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To many people, William Frey is this year’s leading candidate for the Grinch Who Stole Christmas. To others, he’s a hero.
If you haven’t heard of Frey yet, you probably will soon. He’s suing to prevent Bank of America from giving homeowners easier terms on their mortgages. Why? Because lower loan payments would mean less money for the investors who own securities backed by those mortgages. My colleague Mara Der Hovanesian wrote a good article about Frey’s lawsuit yesterday.
Here’s an excerpt from Mara’s story that crystallizes Frey’s case:
“I am an advocate for investors’ contractual rights,” says Frey, 50, in an interview. He has publicly argued since March that loan modifications (BusinessWeek, 11/26/08) are against contract law, and has threatened to sue banks—despite, he says, receiving pressure to back down from Washington. “Investors’ voices have been muted in this debate because they speak of an inconvenient truth: Current solutions sacrifice the long-term viability of this nation’s housing finance system for short-term political gain. No matter how noble the intent, it is not in the interest of the United States now, or in the future, to tell its citizens and the world at large that U.S. contract rights may be bent with the political winds.”
Comments on Mara’s article have been pouring in from readers. Here’s one from a Frey opponent:
Dec 2, 2008 1:43 PM GMT
What a moron…. The alternative, if a workout cannot be achieved, is for the notes to go into default and for the BH to take their chances. Of course, defaults would throw more houses into the inventory, values go down, etc. This moron should shut up and let the system try to work things out. His approach is what got us into this mess in the first place - GREED. I pray that the government isn’t so stupid as to bail out the bondholders too.
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And here’s one from one of his supporters:
Dec 2, 2008 3:07 PM GMT
If they change these securitization contracts, you can kiss any future price appreciation in homes goodbye. There will be an extreme lack of investor interest in securitized mortgages and other ABS. This will lead to banks being unable to sell off mortgages and requiring them to hold the mortgages on their books, tying up capital, leaving less capital to lend to homebuyers. Less capital to homebuyers means less homebuyers. Less homebuyers means less demand for houses. Less demand means lower prices. The people that will get hurt the most are those the govt is trying to protect, the subprime borrowers because they in the future will not be able to get any mortgage because a bank with the inability to sell off a mortgage via securitization will only lend to the top tier borrowers. It is going to be a case of ‘Once bitten, twice shy’.
Like him or hate him, Frey will not be ignored. Today’s Wall Street Journal quotes him as saying he’s “turning it into a business.”
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.