The Credit Default Swap market exploded over the past decade to more than $62 trillion just before the height of the recent financial crisis, according to the International Swaps and Derivatives Association. This is roughly twice the size of the U.S. stock market, which was valued at about $22 billion at the end of 2007, and it far exceeds the $7.1 trillion mortgage market.

What is a credit default swap?

In its simplest form, a credit default swap (CDS) is an insurance-like contract that promises to cover losses on certain securities in the event of a default. A CDS is supposed to operate just like a wind or casualty insurance policy, which protects against losses from high winds and other casualties.

Specifically, CDSs are privately negotiated, bilateral agreements that typically reference debt obligations such as a specific debt security (a “single named product”), a group or index of debt securities (a “basket product”), collateralized loan agreements, collateralized debt obligations or related indexes.

A Typical CDS Transaction

In a CDS transaction, a party, or “protection buyer,” seeks protection against some sort of credit risk. The protection buyer normally makes periodic payments – known as “spreads” – to a counter-party, or “protection seller,” with reference to a specific underlying credit asset (often known as the “reference obligation”). The issuer is known as the “reference entity,” which is often, but not invariably, owned by the protection buyer.

The protection seller typically:

(i) Delivers a payment to the protection buyer upon the occurrence of a default or credit event (often a triggering event that adversely affects the value of the reference obligation and/or the financial health and credit-rating of the “reference entity” or “reference obligor”), and

(ii) Provides collateral to the protection buyer to ensure the protection seller’s performance.

Most CDSs are in the $10-$20 million range with maturities between one and 10 years, according to the Federal Reserve Bank of Atlanta.

If a default or credit event occurs or the value of collateral provided to the protection buyer by the protection seller is deemed insufficient by the calculation agent (typically the protection buyer), the protection seller must make payments to, or increase the collateral held by, the protection buyer.
Alternatively, in the event that the reference entity defaults on its obligations related to the reference asset, the protection buyer may require the protection seller to purchase the reference asset for face value, or some percentage of face value agreed upon in the CDS agreement, less the market value of the security.

RMBS Servicers & Affiliates Buy CDS

CDSs not only impacted the securitization market on Wall Street and financial centers around the world, but also homeowners across the country that have been contemplating or seeking to obtain a loan modification. Before exploring the impact that CDSs may have on homeowners or their ability or inability to obtain a loan modification, as the case may be, this article shall first discuss the major players involved in the CDS market. This is important as most of the CDS market participants are also directly or indirectly involved with servicing of securitized residential mortgage backed securities (RMBS).

Major League CDS Players

Only a handful of the biggest and most elite financial institutions in our global financial village are engaged in the credit default swaps market. Federal law limits those who may participate in the CDS market to “eligible contract participants,” which are defined as and include institutional investors, financial institutions, insurance companies, registered investment companies, corporations, partnerships, trusts and other similar entities with assets exceeding $1 million, or individuals with total assets exceeding $10 million.

It should come as no surprise then that commercial banks are among the most active in the CDS market, with the top 25 banks holding more than $13 trillion in CDSs. According to the Office of the Comptroller of the Currency (OCC), these banks acted as either the insured or insurer at the end of the third quarter of 2007. JP Morgan Chase, Citibank, Bank of America and Wachovia were ranked among the top four most active commercial banks.

These banks also, directly or indirectly, serve in the capacity as mortgage loan servicers of residential loans, which are charged with the responsibility of collecting, monitoring and reporting loan payments, handling property tax, insurance escrows and late payments, foreclosing on defaulted loans and remitting payments.

Pooling and Servicing Agreements Restrict RMBS Servicers from Offering Loan Modification Agreements

The RMBS servicer’s ability to negotiate a workout is subject to a number of constraints, most notably the pooling and servicing agreement (PSA). Some PSAs impose a flat prohibition on loan modifications. Numerous other PSAs do permit loan modifications, but only when they are in the best interest of investors. In such cases, the RMBS servicer’s latitude to negotiate a loan modification depends on the PSA. Some PSAs permit modification of all loans in the loan pool, while others limit modifications to five percent (5%) of the loan pool (either in term of number of loans or aggregate gross loan amount).

PSAs often include various and sundry restrictions on loan modifications, including, for example, mandatory modification trial periods, specific resolution procedures, caps on interest rate reductions, restrictions on the types of eligible loans and limits on the number of modifications in any year.

