Aug
31
CNN Headliner | How to rescue the housing market: Foreclosures! Experts say it’s time to push delinquent borrowers through the foreclosure process
HOW TO RESCUE HOUSING NEW YORK (CNNMoney) — If the Obama administration really wants to save the housing market, it should speed up the foreclosure process — not prolong the inevitable, experts say. Four years into the housing crisis, the real estate market is still teetering on the edge. The Obama administration has tried … Read more
Aug
27
More on Refinancing Plan
Chris Mayer, one of the authors of the refinancing plan, a version of which is currently being considered by the administration, wrote in to the comments on an earlier post, protesting my characterization of his proposal. I have no argument with Chris about there being too many frictions in the refinancing process. I'm not sure that this is the best way to fix them, however, and I'm also puzzled by what problem the proposal aims to solve. Is the goal to stabilize the housing market or to provide economic stimulus?
If it is aiming to stabilizing the housing market, it is hard to see how a refinancing program, no matter how massive or generous, will accomplish that, as it doesn't address negative equity or unemployment. Too-high interest rates aren't what's driving forecloses. Yes, there's a large gap between current mortgage rates and the Fed Funds rate, but mortgage rates on existing mortgages are not especially high as things go. Lowering interest rates makes mortgages more affordable, but we don't have an affordability problem per se. We have a problem of mortgages being too pricey relative to employment and relative to equity in the homes. This proposal doesn't fix those problems.
Likewise, nothing in this proposal helps stabilize home prices. Refinancing doesn't make new purchases more affordable. It just makes existing purchases more manageable--if the homeowner is employed. It is true that in terms of monthly payments it doesn't really matter if principal or interest is reduced: one could drop rates from 7% to 4% on a $200K 30y FRM and have a similar effect to writing down principal to $143.5K. So maybe there really would be an effect on strategic defaults, as people might not mind underpaying on a overpriced house. But as long as there's negative equity, it makes selling the house very difficult. I don't see this eating away at the huge shadow inventory that is depressing home prices and contributing to the balance sheet recession.
If this is a stimulus measure, then yes, it will be a stimulus, but it will be a very oddly targeted one. I'm not sure it is as progressive as Chris Mayer describes. It will help those who are mortgaged, but not renters and not free-and-clear title holders. That is more or less targeted at the middle class, but it's hardly precise. Think of this as a version of the mortgage interest tax deduction, but made available only to existing homeowners, not prospective ones.
In his version of the proposal, Mayers is very clear who will bear the cost of this--bondholders--who will get socked with a wave of prepayments and find the value of their assets decline. It resembles a light-weight version of Roosevelt's 1937 zapping of gold indexation clauses from bonds. I'm a little uncomfortable with doing stimulus via expropriation of bondholders rather than via democratically controlled tax and transfer. It would be a surprisingly radical move from an administration that has protected banks (and to some degree bondholders) pretty consistently. (And it's a bit puzzling given Mayer's opposition to bankruptcy cramdown.) But given the deep dysfunction of Congress on fiscal issues, it is time to think outside the box.
Aug
22
Wall Street Aristocracy Got $1.2 Trillion in Secret Fed Loans
Wall Street Aristocracy Got $1.2 Trillion in Secret Fed Loans Citigroup Inc. (C) and Bank of America Corp. (BAC) were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits. By 2008, the housing market’s … Read more
Aug
18
Matt Stoller: Memo to Reporters – How to Cover the 50 State Attorney General Foreclosure Settlement Talks
Matt Stoller: Memo to Reporters – How to Cover the 50 State Attorney General Foreclosure Settlement Talks And so, the moral of the story is, the robo-signing/chain of title/overall mortgage securitization liability issue is a bear of a problem. It isn’t going away. So here’s a tip to journalists writing about the housing market. … Read more
Aug
16
Residential starts drop 1.5%, single-family starts drop 4.9% in July
Permits drop 3.2%.
The housing market continues its struggle to find a bottom. The Census Bureau and HUD’s numbers for residential construction in July show sharp declines in permits and starts: Privately-owned housing units authorized by building permits in July were at a seasonally adjusted annual rate of 597,000. This is 3.2 percent (±1.2%) below the revised June [...]
Aug
16
Any Bright Ideas?
Jean Braucher has noted the FHFA's RFI on foreclosure prevention. A huge problem with any proposal is the time to implementation for anything. It took months to develop flops like FHASecure, Hope4Homeowners, and FHAShortRefi. Any program where the government and/or private parties have to do much gets a major ding in my book because by the time its rolled out and the kinks are worked out, it'll be too late.
So here are some thoughts. First, the government needs to settle on its policy goal. Why are we trying to prevent foreclosures? Is it a macroeconomic goal of stabilizing the housing market? Is it a macroeconomic goal of deleveraging consumer balance sheets? Is it a moral goal of helping unfortunates? Is it an electoral goal of making people feel that the government is doing something/is on their side?
Second, there are obvious limitations on what the administration can do. Anything involving legislation is a non-starter with this dysfunctional Congress. Rule-making too might be problematic. But there's plenty the administration can do without legislation or rule-making. What's upsetting is that the adminsitration doesn't seem to be giving any consideration to these options because it will involve some tussling with the financial sector. It's easier to pretend that its hands are tied by Congressional acrimony and that ideas don't exist.
So let me throw out an idea: why not have FHFA order the GSEs as a safety-and-soundness measure to write-down the principal on all underwater mortgages? Or to offer all underwater homeowners with GSE loans a shared equity refinancing? At the very least, this could be done no question on GSE portfolio loans, and with some smart lawyering probably also on GSE securitized loans. (And if there is securitizaiton fail with the GSEs, then they're all portfolio loans!) That deals with (1) strategic default/negative equity, and (2) consumer balance sheet deleveraging. It doesn't take much to expand that move to FHA/VA, bank portfolio loans, and to private-label (ah, what a squandered opportunity the servicing consent orders were...).
Now this won't help with unemployment, but deleveraging consumers is the key to increasing consumer credit and increasing consumer spending, which is the key to increasing job growth. It's all connected. It probably won't kick in until 2013-2014 (Maybe just in time for it to be known as the Bachman or Romney or Perry recovery? If so, the GOP can thank the bank regulators), but it's the right thing to do.
Aug
13
Fraudclosure | BofA’s Moynihan Said to Press Geithner on Foreclosure Agreement
A settlement among banks, state attorneys general and the Department of Justice would enable lenders to resolve delinquent loans and in turn allow the U.S. housing market to recover, Moynihan told the officials. ~ BofA’s Moynihan Said to Press Geithner on Foreclosure Agreement Aug. 12 (Bloomberg) — Bank of America Corp. Chief Executive Officer Brian … Read more
Aug
11
Obama prepares for career as landlord
that don't confront me, long as I get my money next Friday
It’s an idea so beautiful in its simplicity and so perfectly targeted to cure one of our biggest national headaches that many readers will be slapping their foreheads in one of those, “I could have had a V-8″ moments. The housing market is still in the tank and the government has been forced to foreclose [...]
Aug
08
PONZI | Fannie Mae Seeks $5.1 bln More from US Taxpayers
Fannie Mae seeks $5.1 bln more from US taxpayers By David Lawder WASHINGTON, Aug 5 (Reuters) – Mortgage finance giant Fannie Mae (FNMA.OB) said it would ask for an additional $5.1 billion from taxpayers as a weaker housing market causes continued losses on loans made prior to 2009. The largest U.S. residential mortgage funds provider … Read more
Aug
07
Bribery | As Housing Crisis Festers, Mortgage Servicers Spend $8 Million on Political Contributions
As housing crisis festers, mortgage servicers spend $8 million on political contributions As the financial markets roil, one of the critical factors weighing down the U.S. economy is the flood of home foreclosures. Thursday’s crash underscores how difficult it will be for the economy to make significant strides while the housing market is still … Read more
Jul
20
Gang of Six and the Housing Market
There aren't a lot of details about the Gang of Six debt proposal, but apparently it includes cutting or eliminating the home mortgage interest deduction. There's a good case to be for eliminating the home mortgage interest deduction. But regardless of whether the deduction should go, I question the timing. Cutting or eliminating the deduction isn't going to help stabilize the housing market.
I worry about major legislative changes via budget deals that haven't had a chance to benefit from a public airing. We require notice and comment periods for regulatory rule-makings. It seems ill-advised to undertake more significant reforms without the benefit of public input. Yes, there's a default clock running, but there's a much simpler and less risky way to avoid that--increase the debt ceiling enough to enable a public debate on the long-term solution.
Jul
19
HAMP, HARP, HOP, HOOP… Like Watching Someone Spend $10 Trying to Fly to the Moon
The Washington Post, with Bloomberg, just did what I had been thinking about doing for quite some time, but frankly was just plain afraid to do.
They contacted the Treasury Department, the Department of Housing and Urban Development and the Federal Housing Finance Agency to ascertain just how the Obama Administration’s housing rescue programs were doing to-date… in terms of their impact and cost.
I thought about doing the same thing about three months ago, but since it had about the same appeal as scheduling a colonoscopy, I somehow managed to stay just a little too busy to get to it. Once I got close to having time, but luckily my sock drawer needed rearranging, so that took care of that.
The Post’s post didn’t even have an attributed author at the top, which made total sense to me… I wouldn’t have wanted to attach my name to it either. And check out how the story kicked off…
The Obama administration has taken several stabs at stemming foreclosures and reviving the housing market. Here is a look at some of the administration’s largest programs:
You know, that sentence alone explained a lot to me, actually. And I’m not quite as disappointed in the president as I was before I read it. He only “took a stab” or maybe a couple of three stabs at “stemming foreclosures and reviving the housing market.” So, okay then… he wasn’t really trying… it wasn’t a major effort on which he was concentrating… he just took a stab… like maybe he came up with stuff to try during a commercial break while watching American Idol with his girls, or something like that.
Boy, that sure is a relief, wouldn’t you say? Because, see… I had been under the impression that he had actually been trying to do something big and important and was putting his best foot forward, as it were. And if that were the case, well… then he’d be an incompetent loser with the vision of a Star-nosed Mole. But since he wasn’t really trying… rather he was merely “taking a stab,” well, that just makes him a careless moron for fiddling while Rome burned.
See, I like him a lot more now that I know that, don’t you?
His bien-pensance, it should go without saying, is HAMP, the Home Affordable Modification Program, and we all know what a rousing success that has been. Sheer-joy-on-a-stick is how I hear most homeowners referring to it.
It was originally slated to help up to 7 million, but according to the Post, has come up just a tad short at right around 600,000. I’ve seen some say that number is 700,000, but I don’t want to split hairs… after all, what difference does 100,000 homeowners make anyway? It’s an insignificant number, really.
The Post puts the budgeted price tag for the entire Making Home Affordable program at $30 billion, with the money coming out of the TARP funds, and HAMP was to be the lion’s share of that amount.
Now, I’m not trying to be a stickler here, but if you remember back to 2009… I know it’s hard, but try… you might recall budgets for HAMP that were closer to $80 billion, but obviously the administration is counting on no one remembering that far back, so put it out of your mind and move along… there’s nothing to see here.
To-date, the program has cost roughly $1.42 billion. And to put that number in perspective, I looked it up and the government spends $20 billion a year to air condition tents in Iraq and Afghanistan. So, if that same math holds up… that means that instead of helping only 600,000 homeowners in this country, we would have had the money to help roughly 8.5 million homeowners avoid foreclosure had we simply invaded cooler countries.
Are you with me on that calculation? If not, see me after class.
Next up is HARP, the Home Affordable Refinance Program that rhymes with TARP, but that stands for FOOL (and if you remember Robert Preston in The Music Man, that was funny.)
HARP allowed homeowners with Fannie or Freddie loans underwater at first by 115%, and later as we chased the housing market down the drain, by 125%, to refinance into lower interest rate mortgages. Roughly 800,000 homeowners refinanced under the program so far, but again the program was originally forecasted to help millions. It doesn’t really matter, however, as these were the 800,000 homeowners that didn’t need help, and had nothing to do with the foreclosure crisis.
Here’s what the Post’s article had to say about HARP’s cost:
“The Federal Housing Finance Agency, which regulates Fannie and Freddie, does not assign a specific cost to the program and agency officials say the program likely saves the firms money by keeping some borrowers out of delinquency.”
Alrighty then… what else do we have here…
Next there was the Emergency Homeowners Loan Program… or, EHLP. This is that brilliantly conceived homeowner assistance program that seeks to help unemployed homeowners by loaning them up to $50,000 over a two-year period, and then if the homeowner stays current on their mortgage payments for five years, the loan is forgiven.
Should you have the unfortunate experience of losing your job twice in five years, however, the program socks you with the $50k debt and probably repossesses your car when you fall behind on your loan.
Congress allocated $1 billion to this stunning piece of thinking, saying that the program could help up to 30,000 borrowers. Help them what, I wonder? Help them get closer to bankruptcy, perhaps, but I wonder if the government loan can be discharged or whether it’s like one of them student loans that never goes away. It’s a lot like the gift that keeps on giving… emotional baggage.
The Post failed to mention just how many borrowers the program had helped to-date… probably just an oversight, I’m sure. I’ll take a guess though… you know, in an effort to fill in the blanks… I’m going to say the program has helped… hmmm… let’s see… umm… NONE.
But, don’t worry… today is July 19th and according to the Post, borrowers have until July 22nd to apply… so with three days to go, I’d say it’s too early to call this one a complete failure… maybe there’ll be a last minute rush to get in. What? It could happen.
And last up in the Post piece was the Hardest Hit Fund, which provided at first the five… then the nine… and then I believe, ultimately the 33 states hardest hit by the foreclosure crisis with a grand total of $7.6 billion. Each state’s housing finance agency was charged with designing its own solution to the fast spreading and deepening housing meltdown.
Now, the states have until 2017 to use the funds, so the Post points out that “it’s early,” presumably, to judge the program. Apparently, about70% of the state programs established assistance programs for unemployed workers, while 20% designed programs that would supposedly reduce the principal balance of underwater homeowners.
To-date, only $480 million has been spent, and other than providing hand-outs to the unemployed for a while… I can pretty much assure you that the rest of the money is safe, as I haven’t been able to find a single state program that’s helping anyone to ay degree.
When Arizona launched it’s homeowner assistance program last year, I made fun of it, and said that it wouldn’t help a single Arizona homeowner, so wasn’t I surprised when a year later, the Arizona housing authority announced quietly that the program had in fact helped one homeowner all year.
I didn’t hide from it though… I came right out and admitted that I had been wrong… and then apologized. I still don’t know how I could have missed it by that much.
So, that’s it and that’s all… that’s Obama taking a stab… yeah… man. You go Mr. president… keep on stabbing… you’re a stabbin’ fool, sir.
Well, like I said… at least he wasn’t really trying.
I feel like I’ve been watching someone spend the better part of ten bucks… trying to get to the moon.
Nice work, sir.
We’ll let you go back to bed now, sir.
Mandelman out.
Jun
01
Hey Everybody… It’s “Pretend You’re Surprised About the Economy Day!”
You know, some people like Christmas, others Thanksgiving… still others are partial to The 4th of July, I suppose. But my favorite special days of the year are fast becoming the “Pretend Your Surprised About the Economy Days!” which I suppose are sponsored by the Obama Administration in conjunction with the United States Treasury Department, underwritten by the Federal Reserve.
Here’s how it works… I give you the headline straight out of the news of the day, and when you’re done reading it, you say out loud… “Oh my God, I can’t believe that!” Or something to that effect. Got it? Ready to play? Here we go…
1. U.S. Home Prices Falling Through Floor – Dip-dip-doo-wap-dip-dip-doo-wap-dip-dip!
March’s S&P/Case Shiller Home Price Indices show we’re having a “double dip” in U.S. home prices. In the first quarter of this year, the U.S. National Home Price Index dropped by 4.2% and that’s after it fell 3.6% in the fourth quarter of last year, while the declining National Index fell by 5.1% in this year’s first quarter as compared with the first quarter of 2010.
They’re saying that we’re back to 2002 housing price levels. Here’s what David M. Blitzer, Chairman of the Index Committee at S&P Indices had to say:
“This month’s report is marked by the confirmation of a double-dip in home prices across much of the nation. The National Index, the 20-City Composite and 12 MSAs all hit new lows with data reported through March 2011.”
“Since December 2010, we have found an increasing number of markets posting new lows. In March 2011, 12 cities – Atlanta, Charlotte, Chicago, Cleveland, Detroit, Las Vegas, Miami, Minneapolis, New York, Phoenix, Portland, and Tampa – fell to their lowest levels as measured by the current housing cycle.”
“The rebound in prices seen in 2009 and 2010 was largely due to the first-time home buyers tax credit. Excluding the results of that policy, there has been no recovery or even stabilization in home prices during or after the recent recession. Further, while last year saw signs of an economic recovery, the most recent data do not point to renewed gains.”
NOW YOU SAY: “Oh my God, I can’t believe that!”
See… isn’t this fun? Try another one…
2. Buckle Your Seatbelts, ‘Cause We’re Going Around Again…
The executive chairman of Templeton Asset Management’s emerging markets group, Mark Mobius, who oversees more than $50 billion, has said publicly that yet another financial crisis is INEVITABLE because we haven’t addressed the real causes of the last financial crisis.
Mobius was in Tokyo attending the Foreign Correspondents’ Club of Japan when he told the group:
“There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis. Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes.”
Mobius also explained that the total value of derivatives in the world today exceeds total global gross domestic product by a factor of 10. “With that volume of bets in different directions, volatility and equity market crises will occur,” he said.
The global financial crisis three years ago was caused in part by the proliferation of derivative products tied to U.S. home loans that ceased performing, triggering hundreds of billions of dollars in write-downs and leading to the collapse of Lehman Brothers Holdings Inc. in September 2008.
