Chicago Foreclosure Lawyer Blog

As reported on CNN.com, the SEC has charged Goldman Sachs with fraud relating to their involvement with subprime mortgage-backed securities. The charges center around allegedly undisclosed conflicts of interest between Goldman and a hedge fund named Paulson & Co. According to the SEC, Paulson & Co pooled mortgages that were then sold to investors as mortgage-backed securities. The investors, who were betting that the market would go up, were not told that Paulson & Co. had shorted the exact same investment pool.

For those who don't know a bunch about the markets, "shorting" something basically means that you borrow and sell the stock before you own it, with an obligation to eventually purchase it at a (hopefully) lower price. If all goes well, you end up with a nice profit. In the case of Paulson & Co., their nice profit was about $1 billion, according to the SEC.

So how did Paulson know that this specific CDO would drop? Allegedly, Paulson & Co. pooled the securitized mortgages, picking them based on the likelihood that they would fail.

I find this to be a highly interesting situation, and look forward to its development. As the SEC continues to examine transactions, it may very well uncover more of these situations. You never know what you'll find when you start turning over rocks.

The Chicago Tribune reports that a side-effect of the current housing crisis is a marked increase in the number of multi-generational families living in the same home.

Quite simply, as people lose their homes, they often turn to family members for temporary or permanent places to live. These living situations can quickly become hazardous, and some have resulted in multiple deaths when a dwelling catches fire. In addition to the fire dangers, it seems obvious that we cannot, as a society, sustain this kind of housing model. Concentrating people in this manner means that local infrastructure becomes overly taxed. There is more water and power being used, more trash being generated, etc. Piles of boxed belongings provide a place for rats and other vermin to build their nests.

It is becoming readily apparent that this is more than just a housing issue, but one of public health and safety as well.

The New York Times Op-Ed page states that the Administration's new foreclosure prevention plan could save up to 1.5 million homes from foreclosure. Some highlights of the plan include: requiring lenders to consider reducing the principal on some underwater loans, new short-term modifications for borrowers receiving unemployment payments, and added incentives and requirements for banks that should increase participation.

This plan sounds like a better deal for borrowers. By moving towards required participation, the Administration is taking a step in the right direction. However, even if the plan saves homes, we are still expected to lose 3.6 million more through 2012. This basically means that the housing market will stay depressed for quite some time.

In my opinion, the Administration should take a large step towards heavy regulation of mortgage lenders. Requiring lenders to participate in these programs and monitoring compliance would be a step in the right direction. Instead of backing up banks that lose money at foreclosure auctions, spend that same money on a program that pays down underwater mortgages (while also requiring principal reductions from the banks) to restore some equity into our nation's homes. For those who would immediately cry, "government handout," keep in mind that the money would be spent on a handout to a massive bank as opposed to a financially distressed individual. To prevent abuse, prohibit borrowers from using that equity to finance another loan for a period of two years.

There is still a lot that could be done, but we are slowly getting there via baby steps.