The PSA is not the only limitation on the loan servicer’s ability to enter into a “workout.” For instance, sometimes the servicer needs to get permission for the workout of a delinquent loan from a multitude of parties, including the trustee for the securitized trust, the bond insurers, the rating agencies who originally rated the bond offering, and possibly the investors themselves (“Barclay’s Capital Research” 11). Thus, when the servicer of a pool of RMBS requires authorization to exceed the limits on its loan modification discretion, according to the PSA, the modification is generally neither cost-effective nor practically possible for the servicer to obtain the myriad of needed consents, especially for one loan amidst a huge pool of securitized loans. As a result, the request for a loan modification is summarily denied without even considering the factual underpinnings of the request or the dire circumstances the borrower’s are currently fighting to survive. This is shameful.

Other Impediments to Loan Modifications: The CDS Profit Motive

As discussed above, a loan servicer might rebuff loan workout attempts because the applicable PSA forbids workouts. In addition, when a borrower becomes delinquent on his/her mortgage payments, the loan servicer may have to advance all the missed payments to investors — in excess of its spread account. This is not a savory solution to the servicer.

Further, a loan modification might trigger “recourse obligations” by the lender where the servicer is an affiliate of that lender. The loan servicer may not be able to recoup the added, labor intensive costs of negotiating a loan modification (either because the loan size is too small or the servicer is paid on a fixed-fee schedule). Finally, the servicer may deny a borrower’s request for a loan modification simply because it bought CDS protection against a default and would probably only profit from the CDS if foreclosure proceedings were filed. (See, e.g., Credit Suisse (2007); FitchRatings (2007a, p. 3); International Monetary Fund (2007, p. 47); J.P. Morgan Securities Inc. (2007, pp. 3-4)).

RMBS Servicers Hit Pay Dirt When Foreclosure Proceedings Commence

Although seldom reported, RMBS loan servicers have and will continue to strategically employ CDSs to protect against loan defaults, usually to the detriment of borrowers seeking loan modifications. In some cases, the RMBS loan servicer bets against itself or the pool of loans they are servicing by purchasing a credit default swap on the pool of RMBS that it services. These CDSs only pay off when the servicer files a foreclosure complaint. (See Patricia A. McCoy & Elizabeth Renuart, The Legal Infrastructure of Subprime and Nontraditional Home Mortgages 36 (2008), available at As a result, loan servicers, blinded by their desire to bolster their returns by cashing in on their CDSs, fail to hear the pleas of distressed homeowners who desperately request loan modifications, even when loss mitigation strategies, such as refinancing the loan, selling the home or accepting a deed in lieu of foreclosure, are economically viable.

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Lenders that once turned their backs on consumers that had no credit scores are now taking a look. What loan servicing companies have realized is that these low or no-score consumers are actually not the risk they were once believed to be.

The number is staggering – 64 million. That’s how many consumers are in America without an identifying number. They simply don’t have a credit score, which means they’ve been turned away for loans and for any type of credit, always. True, some of these “unscorable” consumers are actually huge risks. But far too many aren’t, which means there is a goldmine of consumers out there waiting to spend and willing to pay their monthly installments.

A leading credit scoring company called VantageScore has developed a system by which as many as half of those consumers that don’t have a score can be counted. The company has found that if they assess two years worth of credit history rather than the traditional six months, they can assess a score. Most credit scoring companies don’t look at rent or utility records, which can be a valuable and untapped source of information.

The economy is beginning to turn and household wealth is hitting all-time highs, but there is still a large segment held hostage to conservative credit practices. Loan servicing companies are tapping into this underserved demographic and opening up a new source of revenue, even the ones who are thought to be without any type of credit score at all.

VantageScore has determined that around a third of the “unscorable” population actually poses no credit risk at all, or very low credit risk. Lenders armed with this information are finding that these consumers fit their risk assessment profile of a potential customer that will pose little to no risk.

The demographic includes a large group of retirees and professionals. Around 40 percent of the demographic are homeowners, proving that a good many of the 65 million are responsible enough to keep their homes.

What the lending industry needs to consider, according to finance experts, is that more credit scoring agencies should take a look into the credit history of consumers that goes back farther than six months. FICO, for example, is the most frequently used agency to determine scores, and the agency only looks back six months.

UGA, a company that offers financial solutions including loan servicing, is one of the companies offering a deeper look into consumer credit and can offer flexible solutions to more consumers, especially the underserved demographic.

www.besthardmoneyloans.com

Loan businesses might not always seem fair – but they help to give us money that we need just at the correct time. In order to run their business they use a type of software that assists them to keep track of every customer that they have, how much is owed, and how much they have paid off.

When buying this software there are a number of things that you have to consider. The first is the features that you would like to have. There are numerous contrasting kinds of programs that vary in price and vary in what they should bring to your business. You should sit down and think about what your current software is missing and how it can be made better.