Mobius also explained that the freezing of global credit markets caused governments to pump TRILLIONS into the financial system to shore up the global economy.
OKAY, AND HIT IT: “Oh my God, I can’t believe that!”
See… it’s more fun than fireworks, don’t you think?
3. Turns Out… Homeowners Who Default on Mortgages Aren’t Deadbeats? Go figure.
TransUnion’s latest study revealed that those who only default on their mortgage are much better credit risks than those who are delinquent on multiple credit accounts. And this held true across all credit scores.
Not only that, but the study failed to find evidence in support of the widely accepted “excess liquidity theory,” which says that those that stopped paying a mortgage during the recession had increased cash flow, and could repay other debts. And guess what else… homeowners in foreclosure performed similarly, IF NOT BETTER, on accounts opened further in the process.
Steve Chaouki, group vice president in TransUnion’s financial services business unit said:
“There appears to be a pocket of opportunity among mortgage-only defaulters that is NOT the result of excess liquidity, but rather the unique circumstances of the recent recession. This new market segment that the recession created is an important one for lenders to understand. They have the potential, today, to be stronger and more reliable customers.”
And, Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit said it best of all, when he said:
“This recession was unique in that certain consumers who defaulted on mortgages would otherwise be good credit risks. It appears their actions were driven by difficult economic circumstances than by any inherent inability to manage debt.”
NICE AND LOUD THIS TIME: “Oh my goodness, I cannot believe that!”
Okay… I’ll drive from here if that’s okay with you…
4. It Depends on Your Definition of a Double-Dip… and these two guys fit mine perfectly.
GWEN IFILL: A new report out today shows the state of the housing market has grown even more bleak. But what is driving this stubborn downward pressure?
(I couldn’t even guess.)
For that, Gwen turns to Rick Sharga, senior vice president of RealtyTrac, a website that publishes data on real estate and foreclosure trends, and Mark Zandi, chief economist at Moody’s Analytics. If they can’t tell us, no one can.
GWEN: Rick Sharga, are these numbers proof of a double-dip recession, that term we have all feared?
(Very scary term.)
RICK SHARGA: Well, certainly not a double-dip recession in the overall economy. But you can make an argument about the double-dip in the housing market. It just depends on your definition of a double-dip.
(Oh, well thank the good Lord for that. It’s not in the overall economy, just the one I live in.)
RICK SHARGA: Is a 5 percent drop compared to a 20 percent drop a couple of years ago really a double-dip, or is it just a continuation of a downward trend that the market is trying to correct?
(Hey, who’s asking the questions around here? And, which is worse: a double dip, or a continuation of a downward trend? I’m freaking out over here. Which one, Rick, which one?)
GWEN: Mark Zandi, in your opinion, what are the driving factors, to say the two or three big driving factors here?
(The suspense is KILLING me.)
MARK ZANDI: Well, obviously, a 9 percent unemployment rate is a problem. A tough job market makes it hard for people to go out and buy homes.
(Don’t you hate it when economists get all technical like that? What’s he trying to say?)
MARK ZANDI: I think the foreclosure crisis is a very serious weight on the housing market. We have millions of loans in the foreclosure process that are going to go through and are going through to a distressed sale. And those homes get sold at a big discount, a big price cut. And that’s driving prices down as well.
(He thinks the foreclosure crisis is a very serious weight on the housing market. I suppose it could be… never really thought about it.)
MARK ZANDI: And confidence — if you look at the consumer confidence numbers, people are still very nervous and scared. And, of course, nothing takes a higher level of confidence than signing on the dotted line to buy a home. So, if people aren’t feeling really good about their financial situation, that’s going to be hard on the housing market.
(Damn it, people… we’ve talked about this before. You’re screwing up our economy with your lack of confidence again. Come on… buck up… get confident.)
GWEN: Rick Sharga, what — would you agree with that, and what would you identify as the major driving factors in this?
(Here’s your moment, Rick. Hit one out of the park, show Zandi what you’re made of…)
RICK SHARGA: I think Mark is dead on. I think he’s probably hit the major identifying factors.
(Oh, well… there you have it then. A swing and a miss… Thanks fellas.)
RICK SHARGA: I think one of the exacerbating factors is that it continues to be stubbornly difficult for the average homebuyer to qualify for a loan. We have historically low interest rates, and relatively few people who qualify to get these loans.
(Really? Now why would that be?)
RICK SHARGA: And I don’t think the foreclosure problem can be overestimated.
(Oh, sure it can, Rick… I’m quite sure you can overestimate anything.)
GWEN: Mark Zandi, you talked about confidence. I wonder if that’s not affected when we talk about these foreclosure numbers. People look at how badly this all went after the bubble, and they think to themselves, you know, I don’t really need to own a home anymore. How much of that is playing a part in this?
(Yeah… Bubble, bubble, toil and trouble… I got burned and I won’t down double. With apologies to Billy Shakespeare.)
MARK ZANDI: Well, I think that is certainly playing a role. I mean, I think nobody wants to catch the proverbial falling knife. So when prices are weak and falling, you don’t want to take the plunge, buy a home, and then, of course, lose value six, 12 months down the road. So, it’s a bit of a chicken-and-egg kind of problem.
(Oooohhhh nooooo, a chicken and egg type problem? That’s not good. I think that means it’s unsolvable, right?)
MARK ZANDI: People are very nervous that if they buy today, that the value of their home will be worth less in the future. And it’s probably a deeper longer-term issue as well. Many people are viewing housing very differently than they did in the past.
(Yeah, like in the past, people viewed a home as a place they would live for a long time. Now they view it as a place they’ll get evicted from over the summer.)
GWEN: Mark — Mark — Rick Sharga, is there another vicious cycle here, which is, if you worry that you cannot get a home, if you worry that you can’t get a loan, if you’re worried that you cannot keep a job, that all of that drives lessened demand as well for all these homes clogging up the market?
(I’m not sure. What’s the answer, what’s the answer, damn it…)
RICK SHARGA: You know we recently surveyed potential homebuyers across the country. And the number that jumped off the page at me was that 40 percent of the renters we surveyed said they have decided never to buy a house.
(Must be surveying renters that went to college.)
RICK SHARGA: That number just — just hit me right in the face, because we’re coming only a few years off historically high levels of homeownership, I think almost 69 percent. And the next generation of homeowners, to Mark’s point, 40 percent of them have already opted not to participate in the housing market. So, it’s a frightening number. The only reassurance I can give is that we do know that consumer sentiment has a way of swinging wildly back and forth.
(It does? I swing wildly back and forth? I didn’t know that about me. Live and learn, I suppose.)
RICK SHARGA: So, if we do begin to see job creation, if we do begin to see a return of consumer confidence, if the housing market begins to stabilize, hopefully, that consumer sentiment can swing back toward where we have a more active buying market.
(Is that all we need? Jobs, confident consumers, and a stabilized housing market? Oh, thank heaven. For a minute there, I thought we might be in real trouble.)
GWEN: Mark Zandi… Is this a regional problem that we’re talking about now, or are we talking about a true national overhang, a hangover from the boom years here?
(It could be regional I guess… it’s pretty much contained to the planet Earth region.)
MARK ZANDI: Well, it’s a national problem.
(If you’re in the EU, don’t be insulted by that… it’s not his fault. A lot of Americans don’t really know there are other countries.)
MARK ZANDI: And every corner of the country has been impacted. Prices are down almost everywhere. There are some bright spots, you know, Texas, for example, parts of the Farm Belt. But outside of that, we have seen foreclosures increase, house prices decline.
(I can’t decide… Texas or the Farm Belt… Texas or the Farm Belt… I think I’ll… EAT A GUN.)
MARK ZANDI: So, yes, I think you could — you would consider this a national house price decline. And, in fact, it’s — it’s unprecedented. The — you would have to go back to the Great Depression in the ’30s to find a time when so many markets have suffered such large price declines. So, it is a national phenomena.
(I kind of like that terminology… we could start calling it “The Great Phenomena.”)
GWEN: Well, let me stay with you for a moment because you mentioned the Depression. That was obviously the biggest economic shock that any of us have — had experienced or perhaps our parents experienced. How much of this slowdown in the housing market is going to end up driving the entire economy’s recovery off-track?
(Oooooo… Oooooo… I know this one… Ooooo… Oooooo… she never calls on me when I have my hand up.)
MARK ZANDI: Well, that’s a good question. You know, I think the economy, it is growing. And it can continue to grow without housing, but it certainly cannot flourish. I don’t think this economy really can engage, it can’t create the kind of jobs we need to bring down unemployment in a substantive way, unless housing is headed north.
(I’ll tell you who needs to flourish and head north.)
MARK ZANDI: And in every economic recovery that we have experienced since the Great Depression, housing has led the way. So we need housing. And we need it to come back. I think there are some good things that are coming together. But the longer we have to wait, the more nervous I get about the recovery and the economic expansion.
(Good things are coming together? Which good things are those? Tell us now. And how much more waiting will make him more nervous? I need specifics, I can’t plan my life around his degree of nervousness.)
GWEN IFILL: Rick Sharga, do you see any good things that are coming together? And should they be given by the federal government or by the private sector or the — even state governments?
(Yeah, ’cause the state governments are flush with all that extra cash…)
RICK SHARGA: You know, neither of the government initiatives that we saw last year, either HAMP to suspend foreclosure activity, or the homebuyer tax credit, really had the intended effect.
(How does he know that? What the hell was the intended effect? If I knew the answer to that question, I’d die a happy man.)
RICK SHARGA: In fact, after the second tax credit, sales volume drove — went so far down, that it pulled home prices down perhaps even further than they would have gone otherwise. I think, unfortunately, the remedy to the housing market right now is probably time. We need time to create more jobs. We need time for consumer confidence to come back.
(If I could save time in a bottle… the first thing that I’d like to do… Hey, wait a doggone minute here… the second tax credit pulled down housing prices further than they would have gone without it? The tax credit pulled the prices down… this guy is no economist, I’ll say that for him.)
RICK SHARGA: We need time for lenders to actually feel comfortable enough to start making loans on properties that have values that are stabilizing. And then the market will start to recover on its own. But I don’t see government intervention as being a part of the solution right now.
(No, don’t be ridiculous… absolutely no government intervention… there’s no way that would help. Government intervention only helps banks, and auto manufacturers, and the stock market and big businesses. It doesn’t work anywhere else, everyone knows that. Anywhere else and government intervention just drags prices down… I think I’ve got it now. We just need to give it more time, simple as that. Like in Japan… they’re giving it lots of time… like 21 years… so maybe figure we give it 30-35… would that be enough time Rick?)
GWEN: Is this a way to — is there any way to know whether this is an anomaly for now or it’s a long-term problem?
(For some people, I think yes, but not for Gwen.)
RICK SHARGA: The continuing falling of home prices?
(Do you believe this exchange? He lost his train of thought? No, Rick… she was asking you how long you might remain stupid.)
GWEN: Yes.
(I’m going to chew on glass in a minute.)
RICK SHARGA: I think there’s probably a little bit more to go. I would be interested to hear what Mark said.
(Arrrggghhhhhh… a little bit more? Probably? Rick, you are such a jackass. You don’t really have the foggiest idea how you got here, do you Rick? Did your Mom get you the job?)
RICK SHARGA: But I think we’re very close to the bottom. And, unfortunately, we will probably bump along that bottom for a couple of years while we go through this inventory of distressed properties.
(I think you’re already bumping along the bottom, and you’ve hit your head and now have the IQ of a summer squash.)
GWEN: Do you agree with that, Mr. Zandi?
(Yeah Zandi… does rick have the IQ of a summer squash?)
MARK ZANDI: Yes. You know, I think the key statistic for house prices are the homes for sale that are distressed that are foreclosure and short.
(Was that even a sentence? Oh Lord, he’s going to start babbling… waiter, check please?)
MARK ZANDI: And as that share rises, prices will fall. Almost the arithmetic of it is that prices will fall. And I do expect the share of sales that are distressed to continue to rise through the end of the year. And so prices probably will bottom out at the end of this year.
(LMAO… what did I tell you? He has no clue what he just said… and, of course, neither do we. “Almost the arithmetic of it is that prices will fall.” He’s a babbling brook. And then he wraps it up with we’ll hit bottom at the end of THIS YEAR? Right after he said that, he was thinking, “Why the f#@k did I just say that, oh well… too late to do anything about it now, maybe no one noticed.”)
MARK ZANDI: And then by this time next year, I think we will start to see some true price stability, some price gains. So, I think we have to get through this last mountain of foreclosed property. And on the other side of it, I think we will be in measurably better shape.
(So, I guess, based on what he said earlier, by this time next year good things will be coming together. We’ll have jobs coming out of our ears… oodles of confidence everywhere, and a stabilized housing market, is that about right, Mr. Zandi… you spineless sycophant?)
GWEN: Mark Zandi at Moody’s Analytics, and Rick Sharga at RealtyTrac, thank you both very much.
MARK ZANDI: Thank you.
RICK SHARGA: Thank you.
(Okay, Clown #1 and Clown #2… back to your padded cells, or wherever the attendant lets you play during the daytime. Orange soda and crackers at 11, so listen for the cuckoo clock… cuckoo, cuckoo, cuckoo.)
So, how is it that Gwen Ifill is interviewing these two potted plants on PBS and I’m donating to PBS during the pledge drive?
5. Today’s FHA Bulletin: MERS Has Impacted Foreclosures in Michigan.
According to Clifford J. Treese on BROKERDIRT’S Real Estate Brokers Discussion Group…
“On April 21, 2011, the Michigan Court of Appeals determined that MERS is not eligible to take advantage of the non-judicial statutory foreclosure process in Michigan because MERS does not own or have an interest in the indebtedness secured by the mortgage, nor is MERS the servicer agent of the mortgage, as required by the statute. Most of the major title insurance company underwriters have ceased issuing title insurance for any properties where MERS foreclosed by advertisement.”
But… according to April Charney…
Bill Hultman, representing MERS, just testified this week that there was NO PROBLEM at all with title insurance as a result of MERS’ involvement in foreclosures. And, this ignores the essential underlying problem that MERS cannot produce evidence of corporate authority delegated to Hultman to appoint the first signer, much less the 20,000 signers that Hultman testified about. (Hultman’s testimony is available online at: http://4closurefraud.org/2011/05/26/)
April also says we should take note that once again, Mr. Hultman promised evidence of the signers’ authority. He said he’d produce the “resolution” authorizing a single signer, but failed to offer to produce evidence of authority to issue that resolution or any other resolution “appointing” a MERS’ signer. In a previous deposition in another case, Hultman agreed to produce the documents showing that MERS gave him authority to issue the signer resolutions, but to-date, it would appear that he couldn’t produce he has failed to produce any such documentation.
April says she would think that if MERS had the docs, they’d be showing them all over town.
“Look, honey… isn’t the Emperor wearing a fine suit of clothes?”
(Don’t worry though because I think Congress may be making the Emperor an invisibility cloak yea as we speak. Isn’t that right, banker-people? And won’t we be surprised… is that what you’re thinking?)
Mandelman out.
Apr
19
FEDS Announce Enforcement Actions Against 14 Servicers, LPS and MERS… Hot Towels in Washrooms Threatened Once Again
I have to tell you right up front that I’m damn tired of vacillating regulatory initiatives that produce feeble or even flaccid responses to issues that are unnecessarily destroying the lives of millions of Americans and preventing our national economy from any sort of meaningful recovery… all while the administration blathers on about the budget and Libya while playing golf, and our legislature continues to engage in petty politics while shining the shoes of Wall Street’s elite.
Think that was too harsh? Really? How so? That’s precisely what continues to go on… am I missing something? Is there some aspect of our government where an outbreak of competence is being overlooked?
Still, I’m committed to covering this subject even when doing so means that I have to start drinking at 9:30 in the morning… kidding, I’m just kidding… so, here’s the news on the FEDS and their “enforcement actions,” and I use that term very loosely, because I’m pretty sure that at the end of the proverbial day, comparatively I will have gotten in more trouble back in high school for having a party while my parents were out of town. Maybe not… there’s more to come and I suppose I could be wrong… but don’t bet on it.
The Office of the Comptroller of the Currency (“OCC”), the Office of Thrift Supervision (“OTS”), and the Federal Reserve have apparently concluded their investigations into the mortgage servicer and supporting firm practices… including allegations of “robo-signing”, and have announced formal enforcement actions against fourteen servicers and two related servicer providers, Lender Processing Services (“LPS”), and the Mortgage Electronic Registration Systems… or MERS, for short.
The list of servicers, in alphabetical order, includes: Ally Financial/GMAC, Aurora Bank, Bank of America, Citigroup, EverBank, HSBC, JPMorgan Chase, MetLife, OneWest Bank, PNC Financial, Sovereign Bank, SunTrust, U.S. Bancorp, and Wells Fargo.
According to a report titled: Interagency Review of Foreclosure Policies and Practices, which lists the Federal Reserve System, OCC and OTS as its sponsors:
“The reviews found critical weaknesses in servicers’ foreclosure governance processes, foreclosure document preparation processes, and oversight and monitoring of third-party vendors, including foreclosure attorneys. While it is important to note that findings varied across institutions, the weaknesses at each servicer, individually or collectively, resulted in unsafe and unsound practices and violations of applicable federal and state law and requirements. The results elevated the agencies’ concern that widespread risks may be presented—to consumers, communities, various market participants, and the overall mortgage market. The servicers included in this review represent more than two-thirds of the servicing market. Thus, the agencies consider problems cited within this report to have widespread consequences for the national housing market and borrowers.”
Now, that all sounds pretty toothy, right? Yeah, I thought so too when I first read it, but as has consistently been the case when looking at our government’s actions where bankers are concerned, a stern talking to is about as far as it goes. After that, it’s pretty much threats on par with eliminating hot towels in bank executive washrooms, and when all is said and done, they don’t even do that.
