In another unexpected twist in the fight over the cost of loan modifications, the Stamford Times and the Greenwich Time have reported that protesters converged outside the home of Greenwich Financial Services CEO William Frey on February 8 to protest Frey’s lawsuit against Countrywide and Bank of America. The protest, part of three-day homeowners’ workshop sponsored by the Neighborhood Assistance Corporation of America (NACA), involved anywhere from 350 to 400 people wearing bright yellow hats and T-shirts with pictures of sharks and the words “Stop Loan Sharks” emblazoned on the front (see picture at right).
In one of the most bizarre facets of this story, the protesters, according to the Stamford Times article, placed furniture on Frey’s front lawn to “symbolize the dislocation felt by people who have had their homes foreclosed upon and been evicted, their belongings tossed outside by state marshals.” The article went on to describe how, according to NACA CEO Bruce Marks, this protest was part of an aggressive and confrontational “Predators Tour” aimed at several top executives of companies that refuse to allow NACA to renegotiate the terms of the loans on behalf of its members. According to the Greenwich Time article, the nonprofit’s accountability campaign targets company executives who they believe contributed to the subprime mortgage crisis to encourage them to support the refinancing of these loans.
While I can understand the anger felt by many homeowners at the greed displayed by banking executives such as Merrill Lynch CEO John Thain and others who profited handsomely during the housing bubble, it seems to me that NACA’s protests aimed at Frey are entirely misguided. For those familiar with Greenwich Financial’s lawsuit against Countrywide (discussed in prior postings here), it should be clear that while Frey is intervening in Countrywide’s settlement with dozens of Attorneys General, it’s not because he opposes loan modifications in principle. Instead, Frey seeks to have the costs of these modifications borne by the party primarily responsible for issuing deceptive or unreasonable loans.
The Attorneys General brought charges of predatory and unreasonable lending practices against Countrywide that the company clearly felt were substantial enough to settle for upwards of $8 billion. However, recent evidence has emerged that these costs are not actually coming out of Countrywide’s pockets, but instead being passed down to the ultimate bondholders, who did not directly engage in predatory lending.
Of course, it’s true that investors exhibited a voracious appetite for subprime mortgage-backed securities during the boom, but most of the pooling and servicing agreements for such bonds contained exhaustive representations and warranties by the lenders that the loans were not originated in a predatory or unprincipled manner. For Frey to attempt to hold Countrywide to its representations and force the company to bear the costs of its practices seems perfectly reasonable, even if fundamentally self-interested.
Most would agree that loan modification and foreclosure avoidance will be integral to any comprehensive financial stimulus. But, in the rush to secure loan modifications, it appears that the consequences and costs were not carefully thought through, resulting in the liability being fixed on parties other than those primarily responsible for these problems. Instead, shouldn’t NACA and other homeowner advocacy groups be focusing their anger and political pressure on lenders who ignored any semblance of quality control measures or reasonable lending practices to push greater and greater volumes of loans through the door? What about protesting outside the homes of the Attorneys General who boasted of achieving comprehensive homeowner relief while letting those responsible almost entirely off the hook? It seems these parties are much more deserving of finding couches and armchairs strewn across their front lawns than is William Frey.
Even more radical, it seems, is the idea that instead of pointing fingers at large companies for their problems, troubled homeowners should start by taking a good hard look in the mirror and deciding whether they were being realistic when they took out such hefty loans. If they were being honest, many would have to admit that they expected to be able to refinance into perpetuity to afford mortgage payments beyond their means. While there was certainly a significant volume of predatory lending occurring during the last ten years, I believe, as I’ve discussed in the past, that we all have to hold ourselves accountable to some degree for the borrow-and-spend culture that led to this inevitable credit crunch.