Now you will be ready to research the more average brands that you want to buy and look at the features that they may bring. For example a couple might be able to automatically update the amount owed while others demand you place it in manually. Find out which ones will help your business to run more efficiently and which ones are thought to be a waste of time.

Once you have chosen the ones that look the best it is time to narrow each one through elimination. I find that the safest thing you could do is to test each program before you purchase it. Many companies will offer a free demo version that you will be able to download from their site.

Download the loan servicing software and use it for a few days. Find out how easy it is to utilize and if the features that you believed you necessary are genuinely worth it. This could save you hundreds of dollars and assist you to pick the perfect brand for your company.

Home Loan Services And Foreclosure Advice, Why You Should Talk to Your Bank!

If you’re a homeowner who is facing foreclosure, your first thought may be to start packing. While this may be the only choice for some in foreclosure, it does not mean it’s your only choice. Before you throw in the towel, make an appointment in person to speak with your financial lender. You may be surprised how much help, assistance, or advice they are willing to give you.

First and foremost, it is important to know that banks and other financial lenders are not evil. It may sound silly, but this is how many homeowners feel when facing foreclosure. Many want to know how another human being can force them to leave their own home. In the heat of the moment, many do not realize that banks want to avoid foreclosures just as much as homeowners do. Financial lenders often lose money on foreclosure properties. That is why it is imperative that you schedule an in person meeting with your lender or home loan services professional right away.

As nice as it is to know that you should meet with your financial lender or contact a home loan services professional when you feel that you are facing foreclosure or know for sure that it is looming, you may be unsure how to start. Well, that is easily answered, the second you know you will be late on a payment, or that you are late. It is best not to wait until the foreclosure process starts. If you can make a payment, but need a few weeks, be sure to make your actions known. This will prevent your lender from even considering foreclosure right away. Most mortgage companies won’t start foreclosure proceedings unless you are 2 or more months behind in you payments. You will usually get a notice in the mail that you are late and to contact them immediately, do not ingnore this notice and do not avoid any calls made to your home, speak with someone asap about your situation and they will usually work out some sort of payment option with you.

One of the many reasons why homeowners are facing foreclosure is because of the job market. Long-term employees are now finding themselves standing in the unemployment line. If you are laid off from your job, schedule a meeting with your mortgage holder immediately. They may be willing to work with you,
provided you will be taking proactive steps to find a new job. Often times, you may find your monthly mortgages payments temporarily reduced.

When your home enters into foreclosure, you will see signs posted on the building. With that said, this is not the first notice that you will receive. As a reminder, banks want to avoid foreclosure just as much as you do, that is why they will likely call and send regular notices to your home. As embarrassing as it may be to admit that you can’t make your mortgage payments, it is important to answer the phone. Remember, your bank may be willing to work with you and create a temporary payment plan. This is often the case when you can prove your financial hardships are only temporary. For example, are you temporarily unable to work due to an injury? Were you laid off, but looking for a new job? If so, make it known.

It is also important to determine how much you need to pay to stop the foreclosure proceedings in their tracks. Since banks want to avoid foreclosure, they may accept a portion of the money that you owe. With that said, this is where you need to proceed with caution. If the bank requires full payment the following month, make sure you can make that payment in full. If not, the process will simply just restart from the beginning all over again.

Working while you are also studying at college is not an easy thing to do. Your health can even suffer as a result of all the stress you go through trying to divide you time between countless activities like work, school, and a personal life. Online transactions like enrolling and student loan servicing make life much easier for busy students who do not have a lot of excess time on their hands.

Instead of making a trip to the loan center, you can just use your home computer as long it has Internet access. Accessing the servicing center by means of the Internet is a great way to save yourself time and money.

How to Access the Student Loan Center on the Internet

It is not difficult to access your school’s loan center on the Internet. The student’s manual that you received when you enrolled with your school no doubt contains such information. It is difficult to get confused when you are given step by step instructions on how to go about it. If, however, you still have some kind of problem when you try to connect to the servicing center, just call the loan office at your school and ask them what to do.

Making Online Transactions

In the majority of cases, you will need to use the student number and password issued to you by your college or university to connect online. This important aspect of the website helps protect you from student loan related fraud. You can find helpful information regarding your school’s available loan programs and then download it once you enter the online center.

Student loan applications can also be filled out online by means of the servicing center. This is often one of the fastest and most efficient ways in which you can apply. Just a few minutes after having submitted your loan application you should receive some kind of response. The money you requested will be sent to your mailing address or deposited into your bank account in just two or three days if you qualify for the loan you applied for online.