The federal agencies involved in the investigation used what they refer to as “standardized work programs” to guide their assessment and document their findings. Here they are verbatim, as presented in their final report, followed by my brief commentary in blue type:
1. Policies and procedures - Examiners reviewed the servicers’ policies and procedures to see if they provided adequate controls over the foreclosure process and whether those policies and procedures were sufficient for compliance with applicable laws and regulations.
Well, obviously servicer controls over the foreclosure process have been something less than “adequate” to ensure compliance with applicable laws and regulations… right? I mean, that is why we’re even talking about this… right?
2. Organizational structure and staffing - Examiners reviewed the functional unit(s) responsible for foreclosure processes, including their staffing levels, their staff ’s qualifications, and their training programs.
Even the bankers/servicers have been bemoaning how they are inadequately staffed and prepared to handle the unprecedented volume of foreclosures and applications for loan modifications, so obviously there are problems in this area… right?
Of course, they’ve been lamenting this lack of preparedness for the last three years, so it would seem that this rather pedestrian issue could have easily been solved by now… right? I mean to say… they could have built the damn space shuttle several times over by now, if they wanted to… right?
3. Management of third-party service providers - Examiners reviewed the servicers’ oversight of key third parties used throughout the foreclosure process, with a focus on foreclosure attorneys, MERS, and default-service providers such as LPS.
Obviously this is another problematic area… right? I mean, I couldn’t even count the number of court decisions that have highlighted the problems with LPS and MERS, so I’d have to think that all of those judges can’t just be flapping their gums, as it were.
4. Quality control and internal audits - Examiners assessed quality-control processes in foreclosures. Examiners also reviewed internal and external audit reports, including government-sponsored enterprise (GSE) and investor audits and reviews of foreclosure activities as well as servicers’ self-assessments.
Personally, I’d be shocked out of my shoes to find out that there even are any meaningful “quality control processes” in place at the major servicers, and I say that because none of them have gotten any better at this over the last three years and that’s no easy feat. I mean, what if I forced you to play golf every day for two or three years. Do you think you could be no better at golf after two years of playing every day even if you tried your hardest not to be any better? I doubt it.
I’m not even gong to comment on the colossal messes that are Fannie and Freddie, what would be the point? And I happen to know for a fact that investor audits are near meaningless in terms of impacting servicer behavior or performance. As to servicer “self-assessments,” all I can say is: Bwahahahahahahahaha! Sell that somewhere else, would you please.
5. Compliance with applicable laws - Examiners checked the adequacy of the governance, audits, and controls that servicers had in place to ensure compliance with applicable laws.
Oh shut up! If any of the federal regulators involved in this investigation were doing their job in the first place, they wouldn’t need to be conducting this “special” investigation now… right? I mean, shouldn’t the OCC, OTS and the Fed already KNOW the answers to these questions?
6. Loss mitigation - Examiners determined if servicers were in direct communication with borrowers and whether loss-mitigation actions, including loan modifications, were considered as alternatives to foreclosure.
This one is a no brainer… right? I mean, it’s only a question of degree… and the hellish torture borrowers must endure to receive such “consideration”… right?
7. Critical documents - Examiners evaluated servicers’ control over critical documents in the foreclosure process, including the safeguarding of original loan documentation. Examiners also determined whether critical foreclosure documents were in the foreclosure files that they reviewed, and whether notes were endorsed and mortgages assigned.
Obviously, this is a problem area, considering court decisions such as the Massachusetts Supreme Court’s “Ibanez” case in which neither Wells Fargo nor US Bank were able to come up with a single piece of paper showing that they were in fact the holders of the mortgages in question.
One bank brought in a blank Pooling and Servicing Agreement that was downloaded from the SEC’s Website, and the other showed up with a blank Private Placement Memorandum… neither could produce a schedule of loans allegedly assigned to the applicable trusts. And this, after more than two years to prepare.
Look, if the serivcers had the paperwork they needed to foreclose, they wouldn’t have needed “robo-signers” to sign their names to lost note affidavits ten thousand times a month… right?
8. Risk management - Examiners assessed whether servicers appropriately identified financial, reputational, and legal risks and whether these risks were communicated to the board of directors and senior management of the servicer.
Oh, they have to be kidding about this one. Tell you what… if anyone can find a single bank Board Member or servicer senior manager who will admit that they knew anything about anything in this regard, I’ll carry you piggyback from LA to Wall Street… hopping on one foot… naked… with a smiley face painted on my butt… while whistling a happy tune the whole way… how’s that?
~~~
Okay, so I’m sure you’re all wondering how the investigations came out, as was I after reaching this point in the report. I mean, obviously something triggered the “enforcement actions,” so what was it? How did the servicers rate as related to the “standardized work programs,” as described above? Well, I’m going to tell you… verbatim… again directly from the Fed’s report.
The interagency reviews identified significant weaknesses in several areas.
Well, thank the good Lord for that, wouldn’t you say?
A. Foreclosure process governance - Foreclosure governance processes of the servicers were underdeveloped and insufficient to manage and control operational, compliance, legal, and reputational risk associated with an increasing volume of foreclosures. Weaknesses included:
- Inadequate policies, procedures, and independent control infrastructure covering all aspects of the foreclosure process.
- Inadequate monitoring and controls to oversee foreclosure activities conducted on behalf of servicers by external law firms or other third-party vendors.
- Lack of sufficient audit trails to show how information set out in the affidavits (amount of indebtedness, fees, penalties, etc.) was linked to the servicers’ internal records at the time the affidavits were executed.
- Inadequate quality control and audit reviews to ensure compliance with legal requirements, policies and procedures, as well as the maintenance of sound operating environments.
- Inadequate identification of financial, reputational, and legal risks, and absence of internal communication about those risks among boards of directors and senior management.
Okay, so correct me if I’m wrong, but isn’t the essence of what was said there that NON ONE IS WATCHING THE STORE? Inadequate policies, procedures and controls covering ALL ASPECTS of the foreclosure process? I mean… pardon me, but isn’t the foreclosure process what servicers are in business… and entrusted to handle?
Inadequate monitoring of external law firms and third-party vendors? A lack of sufficient audit trails, AND inadequate quality control and audit reviews to ensure compliance with legal requirements AND inadequate identification of risks combined with the ABSENCE of communication about those risks to Boards and senior managers? (See, I told you no one at the top would know anything. Guess I’m pretty safe on that whole piggyback from LA to Wall Street bet.)
So… basically… the servicers are doing nothing right where foreclosures are concerned… right?
B. Organizational structure and availability of staffing - Examiners found inadequate organization and staffing of foreclosure units to address the increased volumes of foreclosures.
And, no surprises there. As I said, the servicers have been whining about this point for years now… I suppose where they live there’s full employment so they have a dickens of a time hiring and training anyone. Must be tough…
C. Affidavit and notarization practices - Individuals who signed foreclosure affidavits often did not personally check the documents for accuracy or possess the level of knowledge of the information that they attested to in those affidavits. In addition, some foreclosure documents indicated they were executed under oath, when no oath was administered. Examiners also found that the majority of the servicers had improper notary practices, which failed to conform to state legal requirements.
These determinations were based primarily on servicers’ self-assessments of their foreclosure processes and examiners’ interviews of servicer staff involved in the preparation of foreclosure documents.
Okay, so that says that bank employees did in fact lie on affidavits… fraudulently signing them for use in court, and failing to comply with state laws governing notarization of documents. Want to know what would happen to any of us if we got caught doing any of that? We’d very likely find ourselves in jail… or in a lot of trouble, at the very least.
If we got caught doing it tens of thousands of times a month for a couple of years… in order to foreclose on people’s homes… we’d be sharing a cell with Bernie Madoff, sure as shootin’.
And the Feds determined this through servicer self-assessments and interviews with servicer staffers? That’s a hoot! Shows you just how willing those employed by servicers are to cover for their employers. Just imagine what the Feds might find if they actually INVESTIGATED the affidavits for themselves instead of accepting the servicers’ self-assessments.
So, basically… the Feds asked: What up with the robo-signers?
And the servicers replied: Yep, we did it… you caught us… no need to do any further checking.
D. Documentation practices - Examiners found some—but not widespread—errors between actual fees charged and what the servicers’ internal records indicated, with servicers undercharging fees as frequently as overcharging them. The dollar amount of overcharged fees as compared with the servicers’ internal records was generally small.
Oh, who cares? I have no trouble believing that servicers are entirely incompetent as opposed to being evil… evil organizations are never as obtuse as servicers have proven themselves to be.
E. Third-party vendor management - Examiners generally found adequate evidence of physical control and possession of original notes and mortgages. Examiners also found, with limited exceptions, that notes appeared to be properly endorsed and mortgages and deeds of trust appeared properly assigned.
The review did find that, in some cases, the third-party law firms hired by the servicers were nonetheless filing mortgage foreclosure complaints or lost-note affidavits even though proper documentation existed.
What a total crock of crap that is… adequate evidence of properly endorsed and assigned, physically possessed original notes and mortgages? Attorneys including Max Gardner have told me that they’ve never seen a properly assigned or endorsed note or mortgage possessed by a servicer… and they’ve reviewed hundreds or even thousands of case files… but I’ll tell you what…
Fine… since the Feds say servicers have everything in order in this regard… then they shouldn’t object to having to show it to the judge when in court, or providing a signed declaration stating that they have the proper assignments and/or endorsements prior to foreclosing… right?
If they’ve got it… then show it. Shouldn’t be an issue… okay, so major problem solved right there.
I wonder why it is, however, that the servicers throw such a fit whenever legislation shows up at the state level that would require servicers to either produce such documentation prior to foreclosing… or even just requires them to submit a declaration that they have such documentation… does the banking lobby go into panic mode, making all sorts of thinly veiled threats about how such a law will increase borrowing costs for homeowners and basically destroy our collective economic future?
What I’m describing was recently the case in Arizona where the State Senate passed a bill 28-2 that would have required servicers to produce a declaration that they were in possession of the proper chain of title documentation prior to foreclosure.
I’m going to be writing an article about what happened in the Arizona case later today, but suffice it to say that the bill… while on its way to the Arizona House of Representatives… over a weekend… managed to completely DISSAPPEAR… replaced by a bill using the same alpha-numeric identifier, but now having to do with the funding of firefighters. And that should scare the hell out of anyone who cares about our democracy in the least… any of the Founding Fathers would turn over in their graves… where are we anyway… Iran? Hugo Chavez’s Venezuela?
F. Quality control (QC) and audit - Examiners found weaknesses in quality control and internal auditing procedures at all servicers included in the review.
Yeah, yeah, yeah… like I said earlier… I’d be shocked to learn that any quality control or internal auditing procedures existed at any of the servicers. In light of the rest of the investigation’s findings, for what in the world would it even be used?
~~~
Alrighty then… so what’s the next step, federal regulator people? What’s involved in the “enforcement actions” you have so proudly announced are being taken against 14 servicers, LPS and MERS? Whatcha’ gonna do, betches? Are you going to take away hot towels from their executive washrooms?
Here’s what the report says… VERBATIM, once again.
Based on the deficiencies identified in these reviews and the risks of additional issues as a result of weak controls and processes, the agencies at this time are taking formal enforcement actions against each of the 14 servicers subject to this review to address those weaknesses and risks. The enforcement actions require each servicer, among other things, to conduct a more complete review of certain aspects of foreclosure actions that occurred between January 1, 2009… and December 31, 2010.
OH DEAR GOD… NOOOOOOOOO… you’re not going to make the servicers conduct a more complete review of certain aspects of foreclosure actions… that’s going way too far. And what about the hot towels… they need hot towels… I’m overcome here… the tears won’t stop… just give me a minute…
I have a quick, if perhaps slightly unrelated question before I wrap this up and provide a few links so you can find the various related documents and press releases for yourself. I don’t want to offend anyone here, but why do we even need the word “F#@K” if you can’t use it here? Okay, it’s rhetorical, but I’m serious here… what’s that word for if not for situations such as this one?
Okay, I’m back. So… there you have it. Before I sign off, here are a few links you might want to check out… assuming you’re a glutton for punishment that is. Here’s the press release from the Federal Reserve describing the investigation’s conclusion: For Immediate Release from the Federal Reserve Board of Governors
And here’s the press release from the OCC, which has links to the actual enforcement actions against the eight servicers called out by that agency’s investigation: OCC Takes Enforcement Action Against Eight Servicers for Unsafe and Unsound Foreclosure Practices
In closing…
I should mention that this farce of an investigation by our federal banking regulators is not precluding the state attorneys general from continuing to pursue their own independent… and God willing… more stringent settlement with the mortgage servicers… and reports are that they will continue to do just that. Not that I have much faith that the 50 AGs are going to do all that much more… but I don’t see how they could accomplish any less.
And those critical of the Fed’s investigation and “enforcement action,” if it can even be called that, are making their voices heard with literally dozens of consumer advocacy organizations speaking out against the wholly insipid outcome, arguing that the consent decrees do not hold servicers accountable for illegal practices or stop avoidable foreclosures.
Numerous agencies signed onto a letter sent to Ben Bernanke, Sheila Bair, John Walsh (OCC) and John Bowman (OTS) asking that the Feds work with the state AGs on a tougher settlement. Among other things, the letter states:
“Millions of homeowners have been victimized by the fraudulent and abusive practices of mortgage servicers whose staff are trained for collection activities rather than loss mitigation, whose infrastructure cannot handle the volume and intensity of demand, and whose business records are a mess. Servicers falsify court documents in large part because they have not kept the accurate records of ownership, payments and escrow accounts that would enable them to proceed legally. The robo-signing allegations are the most obvious evidence that servicers are routinely failing to comply with the requirements of the laws and contractual provisions to which they are subject and the tip of the iceberg of servicer noncompliance.
These proposed consent orders also appear to do nothing to ensure that homeowners will be protected from past and existing abuses in the mortgage servicing process. The standards and methodology for the third-party review are vague. The proposed orders also provide no guidelines on loss mitigation or on evaluations for core servicing abuses, including application of payments, assessment of fees, or force placed insurance. Finally, the servicers may seek to inappropriately use these self-fashioned reviews as shields against other actions against them by homeowners or government enforcement agencies.
The proposed consent orders do not provide the accountability and rigor required to right this foreclosure crisis. They are clearly not intended to do so. We request that you withdraw the proposed orders and work with the state Attorneys General and United States Department of Justice on a joint settlement.”
~~~
So… what will happen next? I honestly have no idea. On one hand, I’d like to believe that my fellow citizens could not possibly abide this kind of flagrant corruption, dereliction of duty and at the utmost best… absolute ineptitude.
On the other hand, are you following American Idol this season? I just love the guy that plays the stand-up bass, don’t you? He won’t win, but he has great taste in music, I think. And what about Obama’s birth certificate… Trump in ‘12?
Mandelman out.
Feb
27
If at first you don’t succeed, CRIME, CRIME again.
Last week, the Justice Department decided to end the criminal investigation of former Countrywide Financial CEO Angelo Mozilo. People close to the case say that the overall collapse in the mortgage market has made it too difficult to prosecute the actions of any one particular executive.
So, in other words, Mozilo got off for his role in creating the housing market bubble and sub-prime implosion that fed into the global financial meltdown of 2008, precisely because the meltdown was so large? Well, that’s certainly nice to hear, don’t you think?
I’m not going to attempt to write some scathing or potentially insightful commentary about Mr. Mozilo, I’m sure that’s been done many times before, and frankly… he bores me to no end. But, at the same time I felt like I had to say something about a financial criminal of his stature picking up a get out of jail free card… it simply could not go by without at least a mention.
So, here’s sort of a highlights reel in print… I give you Angelo Mozillo, the man behind Countrywide, IndyMac, two of the most spectacular banking and mortgage industry failures in U.S. history. And not only that, but he also managed to eviscerate Bank of America as he made his way to the exit, retiring in 2008.
Here we go… join me, it’ll be quick, and then you’ll want to throw-up, so stay close to a bathroom is my best advice.
Mozilo co-founded Countrywide in 1969, and spun off Indy Mac Bank in 1995, and we all know what a success story Indy Mac was.
When the mortgage crisis started in October 2006, Mozilo filed a stock trading plan to sell 350,000 shares a month. He revised the plan twice, first in December so he could sell 465,000 shares per month, and then on February 2, 2007, the day Countrywide stock it a record high of $45 a share, he revised it again to sell 580,000 shares per month. En total, Mozillo sold 5.8 million shares for roughly $150 million between November 26, 2006 and the end of 2007.
Mozillo claimed he was only selling shares of his company’s stock according to a prearranged retirement schedule, but during that same time period, Countrywide’s shareholders lost all of the $2.5 billion the company had just spent on repurchasing shares.
The man has impeccable timing, no question about that. Countrywide’s exceptionally high 18% mortgage payment failure rate first appeared in 2006.
In the fall of 2007, Democratic Senator Chuck Schumer wrote a letter to the Federal Housing Finance Board warning its chairman, Ronald A. Rosenfeld about the Federal Home Loan Bank’s $51 billion in cash advances to Countrywide that were collateralized by $64 billion in bad mortgages.
In that letter Sen. Schumer wrote:
“I find these numbers alarming as reports continue to emerge about how Countrywide’s reckless and predatory lending practices were a leading contributor to today’s foreclosure crisis.”
Last October, Mozilo agreed to pay $67.5 million to settle the U.S. Securities and Exchange Commission’s accusations that he misled investors about Countrywide’s health and risk-taking, and generating roughly $140 million of improper gains from insider stock sales. Mozilo neither admitted nor denied any wrongdoing… (Want the actual SEC complaint, CLICK HERE.)
Mozilo’s internal emails, obtained by the SEC, show him referring to a sub-prime product as “toxic” and saying “the company was flying blind.” (Want to read the rest of the emails obtained by the SEC, CLICK HERE.)
