large numbers of principal-reduction modifications could be made relatively quickly. That is not happening. According to investors, Administration officials, and other experts I have consulted, holders of second-lien mortgages are now a principal obstacle to many modifications. The problem of second-lien mortgages standing in the way of successful principal reduction modifications has reached a critical stage and requires immediate
attention from your institutions.

Large numbers of these second liens have no real economic value - the first liens are well underwater, and the prospect for any real return on the seconds is negligible. Yet because accounting rules allow holders of these seconds to carry the loans at artificially high values, many refuse to acknowledge the losses and write down the loans, which would allow willing first lien holders to reduce principal and keep
borrowers in their homes.

The four organizations you lead are major participants in the second-lien market. Failure to modify these debts has become a major and unnecessary obstacle to thousands of Americans being able to stay in their homes. I urge you in the strongest possible terms to take immediate steps to write down these second mortgages and allow principal reduction modifications of the underlying first liens to take place. If there are legal obstacles to your doing so, we will work with you to remove them.

I will be calling you within the week to discuss what your institutions plan to do to remove the second liens you own or control as impediments to principal reduction modifications.


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Mon, 03/08/2010 - 15:06 | 258027 Rex Crotch
Rex Crotch's picture

Wells would instantly imploed along with many more banks. I can't see this happening anytime soon. It makes too much sense.

Mon, 03/08/2010 - 16:22 | 258147 Anonymous
Anonymous's picture

not to mention that the servicing that they wrote up last quarter will need to be written down 20-25% this quarter to reflect the agency move to buyout delinquent loans

Mon, 03/08/2010 - 17:09 | 258203 Careless Whisper
Careless Whisper's picture

don't worry, that fat queen will protect the bankstas. if he was really interested in giving the second mortgagees a haircut he would allow bankruptcy courts to modify owner-occupied mortgages. i call bullshit.

Mon, 03/08/2010 - 18:12 | 258288 Anonymous
Anonymous's picture

I spent Friday and most of the weekend reading and analyzing the WFC annual report. Their capital position is entirely inadequate and 2009 earnings are overwhelmingly based upon "extraordinary" or one-time items.

Mon, 03/08/2010 - 18:33 | 258316 Anonymous
Anonymous's picture

Yep, Wells has way too much HELOC exposure. Probably not as much dreck as BofA (with its Countrywide albatross draped 'round its neck), but very ugly. Let's face it, the top 10-20 banks are insolvent, filled with garbage and are about as helpful to society as a Hep C + AIDS patient going to give blood. He gives his blood, gets some money, and shows that he's making profits. Whoopee! Meanwhile...your friendly news agency/govt rube/bankster is trying to get everyone to come in and have an invigorating blood transfusion. If you get sick later on, it must've been from your own poor lifestyle choices.

Tue, 03/09/2010 - 02:33 | 258872 Anonymous
Anonymous's picture

Nice analogy.

Mon, 03/08/2010 - 18:14 | 258290 rawsienna
rawsienna's picture

Yup - Interest only strips prices of most collateral types (servicing is priced of the market price of these securities) are down 15-20%. 

Mon, 03/08/2010 - 22:24 | 258636 Mark Beck
Mark Beck's picture

Now this is very strange. Because these are the four banks I have at the top of my list for serious Q1 reporting problems even with the FDIC accounting change delay. 

To recognize any additional losses before Q1 reporting would be a disaster.

Now each firm has a different loan portfolio mix, but I think most agree Wells has the most 2nd Lien loss exposure.


When I first read this, I though it had to be a joke. But, I searched around and it indeed looks real. My first though was the Barney was not given the Bank financial report decoder ring.

It will be interesting to hear how the banks respond. After all Barney has done a great deal for them. It's the least they can do. It seems Barney believes these banks are healthy enough to recognize additional rightdowns. 

Mark Beck

Mon, 03/08/2010 - 15:12 | 258030 williambanzai7
williambanzai7's picture

Not quite as springy as local government financing platforms in China.

Mon, 03/08/2010 - 15:11 | 258033 bugs_
bugs_'s picture

Who needs a second wien anyway?

Mon, 03/08/2010 - 15:18 | 258049 Catullus
Catullus's picture

I needed that waff

Mon, 03/08/2010 - 16:17 | 258140 hedgeless_horseman
hedgeless_horseman's picture

What about Piwot in the Wife of Bwian and his fwend, Biggus Dikkus?

Mon, 03/08/2010 - 16:24 | 258153 faustian bargain
faustian bargain's picture

"Wewease Bwian!"

Mon, 03/08/2010 - 15:11 | 258035 williambanzai7
williambanzai7's picture

Not quite as springy as pulling guarantee trousers up from local government financing platforms in China.

Mon, 03/08/2010 - 15:13 | 258038 carbonmutant
carbonmutant's picture

The banks had to see this coming...right?