The progress of your loan application can also be tracked; just log on to the online servicing center to do so.

Sometimes, you may run into cash flow problems because of a stroke of bad luck. Perhaps you need to make some emergency renovations to your home. Or perhaps you need some cash for a new computer that you need for your work. Such situations can happen to anyone at any time.

There are many ways you can raise cash. But one of the quickest way you can do so is to apply for a car title loan. Of course, the assumption here is that you own some type of automotive. It can be a car, a truck, an SUV, or a motorcycle. The amount you can raise is between $300 to $5,000 – and you can get the money pretty quickly.

Let’s say you stay in Atlanta Georgia. You can start by locating car title loan services in your area. The primary role of these services is to lend you money. There is no credit checks, because the risk is minimum due to the small amount of money that is at stake. There is also no cumbersome paperwork.

The reason why you need to locate a service provider near your residential area is because it’s easier for lenders to get in touch with you if there is a need.

Bear in mind that like all other loans, you must be prepared to pay back the loan as soon as possible. The lenders are willing to lend you the money because you have a vehicle to back you up. The vehicle helps to minimize the lending risk for the service providers. If you have the intention to pay back what you owe quickly, there will be no problems down the road.

Car title loan service providers are in the money lending business. They do not want your vehicle. They want to help you tide over your current cash flow problems. So be sure to make your repayments promptly.

If you do not, two things will happen. That first is that you start to chalk up on the amount owed. That’s due to the snowballing effect of the interest rates. Happens to almost any kind of loan. And when you can’t repay the amount, the second event takes place – you end up losing your automobile.

This is just industry practice. Don’t hate or blame the service providers just because something bad happens. So use car title loans wisely.

We went to a car title loan site that provides such services in Atlanta Georgia.

A simple form is all that is required to submit an application. You must, of course, have a clear title in your name. Most vehicle owners have clear titles to their names anyway. So that shouldn’t be too much of an issue.

You then leave down your name, phone number, address, and state some details about your vehicle and you are done.

A car title loan is not free cash, even though it’s easy to get a loan approved. If you have fallen on hard times, consider your options. Borrow only if you have the ability to pay back the money. Otherwise, it’s only going to get from bad to worse.

Aurora loan services is one of the lenders who is approved to offer the Governments “Making Home Affordable” plan. This plan allows homeowners the chance to save their home from foreclosure, or save hundreds of dollars every month through home loan modification. Qualifying is easy, but here are some things you should know when getting a Aurora loan services mortgage modification:

– In order to help ensure Aurora loan service approves your application for a home loan modification, you should make sure all your paper work is in order, completely filled out, and accurate. This way your home loan modification application does not just look like the rest of the incomplete ones which need to be re done.

– Homeowners facing a “financial hardship” such as hospital bills, loss of job, reduced wages, or a whole list of other things which are unavoidable have a better chance of getting approved for a home loan modification from Aurora loan services. This is because a lot of the $75 billion in Government mortgage bailout money will be given to mortgage lenders who approve homeowners who are facing financial problems.

– The home which a homeowner wishes to get a modification for must be lived in as the main residence of the mortgage holder.

– According to the Governments guidelines, after a home loan modification, the monthly mortgage payment must not exceed 31% of a homeowners gross monthly income.

In the mortgage industry, it is very common that a mortgage is sold to another institution. Your lender can also sell loan servicing part to another lender. This means that you will make payments under the same terms to the new lender. Everything will be transferred to the new servicer. If you have a pending loan modification application, it will get transferred as well.

If you are behind the payments and already received the notice of default, the loan does not usually get bought by other lenders. No servicer would want to purchase loans that are not current. By the same token, loans in the process of modification are also unlikely to be bought because the borrowers are mostly having financial hardship. These borrowers may already be delinquent, or are becoming delinquent very soon. However, banks sometimes have disconnected systems so the loan is still possible to be transferred to another lender even if the loan modification is under way.

In the event that the loan is being purchased and servicing is transferred to other lender, don’t believe your loan modification application will be transferred seamlessly. You should immediately call the new bank to verify all the documents have been transferred. Important documents like financial worksheets and documents proving your hardship are what the bank uses to evaluate your situation.

Since your new bank may have different requirements or process for mortgage modification, you will need to provide updated or even additional paperwork. More often than not, you almost have to start loan mod all over again. But if you are well organized on your previous paperwork, this process should be easy.

If you work for a bank, financial institution, or mortgage broker and your business is in need of a new or upgraded loan servicing software package, there are essentially two distinct ways you can go about obtaining it. Your business can either contract with a software development firm to build one for you, or your business can purchase an out of the box system that has already been developed and is presently functioning in many other like kind businesses.