California recently settled a predatory lending case against Mozilo (and another ex-Countrywide executive) for $6.5 million.
When the deal to sell Countrywide to Bank of America was struck in mid-January of 2008, Countrywide was valued at $4 billion and Bank of America’s share price was $38.50. Two weeks later, Countrywide posted a loss of $422 million for the fourth quarter of 2007. By the time the acquisition was completed on July 1, 2008, the deal’s value had fallen to $2.5 billion.
After eight months, $46 billion of TARP funds, $118 billion in government-backed asset guarantees, and an incredibly stupid merger with Merrill Lynch, Bank of America was $3.14 per share in March of 2009.
By then, Countrywide was being sued by everyone imaginable… homeowners, shareholders, municipal employee pension funds, and they were alleging everything from insider trading to inflated fees being charged to homeowners, to unlawful actions, collusion and mortgage fraud, and let’s not forget deceptive advertising having to do with a variety of predatory lending claims brought by Attorneys General from 11 states and led by Illinois and California on October 6, 2008.
Countrywide ultimately settled by agreeing to modify $8.4 billion in principal and interest rates on over 400,000 loans it had initiated, but the company neither admitted nor denied any wrong doing and no fines were levied. Following that, the company settled other predatory lending claims for about an additional $3 billion. But, these settlements led to a class action lawsuit brought by investors who argued that Bank of America didn’t have the right to modify Countrywide’s agreements.
Between July of 2003 and June 30, 2008, Mozilo had taken home more than $470 million in compensation and stock sales, which represents the third highest pay package of any financial or homebuilding executive during that time. If you’d like to see Mozilo’s employment agreement, as taken from the company’s 8K filing with the SEC in 2004, CLICK HERE.
“Mozilo’s fingerprints are all over the economic catastrophe we are living. He was the Typhoid Mary of the mortgage business, spreading the exotic-loan disease far and wide,” said Dan Pedrotty, director of the AFLCIO’s Office of Investments. “He was also grossly overpaid, especially considering the fact that he drove his company off a cliff.”
Time Magazine called Mozilo the #1 Culprit of the Financial Crisis.
Mozilo’s lawyers argued that “Countrywide’s problems were caused by the general collapse of the mortgage market nationally and not by any misdeeds by company executives,” according to the Wall Street Journal.
Best of all, I was dumbfounded to learn that Bank of America is writing the checks for all of these settlements… including one for $22.5 million, another for $45 million, a $60-some million settlement, and even $600 million to settle a class action suit brought by shareholders… even the recent $6.5 million to the State of California… all because BofA agreed to purchase Countrywide, indemnifying Mozilo and his ace lieutenants against legal costs.
So, very well done there.
Okay, that’s all I can take… I just learned something that I had always hoped wasn’t true… Crime Pays!
Mandelman out.
Feb
21
Ice, Ice Baby – Iceland’s people give cold shoulder to paying for acts of reckless bankers.
Note to the reader… Just in case you’re not all that interested in Iceland, I would encourage you to remember that it’s me writing this, and therefore it might not be entirely about Iceland. Just a thought…
When Iceland’s online bank, Icesave, failed, the British government stepped in and covered $3.8 billion in deposits that its citizens were owed by the bank. The Dutch government did the same to the tune of another $1.8 billion. Iceland’s three largest banks collapsed as a result of the meltdown in the global financial markets and the result was that the country’s deposit-insurance, like our FDIC, was overwhelmed.
Now, the British and Dutch governments want their money back, but Iceland’s people are saying, well… no, not to put too fine a point on it. You might even say that the Icelanders are saying: “Hell no!”
The BBC is reporting that the British and Dutch governments say they’re disappointed that after over a year and a half trying to reach an agreement, their best offers continue to be rejected.
Most recently, Iceland’s President Olaf Ragnar Grimsson vetoed the latest repayment plan proposed by London, saying that the people along with the Althingi, the name of Iceland’s thousand-year-old Parliament, will decide this matter. The latest deal offered allows for repayment by 2046 at about a 3% APR, which many in Iceland say are egregious terms.
The country’s parliament voted for a referendum on the Icesave bill that is scheduled for March 6th, but the BBC’s story says that Iceland’s government hopes that a deal can be reached before that date, presumably because the people are expected to vote no… again.
Last time out, back in 2009, 93.2% of Iceland’s voters rejected the bill, and ‘yes’ votes came in third at only 2,599, because 6,744 voters turned in blank ballots. The Icelanders are not happy. Many blame the EU for failing to regulate the bank, and workers interviewed responded by saying things like, and I’m paraphrasing here… “Why should we have to pay for the reckless acts of a handful of greedy bankers?”
Mish Shedlock of Global Economic Analysis thinks it’s a darn fine question. He supports the people of Iceland and hopes they get the chance to tell the Brits and the Dutch to go pound sand. Mish’s position is simple to understand:
“Here’s the deal. When you make stupid investments, don’t expect to be bailed out. There is no reason the people of Iceland should have to pay for the stupidity of others.
If the UK and Dutch governments were dumb enough to guarantee those deposits, then the UK and Dutch governments should pay the price, not Icelandic citizens.”
Mish sees the “best offer” rhetoric coming out of London as being unbridled arrogance. He says that it’s Iceland that should be making the offer, not the Brits and the Dutch.
“It is up to Iceland to make its best offer not for the UK and Dutch governments to make demands of 100% repayment. Why should Iceland crucify its taxpayers with a “loan” when the correct procedure is a massive haircut?
Iceland should immediately counter with its “best offer” of one cent on the dollar. That will set the tone for reasonable expectations.”
It’s pretty clear that most Icelanders agree with Mish, taking the position they should not be penalized because their government has failed to rein in its spending… much less for the excesses of several of the country’s banks.
Across the EU, the majority of people just don’t want to have to pay for the acts of a relative few. And with Iceland’s unemployment still rising, there aren’t many who feel like they should have to pick up the tab for Icebank’s failure.
Icelanders aren’t too pleased with London for using anti-terrorist legislation to freeze the assets of Icelandic banks when the meltdown happened, and I must admit… that was not the most diplomatic of responses, all things considered.
The amounts owed represent about half a year’s economic output for the entire country, and Iceland’s economics minister, Gylfi Magnusson, has been quoted as saying:
“The magnitude of those payments are such that we would have little left for anything else”
And that’s unquestionably true. Can you even imagine the U.S. being offered a plan to repay a debt caused by the acts of our bankers and a failure of our regulators, that required us to repay an amount equal to one half of our country’s economic output for an entire year? Can you even imagine what that would be like here in this country? I shudder to think…
Hang on… maybe you don’t have to try to imagine such a scenario. Maybe you could just read Bloomberg from last June.
“U.S. Debt Poised To Exceed Annual Economic Output, Jun 4, 2010
President Barack Obama is poised to increase the U.S. debt to a level that exceeds the value of the nation’s annual economic output, a step toward what Bill Gross called a “debt super cycle.”
(The) U.S. gross domestic product and the government’s total debt, rose past $13 trillion for the first time this month. The amount owed will surpass GDP in 2012, based on forecasts by the International Monetary Fund.”
For anyone not already familiar, Bill Gross is the founder of PIMCO, the firm generally referred to as “the world’s largest bond holder,” so it’s fair to assume that he knows a fair amount about debt and where things are headed in that regard. Bonds, after all are debt, as opposed to stocks, which are equity.
At the end of last year, PIMCO called for the break-up of the EU. As reported by examiner.com:
“PIMCO the largest bondholder in the world called for a split in the Eurozone between the more productive North including Germany and the Netherlands, and the south incuding Portugal and Spain. Many analyst believe that Spain and Portugal are next in line to be targeted by bondholders and credit rating agencies.”
“The crisis in the Eurozone was fueled by property speculation and cheap credit, which came mainly from Germany.”
Well, all I can say is that it’s a good thing we’re not talking about the source of our problems here in the U.S.A. Because if we were having the same sorts of problems, well… I’d be pretty worried… hey, wait a minute… didn’t we have the same sorts of shenanigans going on here? I could have sworn…
The examiner.com story on PIMCO continues:
The bankers have cost the Irish government, which back their private losses, hundreds of billions of Euros that are equivalent to 100% of Irish GDP.
Unlike Ireland, Iceland did not guarantee private bank losses, and deflated its currency. Iceland has now emerged from recession, and forced bondholders to take losses on their bad bets.”
Okay, let’s get back to Iceland… before I start to itch uncontrollably…
The issue of whether Iceland will cover all of the debts of the failed Icesave Bank remaining unresolved is causing some related problems. For one thing, Iceland has applied to join the EU, and that application is on hold pending a resolution of the debt. And Iceland has also applied for loans from the International Monetary Fund (“IMF”) and that application is said to have stalled, even though the IMF says that the two things are unrelated and one should not be dependent on the other.
According to the BBC:
“An application for about $4.6bn in loans from the International Monetary Fund appears to have stalled. The IMF has said that the Icesave dispute should have no impact on the loans. But Britain and the Netherlands, along with Nordic countries, are thought to have made the loans conditional on Iceland repaying international debts.”
Well, that certainly makes things anything but clear for me, but this next part I had no trouble understanding:
“Rating agency Moody’s said recently that the deadlock may force it to downgrade Iceland’s debt to junk, making it even harder for the country to borrow much-needed funds on the international market.”
Now, that certainly doesn’t seem like it will help Iceland’s situation. I mean, if Moody’s downgrades Iceland’s credit rating, that will only increase the interest rate that the country is forced to pay if it wants to sell its bonds to investors.
But, at least Moody’s isn’t just slapping triple ‘A’ ratings on bonds anymore, they’ve corrected all those problems, right? They must have. I’m sure the ratings agencies, including Moody’s, are running much tighter ships than in the past.
What kind of bothers me is that just a few days ago, I was reading about a securitization of just under $300 million in mortgage-backed securities about to be offered to the public and Moody’s refused to rate it. Why? Earthquake risk. No, I’m not kidding… here’s the story on CNN/Money/Fortune:
Moody’s read the prospectus and calculated that at least 18% of the 303 mortgages in the pool are located in the San Francisco Metropolitan Statistical Area, a definition used to identify the Bay Area’s earthquake prone region. “If a major earthquake were to strike the San Francisco MSA,” writes Moody’s in a report embedded below, “the decline in the values of damaged properties, and the likelihood that borrowers could abandon properties whose value has plummeted, will likely result in either losses to senior certificate holders or deterioration of the credit quality of the certificates to junk status.”
So, maybe Moody’s isn’t just trying to pressure Iceland to agree to repay the British and Dutch governments for the failure on the Icesave Bank… maybe Moody’s is thinking of downgrading Iceland’s credit rating because they just found out that the country could have an earthquake sometime in the next thirty years.
I’ll tell you… it sure is reassuring to be able to count on the bond ratings agencies as being quality organizations that would never knee-jerk react to a crisis thus allowing the proverbial pendulum to swing too far in any one direction. Earthquakes, huh? Well, alrighty then…
So, as it said further on in the Bloomberg story, about the United States remember, published last June and referenced above:
“Over the long term, interest rates on (U.S.) government debt will likely have to rise to attract investors,” said Hiroki Shimazu, a market economist in Tokyo at Nikko Cordial Securities Inc. “That will be a big burden on the government and the people.”
Gross, who runs the world’s largest mutual fund at Pacific Investment Management Co. in Newport Beach, California, said in his June Outlook report that “the debt super cycle trend” suggests U.S. economic growth won’t be enough to support the borrowings “if real interest rates were ever to go up instead of down.”
Conclusion…
I sure hope I didn’t jump around too much telling this story of Iceland… this was a story about Iceland, wasn’t it?
I certainly didn’t mean to imply that what’s happening in Iceland or in the EU has anything to do with our problems with debt here in the U.S. We’re on a much stronger course… we’re planning on borrowing our way out of our debt and then pumping the trillions raised directly into our banks.
Besides, I would never compare Iceland to this country… I mean, there are several key differences between there and here. For one thing, I’m almost positive that we don’t have nearly as much ice as Iceland does. I could be wrong about that, I live in Southern California, so what I know about ice you could put in a thimble.
Another key difference is that we don’t have a president who would turn down a repayment deal such that was offered to Iceland by the British and Dutch governments, saying that the people of the United States are going to decide the issue. No, over here, our government would be much more likely to agree to the deal without telling anyone, and hide the amounts owed somewhere on the un-auditable balance sheet of the Federal Reserve, or within the 3,000 page text of a future bill called something like the Americans for Economic Recovery Act of 2012.
There’s probably other differences too… like their names… we don’t have anyone named: Olaf Ragnar Grimsson, unless maybe its someone who is starring in “The Grinch Who Stole Christmas.”
Will the bond holders of Greece, Spain, Portugal, Ireland, and of course, Iceland… have to take a haircut and accept a lesser amount than what’s owed? I have no idea. I’m just relieved that what’s going on in those places has absolutely nothing to do with what the problems our country is likely to be facing in the future. Big relief, wouldn’t you say? Huge.
We don’t have to worry about that sort of thing because our banks are healthy, and we’re allowed to just borrow as much as we want to without consequence… forever and ever… Amen.
Isn’t that right, Mr. Geithner, Mr. Bernanke and Mr. Obama?
Mandelman out.
Feb
10
California’s $2 Billion Home Rescue Program… Here’s How Stupid They Think We Are.
Later today, the State of California is slated to announce the details of a new program allegedly designed to help some of the state’s distressed homeowners. According to the L.A. Times…
“More than 100,000 struggling homeowners could get help from a $2-billion program that California is launching, including about 25,000 borrowers who owe more than their properties are worth and could see their mortgages shrink.”
It’s even got a name… “The Keep Your Home California Program,” which like “Making Home Affordable,” is yet another program obviously named by someone for whom English is a second language. Not that there’s anything wrong with English being a second language, it’s just that I can’t understand why, if we can’t design a program that will actually work, why we can’t at least come up with a name for a program that’s grammatically correct.
The L.A. Times story says that the new program, “has the potential to make a sizable dent in California’s foreclosure crisis and help the general housing market.”
Okay, Charlie Brown… come on… give it another go… kick the heck out of it this time, Charlie Brown… I swear, I won’t move it this time… you can do it, Charlie Brown… kick it as far as you can.
The money that won’t be needed for the program’s ultimate failure are said to come from the TARP funds, although I have no idea why they continue to lie about how TARP funds are not being used when most of us saw the Fed’s reports showing that we’ve pumped trillions into the banks in 2010, on top of the trillions we pumped into the banks in 2009, so who cares about the $700 billion rounding error at this point?
Why can’t they treat us like adults and just tell the truth: The money for the program, which won’t be spent anyway, was recently printed up by the Federal Reserve. What are they afraid of, that collectively we’d all go, “Oh my Lord! I think I’m having a stroke”?
State officials, choosing to ignore the lessons about forecasting that should have been learned from the spectacular failures of all preceding housing rescue programs, say that the program “hopes” to prevent 95,000 foreclosures throughout the state, and also provides moving assistance for the 6,500 homeowners who will be losing their homes regardless, although it’s not clear as to why or how they know this will be the case.
(Just a sec… quick question… have you ever played tee-ball? It’s a game for young kids who couldn’t hit a ball pitched to them, so they place the ball up on a “T” and let them whack it from there. I only bring that up because… well, you’ll see in a minute.)
The Times story says that the state’s new program, “aims to address the two central issues facing California’s beleaguered housing market: the state’s stubborn joblessness problem and the massive number of underwater homeowners.”
Okay, fair enough… two real good problems at which to take aim, I think we’d all agree. So, now that we’ve taken aim, what exactly will be shooting at these worthy problems?
The program has four compelling parts…
The largest part of the program makes available $875 million in temporary financial assistance for people whose incomes have dropped or that have lost their jobs, providing AS MUCH AS $3,000 a month for six months to cover “mortgage payments and associated costs,” which I assume to be things like taxes and insurance.
And to that I can only say… okay, fine… so how about you just leave the people in the houses alone and just cut checks to the banks for the $875 million, if that’s what you want to do. Oh, lookie, lookie… another bank bailout… fabulous. Isn’t this fun?
And before anyone gets too excited at even seeing said funds go through their hands before landing in the bank coffers, to qualify for the assistance in LA County, a family can’t earn more than $75,600 a year, own more than one property, or have taken cash out of their home through refinancing… and the maximum amount of the benefit, as if this number matters in the least, is $50,000.
The second-largest part of the program, in dollar terms, slates $790 million for principal reductions that some developmentally challenged individual says, “would write down the value of an estimated 25,135 underwater mortgages.”
So, doing the math… that’s twenty-five into seventy-nine, carry the three… I come up with $31,430.27 in potential principal reduction per home with underwater mortgage. I’m not saying it’s good or bad, just trying to keep up with the cyphering going on around me.
And not that I would qualify for the program, or more to the point would ever even consider wasting my time applying for such a unadulterated pile of claptrap, but were I to receive a principal reduction of $31, 430.27, by my calculations, I’d only be underwater by… let’s see… nine minus seven, carry the five… just a hair under $200,000. Well… Spingle!
So, how does it all work, pray tell… this is my favorite part of all these nifty state rescue programs, after all. Well, best I can tell from the plethora of detailed information provided by the Times…
“The principal-reduction component would pay lenders $1 for every dollar of mortgage debt forgiven.”
Why, you don’t mean to say that if my servicer agrees to reduce my principal by one dollar, the State of California will go ahead and give that servicer that dollar right back, do you? Why, it’s sheer genius, I tell you. When did we hire Harvard grads in Sacramento? I just had no idea we were operating with this kind of brain trust up there.