Mon, 03/08/2010 - 15:13 | 258039 Assetman
Assetman's picture

It's very simple for Brawney... reverse the mark to market ruling (or lack thereof) on FASB to pre-2008 language and the problem is solved.

He helped create this monster of a coverup in asset values... and now he wants to "fix" it in piecemeal fashion?

How can Massachusetts keep on re-electing this guy?


Mon, 03/08/2010 - 15:20 | 258054 SV
SV's picture

Precisely - The logic of this whole situation implies he's once again lying.  He has the authority to revert the FASB, but he doesn't => jawboning a solution.  I will believe no one dare believes this fool or his jawboning.  Wake me when it's reverted.

Mon, 03/08/2010 - 15:52 | 258095 DaveyJones
DaveyJones's picture

"once again lying" implies there's moments you're not

Mon, 03/08/2010 - 16:09 | 258120 SV
SV's picture

I hear ya - In my mind, I was referencing Karl's comments on the possibility (however remote) that Bwarney was actually having a lucid moment.

Mon, 03/08/2010 - 17:40 | 258247 tmosley
tmosley's picture

Only when his mouth isn't moving.

Mon, 03/08/2010 - 15:38 | 258076 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Q:  These families were the original Massachusetts Bay Colony founders.

A:  Who were the Pierces and Forbes et al.

Mon, 03/08/2010 - 15:55 | 258096 Anonymous
Anonymous's picture

I agree... i can't believe I'm reading this.

Mon, 03/08/2010 - 15:18 | 258047 knukles
knukles's picture

No economic value?  Oh yeah, just like thatFannie and Freddie paper that Barney says nobody but someone in their own vested third party detached altruisic self interest who gives a rats rump will take care of for you.

"You're in Good Hands in My Welfare State" 

Mon, 03/08/2010 - 15:30 | 258065 Assetman
Assetman's picture

You might as well give Barney the Good Soldier Award on the Fannie/Freddie statement on explicit vs. implicit guarantees.

If you tell the masses that Fannie and Freddie debt (and its debtholders) cannot be made whole, it presumes that the debt has only implicit guarantees-- thus, the liability sinkhole remains off the Obama Adminstration's budget.

Nevermind that Ben Bernanke insists that Fannie and Freddie debt has the explicit tag... or at least the stuff derviced from the MBS paper he helped buy at bargain prices.  Yeah.. just joking on the last point.

Tue, 03/09/2010 - 01:25 | 258838 Tethys
Tethys's picture

Thanks for making that puzzle piece fall into place.  Seems quite likely the initial statement by Frank was worded in such a manner as to make sure it was spread far and wide on the blogs etc.  Wonder how much more of this type of misdirection we will see - 'over the top' statements by officials for maximum viral effect to get the message out, followed by the pre-planned back-pedaling to take the sting off.

If I were to extrapolate to the letter highlighted in this post, I would say this is a message to underwater homeowners to keep them from walking away by dangling the hope of a write-off of their HELOC and a principal reduction on their primary.  Barney knows this would kill off the banks, so it will never actually happen.  It is a gambit to postpone foreclosures and loan defaults (at least until after mid-term elections) while appearing to have the public's interests in mind.

Mon, 03/08/2010 - 15:27 | 258056 Rick64
Rick64's picture

The banks have had an opportunity to write some of this garbage off with massive profits, but instead chose to give it away with bonuses and salary. Now it should be time to pay the piper, but they have too much power.

 The market would be down, but our economy would have been better off.

Mon, 03/08/2010 - 16:14 | 258136 deadhead
deadhead's picture

The banks have had an opportunity to write some of this garbage off with massive profits, but instead chose to give it away with bonuses and salary. Now it should be time to pay the piper, but they have too much power.

Ding, ding, ding.  We have a winner here folks.

Mon, 03/08/2010 - 15:28 | 258061 chindit13
chindit13's picture


Economic value, as you so cavalierly use the term, is in the eye of the beholder.  For us bankers, being optimists about those seconds is what allowed us to pay ourselves the kind of bonuses to which we have become accustomed.  THAT, Mr. Frank, is what economic value is all about.

Jamie, Vik, John & Brian

Mon, 03/08/2010 - 15:29 | 258062 Cyan Lite
Cyan Lite's picture

Since when were second-lien mortgages ever part of the Tier 1 ratio?

Subordinated debt is Tier 2...

Mon, 03/08/2010 - 15:31 | 258067 Assetman
Assetman's picture

The four organizations you lead are major participants in the second-lien market. Failure to modify these debts has become a major and unnecessary obstacle to thousands of Americans being able to stay in their homes. I urge you in the strongest possible terms to take immediate steps to write down these second mortgages and allow principal reduction modifications of the underlying first liens to take place. If there are legal obstacles to your doing so, we will work with you to remove them.

Is bankruptcy a legal obstacle?

Mon, 03/08/2010 - 15:34 | 258071 AnonymousMonetarist
AnonymousMonetarist's picture


Mailperson just dropped off the latest Grant's Interest Rate Observer...

