Fed Plans to End Tough Sanction Against Predatory Lending

Yves Smith add her thoughts on a Huffington Post article

What gets interesting is how recission plays into the securitization model. The borrower is still on the hook for the principal, but with no ability to foreclose, it’s hard to compel the borrower to repay. And remember from our previous discussions of securitization, that “banks”, meaning servicers, are keen to foreclose because they get to repay themselves for fees (including junk fees and foreclosure-related charges) and principal and interest advances (remember they keep advancing principal and interest even when the borrower has quit paying, in theory they could stop once the loan is severely impaired, in practice pretty much no one does). The investors get whatever is left.

So the banks’ argument no doubt includes the need to alleviate the impact of recission on servicers. But there are far more surgical approaches (addressing how to deal with servicer fees and advances in cases of recession, probably with different treatment when the servicer is independent versus when it is under the same corporate umbrella as the originator that created the fraudulent loan). But it’s much easier to opt for simple seeming solutions that give the banksters what they want.