A New Foreclosure Tactic – Lenders / Debt Collectors Holding Second Mortgages Freeze Bank Accounts

Priority? What’s That?

“If you wondered how ugly things would get in terms of lenders ignoring priority (after the government wantonly did so) here’s your answer:

“A new foreclosure tactic, whereby lenders or debt collectors holding second mortgages freeze bank accounts or garnish pay checks of already struggling homeowners, is emerging and making it even more difficult for people to hold onto their homes.”

It isn’t supposed to work like that.  See, that’s the point of a capital structure – the first (secured) lienholder gets his, and if (and only if!) there’s something left, the second gets what they can.

This is why a first mortgage is typically cheaper than a second, among other things.

If the subs are allowed to pull stuff like this then the damage to the first mortgage market could be tremendous – and result in a significant repricing of risk – and thus rates – upward.

Of course it’s the government that started this crap with Chrysler, GM and others.  Ignoring capital structure in order to favor certain politically-connected parties at the expense of those who (rightfully) paid for preference through lower coupon rates looked smart (for those who were trying to curry favor with those interest groups – cough-UAW-cough!)

But now we see that when one pulls this sort of stunt it spreads.  And spread is the right word for what’s going to start happening to lending rates – soon – if a sock isn’t put in this.

This makes two stories today alone – the other being Saudi Arabia, of course – in which private parties are “learning” from the example set by government, simply ignoring capital structure whenever they think they can get away with it.

Congratulations are in order to Treasury, The Fed and Government – they’ve really made a mess of things now.”


Leave a Reply