It is a 'preliminary prospectus dated March 5, 2010, $16,000,000,000 The United States of America -%Bonds due 2040'

Jimmy G just set the's going up on the wall... 24 pages of ol' glory..

The RISK FACTORS , 'before you invest in our securities, you should be aware of various risks' alone is worth the price of the subscrip..

Y'all need to beg 'em to allow you to put it up here...

Mon, 03/08/2010 - 16:04 | 258112 Edna R. Rider
Edna R. Rider's picture

I agree.  It is a wonderful piece.  Not so much a revelation but the way he builds the piece as if it were a corp offering is quite sobering.

Mon, 03/08/2010 - 16:12 | 258130 AnonymousMonetarist
AnonymousMonetarist's picture

There's an old sales training chestnut that applies...

'Put the numbers up on the wall and all conversation stops.'

Mon, 03/08/2010 - 15:35 | 258072 Cognitive Dissonance
Cognitive Dissonance's picture

"Large numbers of these second liens have no real economic value - the first liens are well underwater, and the prospect for any real return on the seconds is negligible."

Isn't he in effect saying that he doesn't expect property values to return to 2006 levels for a very very long time? After all, if property values go back up, those 2nd mortgages will once again be "in the money" right?

But....but...I thought happy days were here again?

Mon, 03/08/2010 - 15:40 | 258082 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Green Chutes were last year.  If you didn't get in the balloon, you better be wearing silver slippers....snitches.

Mon, 03/08/2010 - 17:12 | 258207 MsCreant
MsCreant's picture


Is the proper term "sloppy seconds?"

Mon, 03/08/2010 - 15:35 | 258073 Anonymous
Anonymous's picture

They just need to nationalize those fuckers. Get it over with.

Mon, 03/08/2010 - 15:36 | 258074 Anonymous
Anonymous's picture

Take a lesson from the last downturn in California Real Estate - remove the supports, the homeowners, and get the property back on the market, ASAP. Unload the underlying assets for what someone is willing to pay. Fuck these banks - jeez!

Mon, 03/08/2010 - 15:38 | 258077 Fritz
Fritz's picture

Bend over taxpayers -

Guess who will pay for this.

Mon, 03/08/2010 - 15:39 | 258080 Mr Lennon Hendrix
Mr Lennon Hendrix's picture


Mon, 03/08/2010 - 15:55 | 258098 Anonymous
Anonymous's picture

thats funny. china indeed. after all they have our jobs. let them have dollops of our debt too. Its all too fair.

Home equity loans have no value after all. hahaha flub just made my day !!

Mon, 03/08/2010 - 16:12 | 258129 carbonmutant
carbonmutant's picture

You wish!

Mon, 03/08/2010 - 15:38 | 258079 Anonymous
Anonymous's picture

This is not good for Gold, at all. This is dollar positive, and it is also never gonna happen.

Mon, 03/08/2010 - 15:58 | 258094 bingaling
bingaling's picture

Karl Denninger recently noted this "Remember FHLB Seattle again?  Their "at market" losses on a portfolio of trash, er, loans was some $300 million.  They claimed that the real loss to be realized over time was in fact $12 million, using model-based accounting.  After all, these loans, while deeply underwater, weren't really impaired.

Or so they told Congress.  I remember the testimony well.

But now, one year later, they are suing the banks that packaged up all this dog squeeze.  Among the pieces of trash being sued over are the very same securities against which they said that a model-based valuation system showed a tiny $12 million loss.

Are they suing for $12 million?


That "tiny $12 million loss" in fact is some $311 million - almost exactly what the market price predicted it would be."

Since every bank that failed and taken over by fdic has had marked to myth at over 30% -40%.  You can be assured that every bank operating today has the same .Why are regionals like FITB  top performing off the lows is anyones guess . You have wonder how banks that are operating are still open with this kind of book cooking going on .Is the FDIC only closing banks that are close to zero liquidity because they are poorly funded ? Is the FDIC going to "fail" at some point when to many banks cross the threshold and and haven't got the funding to pay depositors or bills due ? At some point I believe banks will be lining up to get -reorganized if not already .

Mon, 03/08/2010 - 16:20 | 258145 deadhead
deadhead's picture


since every bank that failed and taken over by fdic has had marked to myth at over 30% -40%.  You can be assured that every bank operating today has the same .

Yep, you're right.

Why are regionals like FITB  top performing off the lows is anyones guess

It's called moral hazard.

You have wonder how banks that are operating are still open with this kind of book cooking going on

It's legal and that is what the FASB FAS 157 revisions did, i.e. mark to model (menagerie)

Is the FDIC only closing banks that are close to zero liquidity because they are poorly funded ?


Is the FDIC going to "fail" at some point when to many banks cross the threshold and and haven't got the funding to pay depositors or bills due ?

Nope. The US government and Fed will print as many dollars as it takes.



