Mortgage legal expert shares thoughts in advance of Bush plan

I thought I would share with you some initial reactions from Kurt Eggert, a professor of law and director of the Clinical Legal Education Center at Chapman University's School of Law. Prof. Eggert is an expert and has recently written a paper entitled What Prevents Loan Modifications.

"The greatest concern is whether the plan reaches enough people, both because the scope of the plan seems to be quite limited and because it appears that it may be completely voluntary on the part of the servicers. If the plan does not reach very far, it will have little effect on the wave of foreclosures that threaten to swamp the economy," Prof. Eggert states.

"The plan could even increase foreclosures in the short term. If the plan focuses on borrowers who are presently current on their loans and able to pay the loans until the end of the teaser rate, it ignores borrowers who are already having trouble making their loan payments and need loan modifications to stay in their homes right now. The plan could cause servicers to focus their efforts of borrowers who are current now, and ignore the needs of borrowers currently in default. This could increase the foreclosures in the short term, which is exactly what the plan is designed to prevent," Prof Eggert continues.

"The plan also could be counter-productive if it is too small in that investors could argue that they’ve already taken their haircut through the teaser rate freeze and so all of the rest of the burden of the foreclosure wave should be born by borrowers or by the public in the form of a bailout. However, investors purchased their interests in these loans realizing that their investments were secured by subprime loans, and should have been aware that the subprime market has been plagued by aggressive loan practices and shoddy underwriting. Given that Wall Street and investors were a large factor in creating this problem by demanding investment in risk-layered, exotic loans little understood by many borrowers, Wall Street and investors should bear much of the burden of fixing the resulting problem. This plan may well be far too small a step on the investors’ behalf," Prof. Eggert also points out.

Prof. Eggert has indicated you can call him any time on his cell phone: (323) 717-6087.
Below is Prof. Eggert’s bio. Please let me know if you’d be interested in speaking to him in the future.

Professor Kurt Eggert is a Professor of Law and Director of Clinical Legal Education. He also runs Chapman’s Alona Cortese Elder Law Center, and teaches both clinical and doctrinal classes. His scholarship has focused on several different areas, among them predatory lending, consumer credit, gambling regulation, and elder abuse. He has testified to Congress on predatory lending issues and is a member of the Federal Reserve Board’s Consumer Advisory Council, where he chairs the subcommittee on Consumer Credit. Previously, he was an adjunct professor of law, teaching Elder Law, at Loyola Law School. From 1990 until 1999, he was a senior attorney at Bet Tzedek Legal Services in Los Angeles, where he specialized in complex litigation, including consumer fraud and home equity fraud. Professor Eggert received his B.A. from Rice University, magna cum laude and Phi Beta Kappa, and received his Juris Doctor from Boalt Hall, the University of California at Berkeley School of Law. He teaches Legal and Equitable Remedies, Elder Law, Legal Research and Writing, Civil Procedure and Depositions/Discovery Complex Litigation.

Brief overview of What Prevents Loan Motifications: In that article, I discuss the current barriers that prevent or slow the modification of residential loans, even where such modification may be to the advantage of both borrowers and investors. I discuss not only the barriers in the pooling and servicing agreements, as well as the laws governing securitization, but also the barriers caused by what I call “tranche warfare,” conflicts of interests between the various investor groups and others with an interest in the loan pool. Such warfare and threat of litigation could keep servicers from acting, out of fear of suit or fear that they will breach their fiduciary duty to some group of investors. The teaser freeze plan may have some immunity for servicers who do loan modifications, which could help the process.

I also talk about the servicers’ self interest, and how servicers may be unwilling to do extensive loan modification unless they’re paid to do so, and are able to hire the new employees needed to take on such a massive task.