The $1.7 trillion mortgage securitization market is still a mess, despite (or in part because of) the Federal Reserve's $700 billion splurge into the market. But another reason may be Treasury's decision to undermine private mortgage-backed securities (MBS) contracts.

BlackRock Inc. Chairman Laurence Fink went so far recently as to call this "one of the biggest issues facing American capitalism." He's worried that to protect banks from billions of dollars more in write-downs on bad second liens (a.k.a., home-equity loans), Treasury is trashing private contracts. "There is modification going on protecting our banks, protecting their balance sheets" and "I'm just very worried about it." Until that issue is cleared up, he says, we won't "get a vibrant securitization market back."

One reason the MBS market blossomed in the first place is because investors who bought a mortgage security believed that first mortgages were senior to second liens. In the event of a foreclosure, second liens would be extinguished first and holders of the first mortgage would get what was left because that's what the contract said.

This changed in April when Treasury announced that instead of foreclosing on delinquent borrowers and wiping out second liens, mortgage servicers (mainly the biggest banks) would be given incentives to modify both loans, thereby spreading the losses. In mid-August, Treasury announced the details of its "Second Lien Modification Program," or 2MP, calling it "a comprehensive solution to help borrowers achieve greater affordability by lowering payments on both first lien and second lien mortgage loans."

Treasury says it is merely trying to help borrowers stay in their homes. But there's little evidence that modifications are stabilizing the market. Treasury's recent release of second-quarter mortgage loan data showed that re-default rates are stubbornly high, even though most new modifications now provide for lower monthly payments of interest and principal.

The wise-guys are saying to put any money you have, after buying necessities like food and clothes and Realtor dues, in gold but I suggest real estate, now is the best time if you have any savings and if you need a loan let me know.

May our friends respect us, trouble neglect us, angels protect us and heaven accept us.