Mon, 03/08/2010 - 17:53 | 258259 Reggie Middleton
Reggie Middleton's picture

It's not just them (Seattle). If you drill down it's many banks and insurers. See About the Politically Malleable FASB, Paid for Politicians, and Mark to Myth Accounting Rules


If the engineered bear market rally is running off of the FASB generated lies, then we certainly do have another crash coming, don't we?



As you can see from my table below, FHLB Seattle execs were obviously enganged in one of those wicked sensimilia sessions when they came up with that $12 million dollar loss figure, and over the entire loss of the securities may I add, not even for just one quarter.

This is the question of the day. How in the hell can FHLB Seattle accuse GS, MS, et. al. of wrongdoing when they themselves stated that they expected minimal losses on these securities/loans and the blame for the losses belong to mark-to-market accounting and not to buying leveraged real estate products at the top of a bursting real estate and credit bubble???!!!! Hey, if you allege that the investment banks lied, that probably means you lied as well - and we all know you LIED! Of course, you could have just made an error, but then again so did the crooks banks that sold the trash products to you. Back to the article, because it gets better...



I feel the need to elaborate...

Even before the estimate, it was evident that the bank felt the need to declare more losses permanent and to recognize more losses in earnings. Translation, even they realized the jig was up. But what happened to the $44,000 loss estimate? They only expected ONE house to be foreclosed upon, right???!!!



So, I had the team pull the data for other than temporary impairments for FHLB and other banks from 1Q08 till there latest reported results. Since the accounting change was applicable for periods after March 2009, we have information for first three quarters of 2009 and the corresponding quarters in 2008. Since many of the banks have not reported 4Q09 figures, we don’t have figures for 4Q09 and corresponding figures for 4Q08.

In April 2009, the FASB issued guidance revising the recognition and reporting requirements for other-than-temporary impairments of debt securities classified as available-for-sale and held-to-maturity. As explained in Mr. Weill's article above, the FAS gives significant discretion to the banks in bifurcating other than temporary impairments (OTTI) in the investment value into a) related to the credit loss (charged to the income statement) and b) related to other factors (charged to other comprehensive income). Equipped with the new rule which was effective for periods ending after March 15, 2009, the banks have appropriated significant portions of other than temporary impairments to other comprehensive income which prior to the rule, was entirely charged to the income statement. However, the trends are showing that the proportion that was being transferred to the comprehensive income is declining with many banks and insurersforcibly through fear of being accused of fraud voluntarily reversing the accounting entries made in the previous periods. The same shows how the banks' assumptions about the credit losses on these securities have been changing off late. Do you wonder why? Let me explain it to you with a few pictures from A Fundamantal Investor's Peek into the Alt-A Market...


See"If Anybody Bothered to Take a Close Look at the Latest Housing Numbers...", and in particular the shape of the bubble peak.


The average origination of the Alt-A loan in the use sits right atop that crest. You see where we have went from there...


  As if the Case Shiller graph doesn't drive this point home hard enough, the average and mean CLTVs for Alt-A loans AT ORIGINATION hover around 82% to 93%. Those are loans written at the top of the bubble. What do you think happened a few years later???

This is the state of Alt-A loans as of November! Nearly all of them are underwater. Some are totally sunk! We're talking 150%, 175% LTVs. and that is statewide, not anecdotal high end cases!!! If you are not familiar with Alt-A loans, they have a subset known as option ARMs that allow you to pay less than the amount necessary to amortize the loan, resulting in negative amortization. That means as time goes on, your outstanding principal gets bigger, not smaller. Many loans have a cap on this neg am amount wherein if it hits a certain level, the loan goes fully amortizing. What are the chances of this happening??? Well, you tell me.


Current reporting trends show that:

1. All FHLB banks reported the majority of their credit losses (more than 70%) for 9M09 to comprehensive income, with only less than 30% being charged to income statement.
2. Fed Home Loan Bank of Seattle, Federal Home Loan Bank of Atlanta and Federal Home Loan Bank of Chicago transferred majority of their credit losses to comprehensive income during 1Q09 and 2Q09. However, they made a reverse transaction by charging more than 100% of their credit losses to income statement in 3Q09.

3.  Fannie Mae only charged 5.4% ($423 million) of its total credit losses for 9M09 to comprehensive income, while Freddie Mae charged 51.6% ($11,928 million) to its comprehensive income for 2009.
4. MBIA transferred 44.4% of its total credit losses ($349.6 million) to its comprehensive income, while AMBAC did not transfer any of its credit losses to comprehensive income over the same period. For those of you who have been following me for a while, I clearly demonstrated how MBIA and Ambace were done for. See 


There is absolutely no way in the world they shouldn't have recognized severe losses early on. The insurers are suing the originating banks for fraud and misrepresentation too. Why? After all, it was mark to market accounting that was causing all of your problems, right? 