Each way of approaching this acquisition has its positives, negatives, and associated risk. The most conservative way of going about obtaining a loan software system would be to purchase one that already has been built, and is currently being used by other businesses in your industry.

By following this approach, you will at least be able to acquire a system that will meet your minimal needs. Some of these systems, but not all of them, can be customized to meet some of the individual requirements your firm has.

The big negative about approaching the solution in this fashion, is that more than likely it will not be able to be tailored to do everything that your company requires. Another significant downfall to purchasing an out of the box system, is that as your businesses changes, it will be doubtful that your loan servicing software package will be able to adjust quickly enough to keep up with all of your companies needs.

If it sounds like purchasing an out of the box system is the wrong way to go about this, please keep reading because you could not be more wrong. Unless you are a huge business, with virtually unlimited resources that is exactly what you should do.

Developing your own software system can and often is a nightmare, to say the least. In fact, after your firm has spent millions of dollars on it, there could be a very good possibility that it never works correctly, and you will never be able to get it to.
There is so much detailed work that goes into planning, building, and documenting a new software system that entire books are written on it. The possibility of a small company ever finding the right software developer to see the project through to fruition, while staying on budget will be extremely difficult, if not impossible.

Then, if everything happened to go better than expected, the project was completed successfully. What transpires in the future if your company needs to upgrade the system and the software engineers that originally worked on the project, are no longer with the software development company? If you think that doesn’t happen, you better think again.

Without question, if you are a small institution with limited funds, the best way to go about acquiring a new loan servicing software system for the purpose of processing mortgages is to purchase an out of the box ready to use one. It might not be the most glamorous way to go about it, but it certainly will be the least risky, and will at the very minimum ensure your firm obtains a product that functions satisfactorily.

Sometimes there comes a situation when you find yourself a plaintiff in a personal injury case. This may because you might have faced discrimination at the workplace, or fired from a job for an unjust reason. Other reasons can include your having to face the consequences of a medical malpractice or even injuries because of an automobile accident.

To compound this problem, you do not have the necessary finances to take your case to court and even if you do manage to find the services of a lawyer, you may not have sufficient funds to enable him to prepare a watertight case. With no solution in sight, you agree to an out-of-court settlement, which would mean accepting for compensation a lesser amount than what you would have got had you taken the case to its natural conclusion in a court of law. To solve this problem, you can seek Lawsuit Loan Services to bail you out of the difficult situation.

There are a handful of Lawsuit Loan Service companies who advance you the cash to fight your legal battles. Simply stated, they purchase a part of the settlement that you would get as a result of a court verdict. You can approach these companies with your case. They in turn will consider the facts, consult a lawyer to seek legal opinions to judge the merit of the case and the amount of compensation that can be expected. Based on this they extend their services, which include advancing you the amount to take legal action, and the amount to meet personal expenses while awaiting settlement. This can also include funds required for medical treatment, in case of an accident. Also, the funds can help the attorney to prepare a strong case in terms of finding witnesses and collecting depositions.”
Lawsuit Loans “A Lawsuit Loan, or pre-settlement funding, is the ideal option for people involved in personal injury suits who do not have the necessary finances to take their cases to court. It is not a loan in the traditional sense of the word, because the injured person has to pay back the amount only if he or she wins the case and gets a settlement verdict.

Typically, personal injury cases may involve any of the following: discrimination, malpractice (either medical or legal), injury due to accidents, etc. A person under these conditions may not have the necessary funds to fight the case for compensation. Lawsuit Loans come to the rescue of all such people. Also, the Lawsuit Loan does not require credit checks, monthly payments, notes, or any other security.

The injured person can contact any of the lawsuit funding companies for loans. The loans offered by these companies are non-recourse loans. . This means that the person does not have to pay back anything if he loses the case. Given the high risk involved, the financing companies charge a significantly high fee for the services provided. Usually, they charge about 10 to 15% of the settlement amount. Before issuing a loan, they would contact a lawyer to ensure the merit of the case and the amount of settlement expected. Based on the feedback, the companies offer the loans.

The fee for the loans can be a flat fee or a recurring fee. You can obtain loans from banks also. But it has generally been observed that banks do not prefer to sanction such loans, as they do not have the necessary skills to judge the merit of the case.

Also, you must keep in mind that the rules of ethics of the Bar Association prohibit a person from taking a loan from his attorney or lawyer. This is because a conflict of interest may result, and the injured person might be pressed into accepting a settlement that is less than what he could otherwise accept.