The New York Times reported yesterday that two hedge funds are fighting proposals to ease the terms of home mortgages put forth by the government in H.R. 3221, a bill passed over the summer that gives flexibilities to some mortgage holders to renegotiate their rates. The hedge fund managers are arguing that such a move would hurt their investments.
Today, the House Financial Services Committee issued a press statement to these institutions expressing their "outrage" over the remarks of these hedge fund managers and their intentions to combat the private sector backlash to government programs aimed at preventing additional home foreclosures.
"For hedge funds, which have been the
beneficiary of a lack of regulations and a very permissive attitude, now to put
obstacles in the way of this important national policy is intolerable. Because this is so important, and because this
irresponsible, antisocial behavior by these hedge funds has such important
implications, we have set a hearing of the Financial Services Committee for
November 12, and we are inviting these companies as well as the Managed Funds
Association to attend. If we are not able to get voluntary attendance, then we
will pursue steps to compel them," said members of the House Financial Services Committee.
The two funds, Greenwich Financial and Braddock Financial, intend to hold the companies issuing mortgages that they support through their financial instruments to their term rates. That means they'll use their influence over mortgage companies to prevent the companies from lowering rates for struggling homeowners.
In his statement to the Times, William Frey, the president Greenwich Financial
Services said that he was acting to protect the
firm’s investments. “Any investor in mortgage-backed securities has the
right to insist that their contract be enforced,” he said.
This position is unacceptable to House Financial Services
Committee members, who feel the hedge funds are providing road blocks to healing a deeply troubled economy.
"What Congress passed overwhelmingly and
President Bush signed last July provides for a reasonable modification of
mortgages that clearly never should have been granted in the first place to
avoid foreclosure and thus lessen the economic damage that a cascade of
foreclosures has been doing to our economy...We believe the law clearly allows for
modification where such changes would involve a lesser loss than foreclosure,
and the benefits to the whole economy of such an approach are obvious."
According to the House Financial Services website, H.R. 3221, The American Housing and Foreclosure Act:
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Provides
mortgage refinancing assistance to keep families from losing their
homes, protect neighboring home values, and help stabilize the housing
market.
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Expands
the FHA program so many borrowers in danger of losing their home can
refinance into lower-cost government -insured mortgages they can afford
to repay. This legislation will help troubled borrowers avoid
foreclosure while minimizing taxpayer exposure.
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Only primary residences are eligible: NO speculators, investment properties, second or third homes will be refinanced.
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Protects
taxpayers by requiring lenders and homeowners to take responsibility.
This is not a bailout; in order to participate, lenders and mortgage
investors must take significant losses by reducing the loan principal.
In exchange for an FHA guarantee on the mortgage, borrowers must share
any profit from the resale of a refinanced home with the government.
-
Contains
important protections for taxpayers’ dollars, including higher
refinancing fees that establish a new FHA reserve to cover possible
losses from defaults on these government-backed mortgages.
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Provides $230 million for financial counseling to help families stay in their homes.
If other companies join the attitudes of these two hedge funds in fighting government bailout bills, a second wave of panic might overtake the financial markets, which have already factored government interventions into their calculations. Any deviations at this point, and in this tumultuous market, would send stocks spiraling downward even further.
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