For the record, FHLB Cincinatti and Des Moines feel that all of the mark downs on their available for sale securities ar temporary thus, there were no other than temporary impairments. Sure fellas. As soon we climb right back up to the peak in the graph below...The bubble peak, all will revert back to normal.


 One would think the word fraud should come into play here. For all of those that think I was simply lucky for two years in a row on the banks (unlikely) apparently easily believe what you are told by your dear government or are severely balance sheet challenged when it comes to reading said statements. Do any of you really think that the loans sitting on PNC's, Wells Fargo's or JP Morgan's balance sheets are somehow magically different than that of Fannie's or Freddie's?

It appears as if the truth may be forced out at a time when credit makets may be roiled by sovereign debt issues. If so, maybe FASB and certain elected officials should have decided to stop selling their asses to the highest financial bidder and mayhap do the right thing. If losses bust out when the world's credit markets lock up, then we have some serious issues that just weren't worth that damn campaign contribution.

Reguired reading:

See the article link above for more...






Mon, 03/08/2010 - 18:46 | 258327 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

plus an article by Reggie!  nice...Reggie!  Reggie!

Mon, 03/08/2010 - 20:08 | 258454 deadhead
deadhead's picture

Reggie...i hope you will write a piece on this as it seems to represent a real paradigm shift by the Obamas and Dems....i do understand that it might be campaign talk to set up the banks as the "bad guys" who are holding back the housing market.  i don't think we will see "permanent principal reductions" as that will likely kill the zombies.

I do view Obama's new short sale item (which is permanent principal reduction, same as what Frank is talking about) as an admission of failure over policies that most of us knew would not work well to begin with.

Mon, 03/08/2010 - 15:55 | 258097 assumptionblindness
assumptionblindness's picture

Does anyone have a feeling that the words spouting from the mouth of Barney Frank are market reaction "tests" for a yet-to-be-declared exit strategy for the Treasury and Fed?  It just seems like a little Stress Test deja vu to me.

Mon, 03/08/2010 - 15:57 | 258101 ReallySparky
ReallySparky's picture is reporting that Beijing studies severing peg to US Dollar.  The end is near my friends.  Better stock up and settle in the future doesn't look to bright.  (Sorry off topic)

Mon, 03/08/2010 - 15:58 | 258102 Anonymous
Anonymous's picture

LOL and at the same time IYR making new 52 wk highs.

Mon, 03/08/2010 - 16:00 | 258104 Anonymous
Anonymous's picture

IYR making new 52 year highs. Time to by SRS.

Mon, 03/08/2010 - 16:01 | 258105 Anonymous
Anonymous's picture

Can't the banks just dump the seconds on FED, and let the FED take the full haircut on them. The FED has so much crap on the book now whats wrong with them eating this shit, too?

Mon, 03/08/2010 - 16:01 | 258106 Bruce Krasting
Bruce Krasting's picture

Is a HELOC a second? or is it parri passu with the first?

I ask this question because it was my understanding that the banks that got this letter were not big in seconds. They were very big in HELOCs.

For some of those smart guys that follow the numbers: Is this a fucking disaster for Wells??


Mon, 03/08/2010 - 16:12 | 258131 SV
SV's picture

I'm not half as smart as Reggie (he's the person to ask), but I think we both know FASB actually forces the issue (not jawboning).

Mon, 03/08/2010 - 16:23 | 258151 Gromit
Gromit's picture

I have a friend with a Wells first for 700 and Wells second for 175.

House is worth plus or minus 700.

He is paying the first (but not the second) because if the first forecloses that extinquishes the security interest of the second and in California the second can go after his personal assets. He would like the second to foreclose and take the property subject to the first which would solve his deficiency problem.

If the second is written down to zero he'll walk away from the first so not good for Wells.

HELOC (Home equity line of credit) is a credit line junior to the first trust deed (California).


Mon, 03/08/2010 - 16:24 | 258154 Bam_Man
Bam_Man's picture

The HELOC is a "second lien position" loan. In a short sale or foreclosure, it becomes uncollectable and therefore must be written down to ZERO.

However, most HELOCS are recourse loans, meaning that the lender can come after you and get a judgment.

Mon, 03/08/2010 - 16:34 | 258164 deadhead
deadhead's picture

depends on state law as you may know.

Mon, 03/08/2010 - 16:33 | 258162 deadhead
deadhead's picture

Bruce...usually a heloc is a second unless someone has paid off the first.  remember that mortgages are truly chronological i.e. whoever gets to the county clerk first for filing.

I have never heard or seen of a situation where a second (heloc being the most common and what is germane to this issue) is pari passu with the first.  those 4 that got the letter are the biggest holders of seconds.....  taking out these helocs at a full loss (particularly in that they are carried as much higher on the books as i understand) would be catastrophic to wfc, jpm, bac......i honestly cant see this happening given the current paradigm of keeping our zombies alive through whatever means are available, just about all of which are being used.  the only possible way to get the banks to go along with this would be some form of complete capital forebearance as was used in the s&l crisis...that would also create a problem with Basel accords.... 