Now, there does seem to be a couple of minor glitches in the whole principal reduction aspect of the program. Nothing to be terribly concerned about, mind you, but probably worth mentioning nonetheless. I think the story in the Times put it pretty succinctly…
“Out of the five major mortgage servicers — Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co., Ally Financial and Citigroup Inc. — only Ally has formally signed on to a key part of the plan: reducing mortgage principal on homes that are “underwater,” or worth less than the size of the mortgage.”
Oh, well… Jiminy Cricket, will you look at that? It’s a great program, it really is, the only problem is that none of the banks want to participate in it. Well, that’s not an insurmountable obstacle to the program’s success, is it? Certainly not. We’ll just get the principal balances reduced by some other industry… oil and gas, perhaps… they’ve got dough… they might go for it.
However, all is not lost… apparently, a Bank of America spokesmoron has said that…
“… the bank intends to participate but hasn’t yet reached a formal agreement with the California Housing Finance Agency, which designed the program.”
But look… it’s clearly on their list of things to get done this millennium, so stop being so cynical. It’s really not that attractive a quality, by the way.
I’m feel quite sure that as soon as the banks get around to participating in the new HAMP Principal Reduction Alternative program, which was scheduled to go live last October 1st, but has obviously stalled somewhere along its birthing canal, that they’ll make this the next thing on their list. Well, there’s also the 2MP program that was supposed to modify second mortgages as part of HAMP, and that none of the banks are participating in either, so after they get going on that one then they’ll get right on this one for sure.
Hey, I’m serious… it could happen.
Moving right along, the third part of the program is offering to make available $129 million… up to $15,000 per homeowner to help them get current on their now delinquent mortgages. I have no clue how this additional bank bailout will work, as no details were provided by the Times, and I’m sure as hell not going to waste even a minute of my time trying to look it up. But, whatever it is… I guess there’s the potential that up to 8,600 homeowners will be able to send a few more payments into the banks before they lose their homes to foreclosure. Yowza!
And the fourth part of this four-part monstrosity proposes to take $32 million and give it away as “moving assistance for people who can’t afford to remain in their homes.” Unbelievable… you mean the people who haven’t made a mortgage payment in well over a year need the state’s help to come up with the dough to hire a U-Haul?
I swear to God… if I ever find out the name of the imbecile who was in charge of developing the fourth part of this testament to utter senselessness and folly, I’m going to make sure that his or her name comes up at the top of Google in an article by me that warns potential suitors not to spawn due to apparent genetic defect.
Okay, I can only keep this up so long before my mind starts looking for ways to hurt myself in order to make the pain stop, so I’ll just throw in a few quotes from the usual suspects, just to remind everyone what kind of people the L.A. Times considers “experts” and therefore solicits comments for inclusion in such an important story, such as we’ve got right here.
According to the story in the Times, so called “consumer advocates” say that they were “heartened by the scope of California’s effort but concerned it would be hampered if the state can’t get major banks on board.”
Are these people intentionally screwing with us… the consumer advocates are concerned the program will be HAMPERED if the banks aren’t on board? HAMPERED? Is that what we’re calling utter failure now… HAMPERED? Great, that’s just great. Yes, you cadre of Einsteins, I supposed it would be hampered if the banks decide to give us the finger once again… and nice phraseology, by the way. I guess you could also say that if the banks won’t play ball, the program could end up being an “Obama”.
And here’s another gem from the Times…
“Many experts have said reducing principal on such underwater loans would go far toward reducing foreclosures because home values have fallen so steeply that homeowners are tempted to walk away from their obligations.”
Many experts, huh? What makes you think that any of us actually believe that when it comes to preventing foreclosures in this country, there exist “many experts”? I’m finding it impossible to believe that there exists even one expert, in that regard. And if there is one, it’s obvious that he’s either on vacation or incarcerated, because he or she has obviously not been consulted to-date.
Here’s a lovely sentiment from some guy named Paul Leonard, who is apparently the California director for the Center for Responsible Lending…
“Two billion dollars in total for the state to provide assistance to help borrowers avoid foreclosure is a substantial amount of money, and we hope that it will have some significant impacts in achieving its goals.”
Do you hope so, Paul? Me too. In fact, let’s all join Paul in hoping. I love to hope.
And now let’s hear from Preeti Vissa, the community reinvestment director for the Greenlining Institute… she referred to lender involvement as being…
“Pretty dismal.”
And then adding… “The key to this program is how much the banks are willing to participate and be flexible toward homeowners’ needs.”
Thank the good Lord you’re here, Preeti… now I can rest easy knowing we’re on the right track. Because prior to learning from your insightful theory, I would have said the key to the program was E flat.
Look, at least we’re not a state in any sort of major crisis as related to foreclosures, you know, like Nevada or Arizona. At least reading the Times story made me feel better in that regard…
“The size of the Golden State’s foreclosure problem was underscored by data slated to be released Thursday, showing 15,893 California homes seized by big banks last month, the third-worst performance in the nation.”
See… you doom and gloomers… we’re only third worst in the nation, so there. We’ve got time… no reason to do anything competent just yet. Wake me when we hit number two, and we’ll start to take this whole foreclosure thing seriously. But what about the trend line?
January’s tally was a 32% increase from the previous month… and nationwide, lenders took back 78,133 properties in January, up 12% from the previous month.
Well, that doesn’t exactly reassure me that things are headed in the right direction. I’m trying to find a silver lining here, and you guys at the Times just won’t let me find one. But wait… Rick Sharga from RealtyTrac must be lurking around somewhere… he’s never seen an article he wouldn’t be quoted in… oh look… there he is…
“We are not out of the woods by a long shot,” said Rick Sharga, RealtyTrac senior vice president. “Economic factors are what are driving most foreclosures right now, and so the state’s economy being what it is, it doesn’t appear that there is going to be a near-term correction either.”
So, right now it’s the “economic factors” that are driving the foreclosures? Have I got that about right, Ricky-boy? Well, good. As long as we know what’s causing the problem, that’s the first step towards solving it, isn’t that what they say, Ricky?
And I don’t know or care who said this, but it came straight from the Times story…
“By keeping some cheap foreclosed properties from reaching the market, the program could give a boost to home values in general.”
Oh yeah… well, I would have to say that under the circumstances were the program’s underpinnings to show the sort of inactivity one might expect using more reasonable tenets, it seems clear that rabbits eating parsley can’t expect excessive investment returns.
Honestly, you guys at the Times are trying to kill me, aren’t you? Just come out and say it, I’ll feel better.
The other morning my wife woke me up standing by my bedside holding coffee and a Danish, and when I saw her, all I could think to say was: “Oh no. Honey, the next time you have the chance, if you think of it… would you please just place a pillow over my face and push down hard until my feet stop kicking?”
But, I can’t go yet, because I don’t know what Stan Humphries, Chief Economist at Zillow.com has to say about California’s new program.
“If they can actually stave off foreclosures and the people stay in the homes, then that is a great thing for the market. It would be great because the continuing flow of foreclosures on the marketplace exerts downward pressure on home prices, and it also creates more supply of inventory on the marketplace, so foreclosures are really a double whammy.”
Foreclosures are really “a double whammy”? Sheesh… you economists and your technical talk. That’s why no one ever understands what you’re saying.
And finally the Times starts to touch on the heart of the matter…
But banks have been reluctant to significantly reduce principal on loans…
“You hear a lot of people calling for it, but there are not a lot of people in the mortgage industry who favor it,” said Guy Cecala, publisher of Inside Mortgage Finance. “There are a lot of issues around who deserves principal forgiveness.”
Oh, are there now? Well, there were a lot of issues around which failed banks that defrauded our nation and destroyed the global financial system and credit markets, deserved any sort of forgiveness too. And I can think of quite a few issues surrounding why said failed, insolvent, insanely leveraged financial institutions are still being permitted to pay out multi-billion bonuses using taxpayer dollars. A lot of issues, Guy… lots and lots of issues.
When do we get to talk about any of those issues, Guy, you piece of itinerant garbage?
Okay, so if the banks aren’t signing on to participate in California’s new program, at least the now-entirely-taxpayer-supported GSEs… Fannie and Freddie… are on board, right? We;;, according to the Times…
“The nation’s largest mortgage investors, Fannie Mae and Freddie Mac, also aren’t taking part in the principal-reduction program. That’s not surprising, Cecala said, because the two are in government conservatorship and billions of taxpayer dollars already have been spent rescuing them.”
Oh, so not Fannie and Freddie either, huh? So, the principal reduction component of the new California foreclosure rescue program is perfect, as long as your loan isn’t Fannie, Freddie, Bank of America, JPMorgan Chase, Wells Fargo, or Citigroup? Do I have that right, as we sit here today? I thought so, okay let’s wrap this up so I can go lay down in traffic on the 405 South.
The Times did finally find someone with an upbeat view of the new program…
“Diane Richardson, director of legislation for the state’s housing finance agency, said she expects other lenders to join the principal-reduction program.”
“We are continuing to have conversations with other lenders about coming on board,” she said. Money will be reallocated to other parts of the program if it isn’t spent on principal reduction.”
Oh, now that is a relief. Why didn’t you say that sooner, Diane? You guys are still having conversations with lenders? Well, that changes everything, at least in my mind.
Sorry to get everyone all worked up about this new California foreclosure rescue program… it’s nowhere near as bad as I’d thought. Diane is still having conversations with the bankers, so relax… it’s not over yet. She still expects them to come along and be good corporate citizens.
As do I, Diane, as do I.
And, should the money not be needed for the principal reduction part of the program… fear not, good people. The money will simply be reallocated to the other three parts of the program, so we win no matter what.
So, let’s just recap quickly… the principal reduction thing was the second part of the program, so what were the other three parts of the program… let’s see…
The first part was the one where families earning less than $75,600 a year, that haven’t taken cash out of their home through refinancing, can be given some money so they can pay it to the banks to cover mortgage payments they can’t afford because they’re unemployed or whatever.
Good… money for banks, got it.
The third part was the one that would make an additional $129 million available for up to 8600 homeowners to bring their mortgages current, before finally falling into foreclosure and lose their homes.
Again, more money for banks… got it.
And the fourth part… what was the fourth part… oh yeah… it’s the $32 million in moving assistance for people who can’t afford to remain in their homes… you know… the money they’re planning to give to people who haven’t made a mortgage payment in over a year, but now can’t afford a U-Haul.
You see, it’s a very well thought out no-lose proposition, this new California foreclosure rescue program… because if the banks refuse to participate in it, which would kill the whole principal reduction aspect of the plan, it’s really not a problem because the $2 billion in funding that came from the TARP money, will simply be reallocated into $2 billion minus $32 million that will go straight into the banks… and the $32 million will cover U-Haul rentals for the people that can’t afford a mortgage payment or the renting of a U-Haul.
So… let’s just try to think like a banker here… hmmm…
If I participate I have to write down principal balances, which means I have to write down the ridiculously inflated values of those loans on my books, and I won’t be able to foreclose on those homes anymore. And if I don’t participate… I get all of the $2 billion… except for the pocket change that the state wants to give away to people that can’t afford to rent U-Hauls to move their crap after I evict them, which will save me money anyway because then I won’t have to move their crap when they leave it behind.
Okay, I’m ready… I’m sorry, but the banks are going to pass on this one… thanks for thinking of us though… and do keep in touch.
So, we funded TARP from taxpayer dollars to bail out banks. We gave the TARP funds to the banks, but they placed restrictions on CEO pay and executive bonuses, so we also gave the banks scads of other money, so they could pay the TARP funds back and then pay themselves whatever they wanted using our taxpayer dollars. Now, thanks to California’s foreclosure rescue plan, we get to send $2 billion of the same TARP funds back to the banks only this time they don’t have to repay anything. Oh yeah, and $32 million for U-Hauls… I keep forgetting that.
As always, here’s a link to this morning’s story in the L.A. Times, lest you think that I made up even one word of what you just read. I assure you I did not. Click it and weep, people… click it and weep. California plans $2-billion program to help distressed homeowners
I should say something about why its important that you call your state senator or whatever, but I don’t give a damn what you do about this… I’m going to watch reruns of Bonanza and drink until I don’t care anymore.
Mandelman out.
Jan
10
MIAMI HERALD HAMMERS THE FORECLOSURE PROCESS IN FLORIDA
Hat tip to 4ClosureFraud for picking up on the media catching the chaos that permeates the entire state… In the years since South Florida’s housing market began its historic crash, a debilitating ripple effect has spread to many of the region’s institutions, sparking a number of satellite problems, ranging from fabricated foreclosure documents to faulty mortgage note transfers. Major lenders, local governments and county courts have spent the last three years trying to deal with the fallout from the housing crisis. Each institution quickly found out it was unprepared and undermanned to handle the crisis, and most have been trying to play catchup ever since. Bank of America’s success rate in the federal government’s Home Affordable Modification Program, or HAMP, is 28 percent, third worst among HAMP participants. Read the full report 4ClosureFraud
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Jan
08
Finally, Housing Market Analysts Starting to Get It
Well, I don’t know about you, but for me it’s been a long time coming…
Finally, it appears, housing market analysts are publicly recognizing that housing prices are NOT COMING BACK. CNN/Money.com has published an article about Celia Chen’s forecasts, she’s a housing market analyst for Moody’s Analytics, and Celia says that prices in many areas won’t come back until… well… forever, essentially. Here’s what the CNN/Money.com story said specifically:
“Chen estimates that Las Vegas home prices won’t return to their pre-recession peak until after 2032; in Phoenix, the rebound will take until 2034; and Salinas, Calif., and Naples, Fla., won’t come back until sometime around 2038.”
And the reason I say, “forever,” is that once forecasts go out that far, they become kind of meaningless. I mean, no one can forecast what’s going to be going on in 2032 today, I don’t care what they say. There’s no dependable math involved in such forecasts of housing prices. It’s more like the forecaster just reaches a point in their analysis where they realize that they can’t come up with a justification for saying that prices will return any sooner, so they just take the numbers out to where they hit whatever they were trying to hit and that’s the year they publish.
Chen admits this, in so many words, when she says:
“Chen cautions to take those forecasts with a grain of salt, however. It’s impossible to be exact about such long-term trends. Housing is also very dependent on the overall economy and other factors. Predictions can easily be off by many years as conditions change.”
And she points out that her numbers AREN’T even adjusted for inflation, saying that:
And these are nominal prices: Inflation-adjusted recovery will take even longer.”
For our purposes… and by that I mean, assuming that you’re somewhere near my age, which is 49… you should feel free to think of the phrase “even longer than 2038,” as being forever. That’s 28 years from now, and that’s for price increases not adjusted for inflation. I’ll be 77 years old, so even longer than that… might as well be “forever,” right?
Here’s Moody’s chart of housing price recovery, shown in the CNN/Money.com story:
Chen goes on to say:
“The economies were very closely tied to residential construction,” said Chen. “Now, housing is over-supplied and that part of the economy will not come back for a long time.”
Chen also points out that there are some cities, and she offers Pittsburgh, Syracuse, and Clarksville, Tennessee, as examples, that will recover sooner because they didn’t experience the sort of bubble the rest of the country did… or, in other words, what hasn’t gone up that much doesn’t go down all that much and therefore will come back sooner, duh. But, lest you think that such forecasts are isolated to California, Nevada, Arizona or Florida cities, Chen offers the following:
Many of the larger, older metro areas that saw moderate or even fairly high home price appreciation during the boom years will recover faster than the bubble markets but slower than the steady-eddie ones.
Washington (D.C.) will return to peak by around 2025, Chen said. Boston and Chicago will recover by about 2019, and New York by 2021.
“Nationally, we expect U.S. home prices to recover by 2021,” said Chen.
Now, I want you to keep two things in mind: 1. We’re NOT done as far as our free falling housing prices are concerned. Nowhere close to done, as a matter of fact. 2. We don’t even have a real real estate market in this country as yet. Only the U.S. Government is lending, so there’s no private sector mortgage lending going on, the only people selling are those that have to, and the only buyers are trying to steal something, for the most part… and then there’s the shadow inventory and the millions still living in homes that haven’t made a payment in over a year… you’ve heard me go on about these factors before, I’m sure.
My God, we haven’t even fixed the problem of having insolvent banks yet… we’re just pumping cash into our largest financial institutions and hoping time will eventually heal all wounds. And we should all now see that the foreclosure crisis is the gift that is assuredly going to keep on giving. So, Chen forecasts are only likely to get worse… there’s nothing in place today that would push towards making them any better.
And besides all that, saying that Washington D.C.’s housing market won’t recover to peak until 2025… or even that New York’s won’t recover until 2019 or 2021… or WHATEVER… well, it’s just like saying that our nation’s housing markets ARE NOT GOING TO RECOVER…
Housing prices may someday be high again, like the way they were a few years ago, but that’s a subject for the next generation, or even the one after that. It’s not something for me, at 49 years old… to worry about, or even consider. Deflated assets don’t magically re-inflate themselves. So, unless you’re the type that’s still happily holding onto stocks you bought at their dot-com highs, preferring to hope against hope that they return instead of taking the loss and moving on, it’s time to start accepting the reality of our housing market meltdown and stop planning your future with the idea in the back of your mind that housing prices “may come back in four of five years… or maybe seven… blah, blah, blah…”. It’s not going to happen… not a chance.
And the faster you come to accept this reality, the faster you can start to move beyond the crisis and start living life again. Like I’ve said before… I may not be able to fix the country or the world, but I can certainly help to fix YOU.
Ergo bibamus!
Mandelman out.
Jan
05
I Have Several Questions for Mortgage and Real Estate Experts…
I’ve been doing some thinking, and I have several questions for the real estate and mortgage experts. I’m fairly new to all this… so please forgive me if these questions seem really basic…
~~~
1. The following sentence appeared this past weekend in the LA Times in an article that featured “experts” discussing when California’s real estate market might start to “come back”.
“Although California’s housing market free-fall ended in spring 2009, the weakness after the expiration of federal tax credits for buyers last year has called into question the sustainability of the recovery.”
My first question is… isn’t that one of the dumbest sentences ever written? I mean, to me that sentence says that the “free fall” never ended, it was just placed on pause as a result of the tax incentive, and once that tax incentive ended, the free fall simply continued. Just like the auto sales market after Cash-4-Clunkers came to an end, no?
And, why are we all pretending there’s a real estate “market” in the first place?
I mean, the only people selling are those who have to, and the only buyers are looking to steal something. The only lender is the U.S. Government through Fannie, Freddie or FHA… there are no securitizations to speak of… and the average credit score for a Fannie Mae loan is 763 for the last two years. There are millions living in homes they haven’t made payments for over a year, and there’s a shadow inventory large enough to keep the entire continent of Africa in the shade.
Housing is still in free fall, it just doesn’t fall in a straight line, and with the foreclosure crisis ongoing and nothing in place to stop it, it’s certain to both continue and worsen. So, why are we pretending there’s a real estate “market” let alone asking when the real estate market might “come back”?
There is no “market,” right? We really don’t know how low prices have already gone down to, because if the foreclosures were on the market or if banks were actually kicking all the people out that haven’t made payments for a year, they’d be much lower than they are today, right? And there are no loans, right? I mean there are government loans, but with an average credit score for Fannie of 763… and that’s AVERAGE… I mean, come on now.
And how could “the expiration of tax credits call into question the sustainability of the recovery?” That means it wasn’t really a RECOVERY, right? I mean, if the expiration of tax credits destroy a country’s economic recovery, it wasn’t really recovering, right?
Oh, and maybe I’m missing something here, but since there are really only government loan programs, what about all the homes that were $2 million and up, or even $1 million or up. Are we just selling those to cash buyers, or those with 50% down with 900 credit scores?
And besides… why would a lender want to lend into this market, I mean… let’s say we owned a bank… would we want to lend a million bucks out at a low interest rate for a long period of time, secured by an asset certain to depreciate, to someone who might lose their job or see their income fall significantly? Seriously? Who would want to do that?
And just how many people are there out there who have perfect credit, tons of cash to put down, who don’t already own the house they want, and aren’t already underwater… who aren’t worried about losing their job or the house depreciating in the next few years?
~~~
2. A whole cadre of so-called experts keep forecasting how many foreclosures are coming, and they keep extending their forecasts out, and saying things like: We’ll have 4 million foreclosures next year and then five million the year after that, and so the foreclosure crisis will be with us until 2013.
Assuming they are right in whatever numbers their forecasting, or even if they’re not… why would it stop after 2013… or ever, for that matter? I mean… don’t foreclosures lower the values of homes down the street? So, wouldn’t the last million foreclosures cause another 10 million people to be underwater, or further underwater… and wouldn’t that lead to more foreclosures?
I understand why the foreclosure crisis started, and although we did have a housing bubble pop and people love to blame it on that bubble popping, it was and is really the credit crisis that set hosing into its free fall. It was July 10, 2007 when Standard & Poors and Moody’s did something they had never done before… they announced that they were downgrading the ratings on 1,032 bond issues from AAA to A and even BBB.
It only affected less than 1% of the bond issues, but overnight investors freaked out and dumped their bonds because they thought… if you botched those ratings what about the other 5 trillion in bonds out there?
That day the secondary market froze because no one would buy mortgage backed securities because no one trusted the ratings anymore, and with no secondary market, banks started hoarding cash. The availability of loans would soon evaporate and the Fed started their emergency lending programs to try to keep liquidity going… to no avail.
All of a sudden there were no mortgages and prices, which were already falling because of the bubble that was being deflated by rising rates, started to fall off a cliff. The Fed started lowering rates but it was too late. There were no loans, so the low rates didn’t matter… sound familiar?
So, now we have a free fall… although as I said prices won’t fall in a straight line down… but the further down they go the more foreclosures, right? Because when people are underwater and they have to move… it’s more than likely a foreclosure… I know, it could be a short sale, but really now. And then the foreclosures breed more foreclosures, right?
And the lower property values fall, the less we all spend, so the less companies sell and the more people get laid off… which leads to even more foreclosures. So, why would it just end? Would someone ring a bell and say that’s it and that’s all? I mean, I know eventually they’ll stop… once the housing market has burned to the ground, but why would they stop before then?
Am I missing something here?
~~~
3. What’s a “jobless recovery?” We recover economically, but people don’t have jobs? How does that work out exactly? I mean, we’ve got like 40 million people out of work in this country and that number is growing. From what I’ve read, we need to produce between 125,000 and 165,000 jobs every month just to keep up with our population and immigration, so if we lost 11,000 jobs in November, doesn’t that mean that we’re a lot further behind than just the 11,000 jobs lost?
How do we recover economically as a country with 40 million people that don’t have jobs?
People say this isn’t the Great Depression because they don’t see people standing in soup lines, but isn’t the reason we don’t have people standing in soup lines is because we’ve got 43 million Americans on food stamps? I mean, we didn’t have food stamps during the 1930s, right? If we did, we probably wouldn’t have had all those soup lines either, right? In 2005, we only had 11 million people on food stamps, so isn’t that number growing kinda’ fast?
Is that all part of the jobless recovery… is it a foodless recovery too?
~~~
4. Last one for now… So, am I missing something… do we even have a program on the drawing board that might turn any of this around? I mean, is there some federal program they’ve cooked up secretly that they’re going to spring on us that has a shot at creating jobs or stopping foreclosures? I try to keep up but perhaps I’ve missed something… what’s the name of the program that’s in place or that’s being voted on in Congress that has even a small chance of reversing these trends of joblessness, falling home prices?
And what about the broken credit markets that have made the U.S. Government into the only lender in this country? Is there a program in place that’s trying to fix that? In fact, what are we doing to fix anything? I must have lost track and I can’t seem to find anything online either.
I know what a smashing success HAMP has been, but I’m not trying to split hairs or even criticize the administration… I just don’t remember hearing about any other wonky acronyms for programs that are in the process of fixing things. Are we working on any? Am I going to wake up one day and hear an announcement that things are better because… why?
Will the economy just fix itself? It doesn’t seem to have worked that way in Japan, ever since their housing bubble popped in 1990. I read that property values in Japan today are 60% of where they were in 1990 when their bubble deflated. That’s twenty years ago… they tried economic stimuli and quantitative easings… and all the same stuff we’ve tried… and their economy didn’t fix itself… why will ours?
And shouldn’t our politicians look more worried than they do now? Why are they all so calm that they can sit around debating the reforming of health care reform, and the like? Why aren’t they proposing some sort of program that might not work, but at least sounds like it could? I mean, the Dems just got their butts kicked in the mid-terms… why aren’t they at least pretending to be doing something? I mean, besides extending tax cuts and unemployment benefits?
Is it just me, or do our elected representatives now look like they think they work for some corporation and don’t really report to us anymore? Like they’ll decide what they want to work on and it doesn’t really matter what we want them to do… they’ll just decide on their own?
Like they want a raise, so they vote themselves one and it’s late a night and that’s that. Why do they think that way… we still vote for them, don’t we? When did they stop caring about us? I must have been busy and not paying attention… was it the year that “spaghetti” became “pasta,” and “sherbet” became “sorbet?” ’Cause I do think I missed a lot that year, whenever it was.
~~~
So, in conclusion…
Well, that’s all I’ve got for now… I really appreciate anyone’s help solving any of these issues… it’s probably just me… like my mother always said, I’d forget my head if it weren’t attached to my neck. And I’m probably just overlooking some simple thing that will make it all fall into place. That’s it, right? I’m being an idiot and they’ve really got a plan.
I just don’t understand how things work, economically speaking… right? Because I’d be okay with an evil plan… as long as I knew someone had a plan.
I hear some people saying that there’s some sort of evil plan at work, but see… the thing is… I’m having a hard time seeing who’s winning here. And with so many people losing… shouldn’t someone be winning… I mean, besides a few hundred bankers who have won the lottery a hundred times over? Are we hoping to pay them enough that they’ll buy all of the houses? Like 300 fat-cats will show up and buy 40 million homes all of a sudden… that can’t be right, can it?
A little help would be very much appreciated because frankly… although I used to think of myself as a fairly bright guy… I’m completely stumped.
Thanks in advance for your help…
Mandelman out.
Jan
05
I Have Several Questions for Mortgage and Real Estate Experts…
I’ve been doing some thinking, and I have several questions for the real estate and mortgage experts. I’m fairly new to all this… so please forgive me if these questions seem really basic…
~~~
1. The following sentence appeared this past weekend in the LA Times in an article that featured “experts” discussing when California’s real estate market might start to “come back”.
“Although California’s housing market free-fall ended in spring 2009, the weakness after the expiration of federal tax credits for buyers last year has called into question the sustainability of the recovery.”
My first question is… isn’t that one of the dumbest sentences ever written? I mean, to me that sentence says that the “free fall” never ended, it was just placed on pause as a result of the tax incentive, and once that tax incentive ended, the free fall simply continued. Just like the auto sales market after Cash-4-Clunkers came to an end, no?
And, why are we all pretending there’s a real estate “market” in the first place?
I mean, the only people selling are those who have to, and the only buyers are looking to steal something. The only lender is the U.S. Government through Fannie, Freddie or FHA… there are no securitizations to speak of… and the average credit score for a Fannie Mae loan is 763 for the last two years. There are millions living in homes they haven’t made payments for over a year, and there’s a shadow inventory large enough to keep the entire continent of Africa in the shade.
Housing is still in free fall, it just doesn’t fall in a straight line, and with the foreclosure crisis ongoing and nothing in place to stop it, it’s certain to both continue and worsen. So, why are we pretending there’s a real estate “market” let alone asking when the real estate market might “come back”?
There is no “market,” right? We really don’t know how low prices have already gone down to, because if the foreclosures were on the market or if banks were actually kicking all the people out that haven’t made payments for a year, they’d be much lower than they are today, right? And there are no loans, right? I mean there are government loans, but with an average credit score for Fannie of 763… and that’s AVERAGE… I mean, come on now.
And how could “the expiration of tax credits call into question the sustainability of the recovery?” That means it wasn’t really a RECOVERY, right? I mean, if the expiration of tax credits destroy a country’s economic recovery, it wasn’t really recovering, right?
Oh, and maybe I’m missing something here, but since there are really only government loan programs, what about all the homes that were $2 million and up, or even $1 million or up. Are we just selling those to cash buyers, or those with 50% down with 900 credit scores?
And besides… why would a lender want to lend into this market, I mean… let’s say we owned a bank… would we want to lend a million bucks out at a low interest rate for a long period of time, secured by an asset certain to depreciate, to someone who might lose their job or see their income fall significantly? Seriously? Who would want to do that?
And just how many people are there out there who have perfect credit, tons of cash to put down, who don’t already own the house they want, and aren’t already underwater… who aren’t worried about losing their job or the house depreciating in the next few years?
~~~
2. A whole cadre of so-called experts keep forecasting how many foreclosures are coming, and they keep extending their forecasts out, and saying things like: We’ll have 4 million foreclosures next year and then five million the year after that, and so the foreclosure crisis will be with us until 2013.
Assuming they are right in whatever numbers their forecasting, or even if they’re not… why would it stop after 2013… or ever, for that matter? I mean… don’t foreclosures lower the values of homes down the street? So, wouldn’t the last million foreclosures cause another 10 million people to be underwater, or further underwater… and wouldn’t that lead to more foreclosures?
I understand why the foreclosure crisis started, and although we did have a housing bubble pop and people love to blame it on that bubble popping, it was and is really the credit crisis that set hosing into its free fall. It was July 10, 2007 when Standard & Poors and Moody’s did something they had never done before… they announced that they were downgrading the ratings on 1,032 bond issues from AAA to A and even BBB.
It only affected less than 1% of the bond issues, but overnight investors freaked out and dumped their bonds because they thought… if you botched those ratings what about the other 5 trillion in bonds out there?
That day the secondary market froze because no one would buy mortgage backed securities because no one trusted the ratings anymore, and with no secondary market, banks started hoarding cash. The availability of loans would soon evaporate and the Fed started their emergency lending programs to try to keep liquidity going… to no avail.
All of a sudden there were no mortgages and prices, which were already falling because of the bubble that was being deflated by rising rates, started to fall off a cliff. The Fed started lowering rates but it was too late. There were no loans, so the low rates didn’t matter… sound familiar?
So, now we have a free fall… although as I said prices won’t fall in a straight line down… but the further down they go the more foreclosures, right? Because when people are underwater and they have to move… it’s more than likely a foreclosure… I know, it could be a short sale, but really now. And then the foreclosures breed more foreclosures, right?
And the lower property values fall, the less we all spend, so the less companies sell and the more people get laid off… which leads to even more foreclosures. So, why would it just end? Would someone ring a bell and say that’s it and that’s all? I mean, I know eventually they’ll stop… once the housing market has burned to the ground, but why would they stop before then?
Am I missing something here?
~~~
3. What’s a “jobless recovery?” We recover economically, but people don’t have jobs? How does that work out exactly? I mean, we’ve got like 40 million people out of work in this country and that number is growing. From what I’ve read, we need to produce between 125,000 and 165,000 jobs every month just to keep up with our population and immigration, so if we lost 11,000 jobs in November, doesn’t that mean that we’re a lot further behind than just the 11,000 jobs lost?
How do we recover economically as a country with 40 million people that don’t have jobs?
People say this isn’t the Great Depression because they don’t see people standing in soup lines, but isn’t the reason we don’t have people standing in soup lines is because we’ve got 43 million Americans on food stamps? I mean, we didn’t have food stamps during the 1930s, right? If we did, we probably wouldn’t have had all those soup lines either, right? In 2005, we only had 11 million people on food stamps, so isn’t that number growing kinda’ fast?
Is that all part of the jobless recovery… is it a foodless recovery too?
~~~
4. Last one for now… So, am I missing something… do we even have a program on the drawing board that might turn any of this around? I mean, is there some federal program they’ve cooked up secretly that they’re going to spring on us that has a shot at creating jobs or stopping foreclosures? I try to keep up but perhaps I’ve missed something… what’s the name of the program that’s in place or that’s being voted on in Congress that has even a small chance of reversing these trends of joblessness, falling home prices?
And what about the broken credit markets that have made the U.S. Government into the only lender in this country? Is there a program in place that’s trying to fix that? In fact, what are we doing to fix anything? I must have lost track and I can’t seem to find anything online either.
I know what a smashing success HAMP has been, but I’m not trying to split hairs or even criticize the administration… I just don’t remember hearing about any other wonky acronyms for programs that are in the process of fixing things. Are we working on any? Am I going to wake up one day and hear an announcement that things are better because… why?
Will the economy just fix itself? It doesn’t seem to have worked that way in Japan, ever since their housing bubble popped in 1990. I read that property values in Japan today are 60% of where they were in 1990 when their bubble deflated. That’s twenty years ago… they tried economic stimuli and quantitative easings… and all the same stuff we’ve tried… and their economy didn’t fix itself… why will ours?
And shouldn’t our politicians look more worried than they do now? Why are they all so calm that they can sit around debating the reforming of health care reform, and the like? Why aren’t they proposing some sort of program that might not work, but at least sounds like it could? I mean, the Dems just got their butts kicked in the mid-terms… why aren’t they at least pretending to be doing something? I mean, besides extending tax cuts and unemployment benefits?
Is it just me, or do our elected representatives now look like they think they work for some corporation and don’t really report to us anymore? Like they’ll decide what they want to work on and it doesn’t really matter what we want them to do… they’ll just decide on their own?
Like they want a raise, so they vote themselves one and it’s late a night and that’s that. Why do they think that way… we still vote for them, don’t we? When did they stop caring about us? I must have been busy and not paying attention… was it the year that “spaghetti” became “pasta,” and “sherbet” became “sorbet?” ’Cause I do think I missed a lot that year, whenever it was.
~~~
So, in conclusion…
Well, that’s all I’ve got for now… I really appreciate anyone’s help solving any of these issues… it’s probably just me… like my mother always said, I’d forget my head if it weren’t attached to my neck. And I’m probably just overlooking some simple thing that will make it all fall into place. That’s it, right? I’m being an idiot and they’ve really got a plan.
I just don’t understand how things work, economically speaking… right? Because I’d be okay with an evil plan… as long as I knew someone had a plan.
I hear some people saying that there’s some sort of evil plan at work, but see… the thing is… I’m having a hard time seeing who’s winning here. And with so many people losing… shouldn’t someone be winning… I mean, besides a few hundred bankers who have won the lottery a hundred times over? Are we hoping to pay them enough that they’ll buy all of the houses? Like 300 fat-cats will show up and buy 40 million homes all of a sudden… that can’t be right, can it?
A little help would be very much appreciated because frankly… although I used to think of myself as a fairly bright guy… I’m completely stumped.
Thanks in advance for your help…
Mandelman out.
Dec
30
Foreclosures Increase 11.2% in Third Quarter over Second Quarter of 2010. And that means…
According to Wednesday’s report released by the Office of the Comptroller of the Currency (“OCC”) and Office of Thrift Supervision (“OTS”), there were nearly 245,000 completed foreclosures in the third quarter of 2010, which represents an 11.2 percent increase over foreclosures completed during previous quarter. The report, however, only tells part of the story as it covers only 64% of mortgages that are held by national banks and thrifts.
Among others, Reuters reported the news, in an article by Dave Clark, whose story also said that:
“Mark Zandi, chief economist at Moody’s Analytics, estimates that there will be 1.8 million foreclosed homes in the United States this year, and that the numbers will be even higher in 2011. Moody’s estimates that foreclosures should peak next year at 2.1 million, Zandi said.”
Oh joy! They should be peaking next year! Well there’s something to look forward to, wouldn’t you say? Why will they be peaking next year, you may wonder? Well, I’m forecasting they based on the current efforts to stop all this peaking, they’ll peak in 2011 too, and then they’ll peak again in 2012, and again in 2013… how do you like them apples? It’s going to be a “peak performance.”