Mon, 03/08/2010 - 16:04 | 258110 aint no fortuna...
aint no fortunate son's picture

Wasn't it Congress that jammed the mark to myth rule revision down FASB's throat exactly one year ago, right after the bank lobby told them to?

And now they're whining because the banks actually marked that shit to myth?

What a fucking country.

Mon, 03/08/2010 - 16:36 | 258166 deadhead
deadhead's picture

that would be absolutely and positively correct and accurate.

Mon, 03/08/2010 - 16:04 | 258111 Anonymous
Anonymous's picture

mark down the value of these CDOs. Here's the problem: We didn't always inform our purchasers of the risks they were assuming (after all, we wanted to make the sale). Believe me, some of these guys are dumber than a fence post. Also, some of the least marketable tranches are still in our vaults. So, what you request requires two things. First, we need corporate and personal immunity from all laws regarding disclosure. Then we need to be able to operate with a lower reserve ratio. Zero has a nice ring to it. Sincerely, Jamie.

Mon, 03/08/2010 - 16:05 | 258113 chet
chet's picture

Dear Congressman Frank,

Thank you for your letter.  No.


The Banks

Mon, 03/08/2010 - 16:25 | 258156 assumptionblindness
assumptionblindness's picture

Dear The Banks,

Sorry for any inconvenience that this letter may have caused.  My bad.



P.S. - Jamie, are we still on for dinner and a show on Thursday?

Mon, 03/08/2010 - 17:25 | 258222 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Dear Bawnee,

This was, after all, the plan from the start.  We are making the people so dizzy they can't stand up.  You are doing a wonderful job continuing the Hegelian dialectic that we have set up.  The people believe that there is good vs. evil, right vs. wrong, when in actuality we are running both sides right INTO their sides!  Poke, poke!  hahaha, like last night ;)  Dinner sounds lovely.  I am thinking a place that I could order some liver with fava beans and a nice chianti would be perfect.  Fff-fff-fff-fff-fff.

Hugs and Kisses,

J. Me. Diamond

Mon, 03/08/2010 - 17:35 | 258239 Anonymous
Anonymous's picture

Lol - nicely done

Mon, 03/08/2010 - 16:10 | 258121 carbonmutant
carbonmutant's picture

Barney's got his reelection suit on. These sound bytes will look great in the fall campaign ads.

Mon, 03/08/2010 - 16:11 | 258126 Anonymous
Anonymous's picture

Can I stop paying on my HELOC now Mr. Barney?

Mon, 03/08/2010 - 16:12 | 258127 Sancho Ponzi
Sancho Ponzi's picture

Expect large bank transfers into Barney's Cayman Island & Swiss accounts

Mon, 03/08/2010 - 16:13 | 258133 Anonymous
Anonymous's picture


"You have one loan, it's no sweat to get a short sale," said Howard Chase, a Miami Beach agent who says he does around 20 short sales a month. "But the second mortgage often is the obstacle."

Major lenders seem to be taking a cautious approach to the new initiative. In many cases, big banks do not actually own the mortgages; they simply administer them and collect payments. J. K. Huey, a Wells Fargo vice president, said a short sale, like a loan modification, would have to meet the requirements of the investor who owns the loan.

"This is not an opportunity for the customer to just walk away," Ms. Huey said. "If someone doesn't come to us saying, 'I've done everything I can, I used all my savings, I borrowed money and, by the way, I'm losing my job and moving to another city, and have all the documentation,' we're not going to do a short sale."

Mon, 03/08/2010 - 16:13 | 258135 john_connor
john_connor's picture

So whoever has a 2nd just stop paying because it was all a joke anyway.  Perhaps people should even get refunds on previous payments since they were paying on something that has no value and I guess is just imaginary?


Mon, 03/08/2010 - 16:16 | 258139 buzzsaw99
buzzsaw99's picture

This is bs on so many levels.

1) Frank answers to the bankstas, not the other way around.

2) Writing shit down costs taxpayers and doesn't let j6p off the hook for his heloc, although Frank probably would like them to think that it does.

3) If they reinstate FASB all the bigs are bankrupt, anything lees is just fraudulent.

4) on and on.

Mon, 03/08/2010 - 16:18 | 258142 Anonymous
Anonymous's picture

What next? "Ask" the Fed to stop printing and wiring around money it doesn't have? I'd be impressed if he "Told them" instead of asking. Fwank just trying to make it look good prior to elections.

Mon, 03/08/2010 - 16:23 | 258152 Anonymous
Anonymous's picture

Wonder if Dimon accepts a call from this assclown ?

Mon, 03/08/2010 - 16:36 | 258165 Anonymous
Anonymous's picture

Barney syas: "..., burdens millions of hard-working American families."

It also burdens millions of lazy, stupid American families, who are standing in deep holes they dug themselves.

The USA: Where everthing bad is someone else's fault.

Mon, 03/08/2010 - 16:46 | 258175 Anonymous
Anonymous's picture

Banks would IMPLODE if this suburban area NE of Atlanta is any indication. No way would banks take the hit, Why? They have the TBTF status and are holding the American People over a barrel with politicians lending a helping hand, and not to the American Peoples benefit.

I do not know anyone that is NOT upside down with a second, many, myself included have seconds worth at a minimum of 30K, mine is 35K and I am upside down by Appx 40K total on a house we but quite a bit down on and 6 years time total.

My wife and I are one of 4 we know who are in the process of strategically defaulting. We see the writing on the wall and our losses would take years to recoup. Its about preserving what capital we have left. I tried and tried to work with BofA. They kept pulling the lost papers we'd gather and submit and stall and delay tactics, just please send a payment even though we haven't worked anything out crap, we'll takecare of you. Right, I'd rather pass my savings over to a used car saleman, at least I know what I'd be getting.

Here's my opinion, we all made mistakes, myself included. *sigh* In the end though if you want it to stick, banks need to quit screwing around, ante something up front, in paper, why document income and a million other things, make a last ditch offer mortgage mod, no additional documentation needed from the homeowner, just a mortgage modification contract/addendum. If the people agree, they sign and begin paying, not this temp to perm which is pure horse hockey. The homeowners either pay and stay or move on and the bank cleans up the balance sheets piece by piece.

If they went back to mark to market, this would likely force them but as of now why would they take a hit if they can keep an inflated asset on the books, extend and pretend.

Mon, 03/08/2010 - 17:21 | 258219 Anonymous
Anonymous's picture

No. We all did not make mistakes. That is what fucking pisses me off so much. I always lived well below my means. Why? Because I don't think anybody owes me shit. Funny thing, though, because I'm still a taxpayer I have to chip in for all the fuckheads who thought they had a goddamn birthright to a lifestyle above what they could afford. Well, fuck that. If I'm paying for someone's house, then I'm coming over for dinner anytime I damn well please and the food had better be good or else I'll shoot your dog and barbecue it.

Now if someone lost his or her job through actions not his own, I have sympathy and I won't eat the dog. For people who just thought they were on Lifetyles of the Rich and Famous, pass the barbecue sauce and say your goodbyes to Spot.

Mon, 03/08/2010 - 16:52 | 258187 deadhead
deadhead's picture

there is no way the banks agree to this. "permanent principal reductions" is something the banks


i absolutely laughed my stones off when barney notes that the seconds are essentially worthless: on this occasion, I find myself in complete agreement with barney.  this can be viewed as nothing else but a campaign soundbite and part of the Obama's new short sell strategy.

the clear answer to this problem is to have the Fed buy every phucking second mortgage in the United States...oh shit, I shouldn't have said that!

Mon, 03/08/2010 - 16:56 | 258193 Anonymous
Anonymous's picture

I heaw that Bawney Fwank gives gweat bwowjobs.

Mon, 03/08/2010 - 16:57 | 258194 rubearish10
rubearish10's picture

Man, ZH is En Fuego!

Mon, 03/08/2010 - 17:15 | 258212 Anonymous
Anonymous's picture

Has someone explained exponents and the "miracle" of compounded interest to Bwarney, or has the spectacle of Greece Communist politicians forced into serious cost-cutting, suddenly intruded into his foggy concept of the real world? You know the one where cause and effect are still in effect?

Is this the beginning of a major shift in power, and do the political elites see that they need to throw their previous partners in crime under the bus to save themselves. This could turn ugly and amusing, sadly also terribly destructive.

Mon, 03/08/2010 - 17:19 | 258218 Anonymous
Anonymous's picture

Banks with a lot of secons and HELOCs in Detroit are going to make a "killing".

Mon, 03/08/2010 - 17:28 | 258225 Fruffing
Fruffing's picture

I scrolled all the way down looking for TD's "just kiddin."   This is a real letter?   Simply amazing....

Mon, 03/08/2010 - 17:33 | 258234 stoverny
stoverny's picture

"If there are legal obstacles to your doing so, we will work with you to remove them." Hmmm what was the legality of Congress pointing a gun at a private and independent standards board, and forcing them to change their rules so insolvent banksters could ride the ponzi bonus train for a few more years?

Mon, 03/08/2010 - 17:38 | 258244 Attitude_Check
Attitude_Check's picture

Could this possibly be the beginnings of the political "elites" realization that November is going to be "real bad" for incumbents.  Have they decided to throw thier previous handlers under-the-bus in an attempt to save themselves?  Did the sight of a Communist Greek government talked austerity measures scare the s***T out of them?



Well I can dream can't I?

Mon, 03/08/2010 - 17:39 | 258246 wackyquacker
wackyquacker's picture

anything from BarF is a non starter.

Mon, 03/08/2010 - 17:57 | 258268 Anonymous
Anonymous's picture

In only this bizzaro world is failure rewarded and success punished!