Clark’s story went on to say:
“A spike in foreclosures is a major reason why home prices fell in 20 of the largest U.S. metropolitan areas in October from September — the first time that has happened since Feb. 2009.”
A major reason? Okay, so when they peak again in 2011, as Zandi forecasts, won’t that cause home prices to fall in “20 of the largest U.S. metropolitan areas” yet again? Or was that a major reason for home prices to fall this past year, but next year it won’t be a factor in falling housing prices? Because, since negative equity is the number one predictor of foreclosures, I’m thinking that foreclosures peaking will lead to even more foreclosures, thereby creating their subsequent peaking in 2012. And then won’t that peak have the same negative impact on housing prices, thus leading us to their peak in 2013?
Here’s Zandi! Inspires confidence, doesn’t he?
No? Well, alrighty then. I guess I’m willing to go along if you guys are. One peak in 2011 and that’s that. Next year, and we’re all done with the peaking. Zandi’s pretty sure. Got it.
Next, Clark’s story, ostensibly in an effort to explain why more foreclosures occurred in Q3 of 2010, says the following:
“Banks have already sorted through most delinquent borrowers and decided whether to modify their mortgages, federal officials say.”
“The universe of eligible borrowers who have not already been evaluated is being exhausted,” said Bryan Hubbard, a spokesman for the OCC.
Huh? The banks have already sorted through most delinquent borrowers and decided whether to modify their loans? You mean to say that people don’t have to even apply for a modification, the banks can just “sort through” the delinquent borrowers and figure out who gets what from there? Wow, that’s fascinating, I think… truly fascinating.
So, if that’s the case, why were the bankers all saying that the reason so many homeowners got kicked out of HAMP this past year was because they failed to send in the proper paperwork, or couldn’t document their income to the bank’s satisfaction? I’m not trying to be difficult here, I’m just trying to understand.
Did the banks need the paperwork or not? Could they just sort through the delinquent borrowers and make a call? Why were hundreds of thousands of homeowners pacing around night after night stuck in the hellish limbo the banks refer to as “trial modifications,” awaiting a decision from their bank if the banks already knew, from their sorting process which ones were ripe for modification and which were not?
Why are we needlessly making people apply for loan modifications, and forcing the servicers to lose all that paperwork over and over again? Doesn’t anyone care about the environment anymore, think of the trees people… the trees.
Bryan Hubbard from the OCC says the “universe of eligible borrowers is being exhausted?” But what about the new people that will fall into foreclosure next year when, according to Zandi just above, the foreclosures are going to peak in 2011. Do they already know who those folks are that will make up the 2011 peak?
Oh God… I hope I’m not on their list. I didn’t even know I might be losing my home next year and the government already does because the banks have a way of “sorting through?” Sonofabitch, this is really starting to scare me. I wonder what else they know about my future. This is freaking me out over here. Wait until my wife hears about this, she’s not going to like it one bit.
I’d start packing except what if the bank’s sorting process shows that I’m not scheduled to lose my home until 2012 or 2013? It’s all so confusing, I don’t know whether I’m coming or going.
Dizzy… having… trouble… focusing… can’t make sense… of anything… CRASH, SLAM, BASH, THUD!
Woha… that was unpleasant. But I’m back in my chair and am going to give it my all and try to finish this article. Just don’t read the paragraphs above more than once whatever you do. And pregnant women and people with a heart condition… probably shouldn’t read them at all.
So, Clark’s article then says the following:
“Many troubled borrowers owe more on their homes than the mortgages are worth, a situation known as being “underwater.” Many banks don’t want to modify those mortgages, analysts said, because that would require them to write off a portion of the loan.”
Oh, come on now… what’s he talking about now? Banks don’t want to modify loans because they’re underwater? Let me guess, banks only want to modify the loans that aren’t underwater? But can’t you just refinance those? And besides, if there’s equity in the home, meaning it’s not underwater, then won’t it fail the NPV test you have to pass in order to get your loan modified?
What’s he sayin… I can’t tpyee mmuch moor… the stregnh issss draininngh fom myt bodeyy… itrs hottt en hare… CRASH, SLAM, BASH, THUD!
Damn it, now cut that out! I’m going to start demandiong hazard pay for having to read this kind if crap. That’s the second time I’ve gone down, and that time I hit my head hard on the floor and it hurts. Stop it. Stop it. Stop it.
~~~
Okay, one more try… Clark’s story goes on to say:
“The Obama administration’s central effort to prevent foreclosures, the Home Affordable Modification Program, saw an even steeper drop in the third quarter. Only 59,000 loans were modified under the program, down nearly 46 percent from the previous quarter. Another 44,000 loans are in a three-month trial period. If borrowers make payments for three months under the trial period, the modification becomes permanent. The modified loans usually have lower interest rates or longer payment terms.”
Okay, so first of all… if 59,000 were permanently modified, which represents a 46% drop from the previous quarter, and there are 44,000 more loans in trial modifications, if you added the 44,000 and the 59,000 together, wouldn’t it come up to about the same total number as the previous quarter’s total? And all we have to do is find out how many of the borrowers in the 44,000 trial modifications made their three trial payments?
Well, how many? The third quarter ended on September 30th, the fourth quarter on December 30th, so don’t we already know, except for the trial modifications that were started in September, how many have made their payments, because those should all be added to the 59,000 column, right?
Oh, never mind. Whatever you guys say.
Clark starts his wrap up with another gem from Zandi…
“Zandi said the majority of those at risk of foreclosure are already in the pipeline.”
Well, we already know that the majority of those at risk of foreclosure are already in the “pipeline.” Because the banks did that “sorting through” thing they do. But, I still don’t understand the negative equity portion of the calculation… like won’t the drop in housing prices that accompanies the 2011 peak, cause more homeowners to go into foreclosure?
Wait stop. I apologize. I’m not even going there. I forgot what happened the last time I tried to make sense of… never mind… just go on with Zandi… I can take it.
“As the economy slowly improves and job losses decline, fewer homeowners are falling seriously behind on their loans, he said. That should reduce the number of newly initiated foreclosures going forward.”
But, according to Calculated Risk, who’s just never wrong about these sorts of things…
“As of November there were 7.4 million fewer payroll jobs in the U.S. compared to the peak of employment in 2007. If the U.S. economy adds 200,000 jobs per month, it will take 3 years to get back to the previous peak (2 years at 300,000 per month). And that doesn’t include jobs needed to offset population growth (about 125,000 jobs per month).”
And CR also just published that:
“… the Labor Force Participation Rate declined to 64.5% in November. This is the percentage of the working age population in the labor force – and the decline suggests that a large number of people have just given up looking for work.”
And that’s not all CR had to say this week…
“Inventory increased 5.4% YoY in November and the months-of-supply (9.5 months in November) is well above normal.”
“And the high level of inventory has pushed down house prices.”
“With the increase in inventory (and months-of-supply), it was no surprise that house prices started declining again in the 2nd half of 2010.”
Hang on… just a moment here… but I thought…
“A spike in foreclosures is a major reason why home prices fell in 20 of the largest U.S. metropolitan areas in October from September — the first time that has happened since Feb. 2009.”
So, was it the “spike in foreclosures” or the “increase in inventory” that caused home prices to fall in 20 of the largest U.S. metropolitan areas in October from September? The only reason I’m even asking is that CR has some additional bad news for the housing market…
“Some “bad news” for housing is that REO (Real Estate Owned) inventories at Fannie, Freddie and the FHA are at record levels.”
So, we’ve got increasing inventories of unsold homes, which pushes down prices, right? And it’s even worse because of the “record levels” of REOs at Fannie, Freddie, and FHA are going to add to those rising inventories which will further push down housing prices, right? And, I’m no expert, but didn’t mortgage interest rates just go up by about a point, and won’t that put a crimp in those inventory levels?
And then you add to that the peaking foreclosures Zandi is forecasting for 2011, which would be considered another “spike in foreclosures,” which is a “major reason” for housing prices to drop, right?
And there seems to be no question about it… housing prices are going to drop in 2011… and I’d only like to add that you can take that to the bank, as many people likely will.
But then Clark wraps up his article for Reuters with the following piece of good news:
The number of mortgage loans 60 days or more overdue dropped 7.5 percent to 1.9 million, the government’s report said.
But, then CR, after saying that perhaps mortgage delinquencies have peaked, leaves us with what I would think is a somewhat important note:
Note: With declining house prices, the number of homeowners with negative equity will increase – and the delinquency rate might start increasing again.
~~~
Mandelman… ooouuut.
CRASH, SLAM, BASH, THUD!
P.S. WHAT THE…
So, I wake up on my floor and sit back down at my computer and Global Economic Analysis, which is a blog written by Mish Shedlock pops up on my email and I open it and it says: A press release from LPS’ Mortgage Monitor Report shows Foreclosure Inventory Rising for 5th Straight Month. Here are a few of the… er… well… lowlights:
“… the number of loans moving to seriously delinquent status beyond 90 days far outpaced the number of foreclosure starts. Nearly 2.2 million loans are 90 days or more delinquent but not yet in foreclosure.
Foreclosure inventories also continued to rise for the fifth straight month as delinquent accounts are referred for foreclosure, but the sale of foreclosure properties continued to decline. When compared to January 2008 levels, the foreclosure inventory of Jumbo Prime loans is nearly seven times higher; the inventory of Agency Prime loans is nearly six times higher; and the foreclosure inventory of Option ARM loans is approaching five times the inventory in January 2008.
The report also shows that one-third of loans that are 90 days or more delinquent have not made a payment in a year.”
~~~
Happy New Year, Everybody!
Everything seems to be going just swimmingly, so don’t worry about a thing, right? Come on, click the screen below and sing it with me… Everything is gonna’ be alight, rockabye, rockabye!
~~~
Hey… why not take a minute and SUBSCRIBE to Mandelman Matters so you’ll get it delivered to your email daily? Don’t worry, you don’t have to read it, if you don’t want to. But you’ll feel better when you do!
Dec
20
Voting on Principal Reductions: Treasury: YES… FHFA: NO… Obama Administration: YES… Congressional Republicans: NO. Good Lord.
Clowns to the left of me, jokers to the right, here I am, stuck in the middle with all of them…
So, are you ready for this? I can promise you that you’re not. ProPublica, a Website I’ve just recently started paying attention to, is reporting that there seems to be one giant stupid, and inconceivably insensitive debate going on in our nation’s capitol concerning the use of principal reductions as related to loan modifications.
Now, before I say anything about this, I just want to mention that this was a stupid debate last year when a similar group of untrustworthy buffoons were kicking the idea around, but this year it’s just turn-your-head-and-look-the-other-way STUPID.
Last year, and I write about it then too, they were discussing whether principal reductions were a good thing or a bad thing. I mean, do you think it occurs to these people how incredibly embarrassing it is for them to be having such a discussion… talking about concepts like “moral hazard” and the like? These people are the moral hazard… they’re the crown princes of moral hazard, are they not? And as far as irresponsible borrowers go, well shiver me timbers, like the world has never seen they are irresponsible borrowers.
So, for them to actually have a job where they get to sit around and pontificate about the pros and cons of granting principal reductions, and the potential impact of doing so as opposed to not doing so… as if they’ve done even one thing right, or forecasted even one aspect of this housing meltdown correctly, well… it just boggles the mind, that’s what it does… it just flat out boggles it.
If I could be a little talking bird that could land on the window sill of their meeting room, I’d say… come on guys, you’ve already lost all credibility, no one will believe you anyway… give it a go… what can you lose? I mean, Treasury was suppose to launch the HAMP PRA, that’s Principal Reduction Alternative program on October 1, 2010, according to their own press release. Anyone seen hide or hair of it? Right… the answer is no.
And that overlooks that HAMP was supposed to offer some number of principal reductions in the first place, after taking the interest rate down to 2% and the term of the loan out to 40 years… the servicer was supposed to consider reducing the principal. Let me guess at how the banking lobby would respond to that:
“Servicers do consider reducing the principal on every single loan modification application. They just decide against it every time.”
To which all I can think about is beating the crap out of some fictional banking lobbyist.
So, anyway… enough of that… Treasury is allegedly for principal reductions… the House Republicans, as if they should get to vote on anything, say Nay! The Obama Administration is purportedly for the idea of bringing down the balances on loana, but now… are you sitting down… the FHFA, the Federal Housing Finance Administration, the regulator of the failed Fannie and Freddie, says no.
And no, means no, I suppose?
Who the hell is the FHFA, is that even a real regulatory agency? I think they just made it up a few years ago to make it appear as if something was actually regulating Fannie Mae. And that brings up another good point.
Now? Now when perhaps there could be the modicum of a chance to perhaps save even a few from foreclosure, like it could be my next door neighbor we’re talking about, and hence maybe another fifty grand slashed off of my fast diminishing theoretical equity position… now you start regulating Fannie? Like, where the heck have you been… say, when Fannie was leveraging itself 110:1, I believe the figure was when the bough broke. And Freddie… a jaw dropping 170:1? And now you’re looking at saving a few foreclosures and you saw…
“Nope. It wouldn’t be prudent, not at this juncture.”
Since when is anything that Fannie Mae does even remotely prudent? Yeah, because that’s what comes to my mind when I think of the word “prudent”… Fannie Mae. Nice castle, by the way.
You guys are smoking crack over there, right? Tell me you are and I’ll leave you alone. I promise, you won’t hear another word out of me. Otherwise, I’m going to find a way to friend your mom on Facebook and tell her what you do at work.
And Fannie Mae and Freddie Mac… excuse me for a moment, but am I wrong to say they’re both entirely bankrupt, like as in gonzo… out of here… the showers are on… ball four, take a hike, you’re all done here?
Oh, I know, you’re going to tell me about how their in something called “conservatorship,” right? Yeah, well then let me rephrase my question.
If Fannie Mae and Freddie Mac were anything but fraudulent-semi-pseudo-quasi-government agencies in the first place, would they be long gone bankrupt? Thank you… I thought so.
So, FHFA… what are you doing over there? The President of the United States and the most powerful man in the world, Treasury Secretary Tim Geithner both say they want Fannie and Freddie doing some principal reductions, who are you to say no to them… I mean, I can understand you telling Obama to pound sane, half the bankers on Wall Street don’t even show up for his meetings, but Tim Geithner? Don’t you know who he is? That man can snap his fingers and Ben Bernanke starts up the printing presses from his nightstand by his bed. Tim Geithner… even Lord Blankcheck over at Goldman Sachs takes his calls. And Vikram Pandit over at Citi? Yeah, well I heard he comes over to rub Geithner’s feet in the evenings. It’s true, that’s what I heard.
Seriously now… Freddie and Fannie were GSEs for years… you know… “Government Spending Entities.” What’s the big deal if they shave a little off the balance balance due on a few thousand homes. It’s not going to natter anywat… buy next year at this time they be underwater again… you won’t have really changed a thing. And besides, the two mortgage queens have never had any principles before why not cut some of them off now that they’ve got a few.
For God’s sake man, Fannie Mae stock is trading OTC right next to Blockbuster! What could you possibly be holding onto? Are you holding your shareshoping for “the bounce”? Dollar cost averaging into either one of those piles of dung, is that what you’ve got going on over there?
And get ready for this whopper of a sentence from the article on ProPulica…
“In this case, reducing principal for some homeowners could add stability to the housing market and save Fannie and Freddie money in the long term, but it would also force them to take an immediate hit to their balance sheets.”
Okay, first of all… “balance sheets,” as in more than one? Was that just your Freudian slip showing, or are Fannie and Freddie running two sets of books again? Wouldn’t be the first time, you know.
And back up… read that paragraph again… reducing principal “for some homeowners could ADD STABILITY to the housing market and SAVE FANNIE and FEREDDIE MONEY in the LONG TERM, but it would also force them to take an immediate hit to their balance sheets?”
So, who gives a crap about their “sheets?” Treasury dumps tens of billions into their bottomless pits every quarter that I can remember anyway. To hell with their “sheets”. In fact, while you’ve got the go ahead to pull Fannie and Freddie up to the Treasury Department every quarter and say: “Fill ‘em both up.” Wouldn’t now be a good time to take the hit to the “sheets?”
Because the way things are going, the Democrats may be replaced by a whole team of Alvin Greenes next election, or who knows… maybe even a few Republicans, and if that happens, how long do you think it’ll take the GOP to change your sheets? An hour? Not even that long… they’ll phone that vote in from their limos on the beltway. And then what will you say when you go down in history as the man… I’m assuming it’s a man we’re talking about, but I’ll look it up in a second and tell you for sure… what will you say when you go down in history as the only man ever who couldn’t throw a few hundred billion away? It’ll be embarrassing at the club, have you thought about that?
ProPublica asked Fannie Mae for a statement and apparently Amy Bonitabus, Fannie Mae’s spokesbetch said:
“We are continuously reviewing our policies regarding the modification of mortgages based on changing economic circumstances and our analysis of whether the policies are working.”
I swear… did she sound like she was smacking her gum when she said that, or was that just me?
Hey Amy… pssst… over here… that’s right, here… to the right… a little closer… that’s it… good… blow me.
Was that too unprofessional for you? Yeah, well I’ve got a few choice words for you too in that case. This is out of control… someone needs to take someone over his or her knee and give him or her a hot bottom. (You know, that’s a better sentence when you don’t make it grammatically correct.)
And first of all, what “changing economic circumstances” are you currently reviewing your policies by? And name one policy Fannie Mae has ever had that anyone but that clown Franklin Raines thought was working? And besides, wasn’t that Franklin Raines that played Lamont on Sanford & Son? I think it was… that’s why you never see the two of them together.