Mon, 03/08/2010 - 18:00 | 258271 Anonymous
Anonymous's picture


Teir 2 loans are recourse loans, so they can come after you and stipend your forever surf debtation permanently till the fema camps along with all those 'student loaners'.

Teir 1 loans in some states also allow the dif between the short sale or auction price and the original note to permanently attach to your identity papers for the duration of this restructuring of the world process.

Next, Bwarney Fwank meant millions , not thousands. Many millions, but I do respect his understated tone bordering on eloquence amongst class act folksy folks.

I'm going to profer a between the lines reading something to the effect 'We'll make you whole'

We'll make you whole! Heehee!

He said hole. Heh heh heh.

Too bad ya'll missed the bohemian grove re-enactment of Rocky Horror picture show. Barney was FABULOUS as Frankenfurter!



Mon, 03/08/2010 - 18:02 | 258274 Anonymous
Anonymous's picture

Who else here thinks Barney Frank and Barbara Waters would have made a fine couple?


Tue, 03/09/2010 - 01:28 | 258840 dleddy14
dleddy14's picture

That's funny.

Mon, 03/08/2010 - 18:26 | 258303 johngaltfla
johngaltfla's picture


IF Bawney's statement here is true, which I think it is by and large based on any reports that I've read, then doesn't this make Wells Fargo technically insolvent and JP Morgan's reports somewhat suspect since they took over two of the largest HELOC and secondary lenders in the nation? Wachovia and WaMu thought 125% LTV was the gold standard and if you could fog a mirror, you could get a loan easily during the boom times.

Gee, I wonder what the Bawney, the keeper of the Congressional Wookie Brothel in the caverns beneath the Capitol Building has to say about that.....

Mon, 03/08/2010 - 20:18 | 258460 deadhead
deadhead's picture

...that's why it is more of a campaign statement than anything else.....Obama has initiated this same item over the last couple of days.  I don't believe for a second that they will push this as it would be a death knell for our zombified friends like WFC, BAC and some of the regionals.   

on the other hand, the reality of the failure of the Obama attempt to save housing is really hitting home with these guys.....perhaps the setup for "QE to save America's Housing" starring world champion check writer, Ben Bernanke.  This one could be lots of fun to watch if it gets some legs...

Mon, 03/08/2010 - 21:00 | 258517 johngaltfla
johngaltfla's picture

The problem is the banks are ALLOWED to carry this crap on the books as if it is a performing loan when in reality I would wager that more than 40% of the 105-125% LTV mortgages issued from 2004-2008 are dead weight now with the seconds not being serviced at all. If you have a 26-30% delinquency rate on 1st liens you and I both know damned well that the 2nds are facing a 50% delinquency rate if not higher but the reporting is patently dishonest. All I have to say is that these clowns are setting things up for one of the largest bond crashes in world history and this bitch will die like a possum trying to cross twelve lanes of interstate at rush hour.

It will be GRUESOME.

Mon, 03/08/2010 - 21:38 | 258559 deadhead
deadhead's picture

agreed my friend.  

that's why i chuckle at the bullish view.....there have been something like 18 bank crises in the USA and this one is, in my view, the most dangerous of all of them.  combined with an unprecedented debt crisis on all levels (consumer, corporate, governmental at all levels) history points well to the path that we are on.

the banks will continue to be allowed to do this by the regulators because the alternative is recognized insolvency.  problem they got is the market will eventually not allow it.

Mon, 03/08/2010 - 18:26 | 258308 Gimp
Gimp's picture

Barney, wears zat wabbit, Fwanks, has no credibility. Total douche bag. Banks answer - negative.

Mon, 03/08/2010 - 19:49 | 258433 Ripped Chunk
Ripped Chunk's picture

What!!???? Is Barney trying to get into accounting heaven now??????

Too late. Its hell for all of us now. Nothing can stop it!

Mon, 03/08/2010 - 20:19 | 258462 deadhead
deadhead's picture

Diane Olick at cnbc is the only one there besides Santelli who understands what is going on...this is her take and I recommend reading it.

Mon, 03/08/2010 - 20:53 | 258510 CB
CB's picture

is it still noblesse oblige when Barney legislates it?

Tue, 03/09/2010 - 12:02 | 259143 Anonymous
Anonymous's picture

There is the issue, too, of IRS tax on HELOC debt forgiveness. Under current rules, unless you can document you used the proceeds of a HELOC for home improvements, any debt forgiveness on a 2nd is taxable to you.
A couple of years ago, they changed that exposure for 1st mortgage forgiveness(short sales).

Wed, 03/10/2010 - 17:13 | 261000 Anonymous
Anonymous's picture

This smells! The banks have been fighting to hide their actual losses. Their lackeys in Congress (including Frank) directed FASB to change accounting rules to hide losses and now Frank wants them to admit the losses. Well, they're already losses and they always will be, so Frank is just offering the banks a chance to take the loss right now and claim that they did it for the good of the people.

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