You guys at Fannie have never reviewed a loan modification policy in your lives… I don’t believe it. Name one. One thing that Fannie Mae does consistently that has to do with loan modifications? Go ahead, betch, I’m waiting.
Oh, did your Crackberry go off and you’ve got a meeting… I thought as much. Loan modification “policies” at Fannie Mae… that may just be the finniest thing I’ve heard all year.
And how about what the Wall Street Journal reported last week… according to ProPublica…
“The Wall Street Journal reported last week that the Obama administration has been pressuring the FHFA to allow Fannie and Freddie to reduce principal, and that they are “in talks” about joining the program that targets borrowers who aren’t behind on their loans.”
Oh, come on… is this some sort of gag article… am I on Candid Camera… I’m serious… is that a camera in my closet next to my “Nobody tell Obama what comes after a trillion, okay?” coffee mug?
Obama has been pressuring them… the President of the United States is pressuring them… Ohhh, is it like Guantanamo… or more like Canyon Ranch… pressure me some more, Barack… I like it when you pressure me… a little to the left… ahhhh, that’s it… now down… yeeesss…
And the pressure has resulted in “talks” and after all that they may consider participating in the program that targets borrowers who AREN’T LATE? You mean the program that’s never been used once… because no one modifies loans that aren’t late, and if they do, they certainly never tell a soul for fear of embarrassment.
And the hits just keep on coming…
“Industry analysts, however, have expressed doubts that the talks will have much impact. Congressional Republicans have been particularly vocal in pressuring the FHFA against doing principal reduction.”
Congressional Republicans, huh? Do I have one of those in my district? If I do I think I‘ll go find out where he parks and key his car… every day… for a year. I’m kidding about that, by the way, I’ve never keyed a car in my life. The sound would kill me… screeeeech… yikes.
But why do Congressional Republicans have a view on this issue? What are they a roving bunch of bullies that prowl the halls of the Capitol and intimidate people on issues that don’t have anything to do with them?
But, I’ll tell you what… why don’t you check to see if you have a Congressional Republican in your life and start sending him or her letters. Every day. Write seven on Sunday and then drop one in the mail every day of the week ahead. Then, get a friend of yours to do the same thing… then another… and another. I’m not sure you’ll accomplish anything for the principal reduction cause, but you’ll start feeling a whole lot better by Wednesday of week two at the very latest, I promise you that.
The ProPublica story explained that Obama does appoint the head of the FHFA, and that really blew me away. Obama appoints the head of the FHFA but Obama’s been pressuring him and it’s still a no go. Damn it, Obama, call Dick Cheney… he’ll tell you have to handle this… can you imagine this same thing happening to Cheney?
The article also said that Congress can also pass a law forcing the FHFA to allow principal reductions, but no one thinks Congress can pass anything but gas.
And get this… from the ProPublica article touched on my favorite subject… bankers putting down aid for homeowners because it constitutes a bailout:
Credit Suisse analysts wrote last week, “Given the current make up of Congress, it would be difficult to get a borrower bailout law approved, in our view.”
A “borrower bailout bill?” Did the guys from CREDIT SUISSE actually say “bailout bill” and sound snarky? Someone needs to find out where they hang out after work, throw them in the truck as they’re leaving, and take them on a Hannibal Lecter Tour of Great Places for Liver and Onions”. That’s just what I want to hear, snarky Credit Suisse guys making fun of principal reductions by branding them a “bailout bill for homeowners.”
Now, get this… ProPublica claims that based on data from OCC’s Mortgage Metrics, their analysis shows that banks have been doing principal reductions and discovering that they do make sense.
Meanwhile, banks have also been seeing the benefits in reducing principal in certain cases as well. Indeed, nearly all principal reductions that occur happen for the loans banks hold on their own portfolio, where they have the fewest obstacles to the modifications. Over the last year, banks have used principal reduction on almost a third of modifications on loans they own, according to ProPublica’s analysis of regulator’s data.
The article even goes as far as to say that both Wells Fargo and Bank of America have agreed to CONSIDER principal reductions for those that qualify for HAMP… but there’s that word again… “CONSIDER”. Why does the Treasury keep using that word? Don’t they know that we got hip to that crap like more than two years ago?
But, according to ProPublica…
Wells Fargo and Bank of America, for example, have both agreed to consider principal reductions in the Treasury’s main loan modification program, but only for loans that they own outright. One bank executive said that their internal analysis predicts that a “good percentage” of their government modifications will soon involve principal reduction, since the calculations indicate that they will recoup more money by reducing principal.
“If it’s good enough for their own balance sheets, where the banks have the risk, why wouldn’t it be good enough” for Fannie and Freddie, asked FHA Commissioner Stevens.
Gee, I don’t know Commissioner Stevens… but you might… why don’t you share the answer with the rest of the country.
The article goes on to explain that Fannie and Freddie have arrangements that are different from others, because they can force others to cover losses on some delinquent loans, and it also implies that by granting a principal reduction, their ability to recoup losses from lenders that originated mortgages to buy back bad loans becomes limited in some way, although I don’t understand exactly why that’s the case.
And the article points out that many of Fannie and Freddie’s loans have mortgage insurance, so there’s an insurance company on the hook should the loan default.
Now, does that mean that the two insolvent GSEs are actually allowing those loans to default and go into foreclosure instead of modifying them because they’d prefer to recoup the insurance proceeds than prevent a foreclosure? Because that’s sure what it sounds like to me, and that’s just unbelievably wrong in so many ways… and must be exposed and stopped.
Look at what’s happening here…
Treasury Secretary Geithner just recently testified that he thought there’s a solid economic case for Fannie & Freddie to participate in the principal reduction programs, such as the new HAMP PRA, but they don’t participate in any of them. I mean, F&F aren’t participating in the new PRA even though, as the article says:
“For example, the voluntary “Principal Reduction Alternative” to Treasury’s main loan modification program encourages adjustments only where reducing principal costs less than letting the home go to foreclosure or than doing a modification that doesn’t trim the loan. But Fannie and Freddie are not participating, even though the program is only for principal reductions that would save them the most money.”
That means that it’s all about short-term losses for Fannie & Freddie, avoid them at all costs, and their regulator, the FHFA is enforcing that stance. But, Fannie & Freddie, in my way of thinking shouldn’t even be given the choice. They are both bankrupt. Gone. History. They’ve already been NATIONALIZED, for God’s sake. Oh, I know… it’s a conservatorship, or whatever… and that means… I DON’T CARE WHAT THAT MEANS.
STOP SAVING COMPANIES WITH THE PEOPLE’S MONEY AND THEN LETTING THOSE COMPANIES HARM THE VERY PEOPLE WHO’S MONEY SAVED THEM… DAMN IT… STOP IT NOW.
Listen up, Washington D.C. You don’t have any money. You’re the world’s largest “irresponsible borrower.” You are where you are to serve the people of this country. You are not here to hand out our money, and then say… “Do whatever you want to them, we don’t care.”
You are paid to care… elected to care… there to care. Stop not caring…
Mandelman out.
Dec
09
Zillow: U.S. Homeowners to Lose $1.7 Trillion in 2010, Already $9 Trillion Lost Since 2006
According to Zillow’s latest report, U.S. homeowners have lost $9 trillion since the housing market’s peak in 2006, AND WILL LOSE $1.7 TRILLION THIS YEAR ALONE.
So… I have a question for my fellow Americans… and for elected representatives in Washington D.C. and state legislatures… and for that offensive, mindless twit Diana Olick on CNBC… Are we done irrationally punishing the so-called “irresponsible” people yet? I’m serious about this, are we? Because I don’t think I can afford to do any more punishing. And besides, I feel like I’ve done enough punishing anyway.
Or, if we have to keep on punishing homeowners because as a nation we’re just too thick headed to understand anything but stupid sound bites and too self-consumed to let go of our petty jealousies and moral self-righteousness, then could we at least start thinking about switching over to a new means of punishment. It doesn’t have to be something less severe, necessarily, but I think we need something less expensive for sure? I suppose stoning might come to mind, if we’re looking for something biblical, but there’s never been anything wrong with a good old fashioned spanking as well.
Instead of foreclosing on the 20 million people who all became irresponsible during the last decade and decided to buy houses for their families to live in that they couldn’t afford, I was also thinking that we could create a catalog of alternative punishments and let homeowners choose their poison, as it were. We could even run television ads to generate leads… see what you think of this approach:
Announcer: Are you an irresponsible sub-prime borrower embroiled in the foreclosure process who hasn’t make a mortgage payment in 24 months and are about to finally get bounced out on the streets? Have you come to terms with the fact that our global economic crisis could have been avoided if only you had just stayed in your old apartment instead of buying a home of your own?
Well, why not consider trading in your social stigma status as an irresponsible borrower and remain in your home as a resulkt. Just take a look through the new catalog: The Responsible Homeowner’s Guide to Acceptable Punishments. Here are just a few of the alternatives now available to today’s homeowner:
- Nothing says punished like a hot bottom. Try a spanking with a side of shame when you order this package that includes a stylish scarlet letter to be worn for 90 days.
- Or, here’s one you might like… Six Months With No T.V. is the main draw but this package also comes with an 8:00 PM bedtime and no use of the family car on weekends.
- No? Okay, well some states are offering a “Grounded For a Month” alternative, and it comes complete with the No-Dessert-for-You-Young-Man, and daily finger-wagging by a panel of professional finger-waggers. Still don’t see anything you like?
- Come on, there’s got to be something that would placate you intractable mental midgets who are still blaming homeowners for the meltdown and are therefore somehow have figured out how to be okay with our government spending $12.2 TRILLION to bail out bankers and 1/1000th of that amount trying to stop the total meltdown of America’s housing market that is threatening to wipe our the wealth of our country’s vast middle class for a generation.
One thing I still don’t understand… If the bankers needed $12.2 trillion, weren’t they irresponsible too? How come we’re not punishing them? I was thinking that maybe we could switch… one year punish the homeowners… the next give it to the bankers. What would you think about that idea?
Come on people, work with me here… I’m trying to be reasonable about this. I just flat out can’t afford to continue punishing my neighbor because he decided to remodel his kitchen in 2006, which turned out to be more dangerous than trading commodities futures with an advisor from Goldman Sachs. I don’t care that he bought a Jet Ski anymore… in fact, good for them. How about if I have a talk with them and they agree to let you borrow it for a week every year? No? Come on… don’t answer so quickly, it’s a beautiful jet ski. Have you ever ridden one?
Hey, wait a minute… here’s something for irresponsible homeowners who are also Verizon subscribers: A 2-Year Contract With AT&T. Yeah, well that one is a little harsh, I suppose. Don’t give up… we’ll keep looking… there are a lot of great punishments out there… let’s give it a chance. Why not trade in your irresponsible borrower status for “A Criminal Record,” and it says they have misdemeanors available. That might work…
So, Zillow is saying that U.S. homeowners have lost $9 trillion since 2006. And that’s just lost home equity. Would anyone care to run a tape that adds in stock market losses of U.S. homeowners as well? I didn’t think so. As it stands, I figure that my family will make up for the ground lost and break even in the year 2045. But we plan to come back strong by then, so don’t you worry about that.
Zillow also showed that it’s getting worse. Residential property values dropped 63% more in 2010 than in 2009.
Damn it, people, we can’t keep this type of punishment going indefinitely. How about this… we let them off the hook for their irresponsible homeownership, but instead we all totally snub them until 2013. When one of them walks buy, we all stop talking immediately and look the other way. What about that?
And even this years losses accelerated fairly dramatically in the second half of the year. According to Zillow’s report, between January and June this year, the housing market lost $680 billion, but in the second half losses will top $1 trillion.
See… this is not good… couldn’t we have stopped in June? Plus that $680 billion is underreported, because we also picked up the tab for that economic stimulus housing tax credit madness that allowed the White House to pretend we were having a recovery.
Oh, and check this out… according to Zillow, 21.8 percent of single-family homes with mortgages were underwater in 2009, but by Q3 2010, 23.2 percent were underwater. Oh my God… don’t you see what this means… it’s as I suspected all along… since negative equity is the number one predictor of foreclosures… foreclosures ARE breeding foreclosures. It’s like the blob that ate New York, only we’re funding the blob.
And, while we’re talking about potential solutions, I have another idea that I’d like to throw out there for your consideration… stay with me here…
Since the banks aren’t subject to any of those bothersome accounting rules anymore… you know those cranky little nitpicky mark-to-market rules that FASB adopted in the fall of 2006.
Why don’t we consider letting the banks MARK UP their impossible-to-value assets that we’re not requiring them mark down to market value anyway. I mean… if we’re going to keep our banks looking “healthy” based on allowing them to keep CDOs and CDSs on their books at the absurd face values from the bubble years, why not simply pretend they’ve gone up in value over the last couple of years… say by $9 trillion.
Then, just give the $9 trillion we’ve pumped into banks for no good reason back to all of the homeowners in the housing market and voila… consumer spending recovers, the crisis solved. I’d even be willing to let the bankers deduct their bonuses for this year and next.
Who would even know? And even if some of those annoying financial and accounting bloggers get super critical of the idea, we could just fix it with a line of dialog from Bernanke. Maybe something like:
“The Federal Reserve is confident that the revaluation of pending assets and Tier 1 capital when viewed as a percentage of growth in the GDP for three straight quarters leads us to be very comfortable with the bank’s positions insomuch as they are at the point at which firms like Goldman Sachs are prepared to employ leverage and balance the needs of our economy… blah, blah, blah.”
See what I mean? That’ll do it, no problem. Just have the Harvard guys spruce it up a little and shoot it in front of a podium with the White House seal in the background. It’ll fly, trust me.
It’s not like the idea has no precedent. A variation of what I’m describing has been working for the commercial real estate market since last year.
Remember last year, when we were about to have a meltdown any minute in commercial properties, like commercial real estate was down by 44%, I believe they were saying the number was. Then one day, Treasury Secretary Geithner and FDIC Chair Sheila Bair showed up on the Sunday morning talk shows after whispering in the bankers’ ears that they didn’t have to write the assets down, and they could pretend that inconvenient loan maturity dates had simply not yet arrived. People barely noticed it.
Okay, so this time we just pretend the values of toxic assets have gone up to cover the $9 trillion in losses sustained by homeowners that has made consumer spending a thing of the past, which just leads to higher unemployment, and starts that whole deflationary spiral thing, and next thing you know Bernanke’s got to start printing cash. We give the $9 trillion back to the homeowners, and take further write ups on bank balance sheets that are overvalued by 50% now anyway.
Come on people… I think this is a workable plan… just announce the whole thing on Super Bowl Sunday… no one would even know about it for a year. It’s a damn lay-up, that’s what it is… have people spending again by Easter Sunday.
And as to the foreclosures…
If we still can’t agree to stop the whole punish-the-borrower thing, how about we let the banks do whatever they were going to do on their books if foreclosing, but we just let the people keep the homes. To the banks it would be the same thing… even better because actual expenses would be nothing because they wouldn’t actually be taking back the houses. Physically, it would appear like everything was back to normal, with the bank financials looking even better than would be the case if accounting for real foreclosure outcomes… wink, wink.
Oh come on, don;t be such a baby… why the heck not? Right now we’ve got miles of empty homes that are only exceed in length by the miles of empty heads that are in charge and allowing this to continue. Whose going to even know? If you want, keep reporting that people are losing homes… just don’t actually take any homes back. It’ll work, I’m telling you.
As you might have guessed, I even have a few ideas as to what we might call the program… how about:
Transcend and Suspend!
No? Wow… tough crowd. Okay then, how about:
Offend and Ascend?
Amend and Befriend?
Expend and Contend?
Loose End and Misspend?
Well, now you’re not even trying to like one.
Kick it around for a while. Run it up the flagpole and see if it flies. Or, better yet, set it out on the back porch and see if the cat licks it up.
Don’t just brush me off here, though. I’m not playing around… we can’t just keep bankrupting the country’s entire middle class because we’re uberr-pissed that a bunch of folks bought houses during a housing bubble, while the rest of us were either so sedentary we couldn’t even drag our fat carcasses to an open house, or so risk averse that we were afraid to finance a pack of gum.
For God’s sake, everyone… $9 trillion lost since 2006 and $1.7 trillion gone in 2010 alone. What do you figure we should mark down for 2011? $2.1 trillion? And for 2012… $2.5 trillion?
And what will the results of all that punishment be by then, do you suppose? A shadow inventory of 52,000,000,000 homes, and urban blight that makes Tijuana look like the Hamptons? Don’t worry though, we’ll still have Obama in the White House through the end of that year, so I’m sure unemployment will amazingly still be hovering just under 10%.
Great plan, guys… are you happy Diana Olick and the rest of you sickos still focused on punishing homeowners? I guess you figure, as Diana has said in the past, that at least you won’t get stuck paying for your neighbor’s irresponsible decision making back in 2003.
Yep, that’s true… you won’t have to worry about paying for that.
Instead, however, you’ll be stuck paying for your own sadistic, intolerant and uneducated decision-making that’s been taking place every year since 2008.
The problem I’m having now is that I’m going to be stuck paying for your offensive and unfounded opinions too. And given the choice, I think I’d rather have picked up the tab for my neighbor’s Jet Ski… at least we could have taken it to the lake once or twice each summer. What am I going to do with you around?
I guess I’ll have to find a way to punish you as well.
Waiter… check please.
Mandelman out.
Woo-frigging-hoo!
Oct
31
NY TIMES- HOW THE BANKS SUNK THE ECONOMY
The text below could have been lifted directly off my page–or that of any one of the handful of advocates, attorneys or bloggers out there that have been warning about the problems in the foreclosure process for months now–but it’s not, it comes directly from the editorial page of the New York Times. We would all do well to listen to the warnings and take action, but our elected and appointed officials seem content to just fritter away and pretend that none of this is true. The most staggering thing is that our judges must be aware of these issues now right? I mean there cannot be a judge in the entire country who would generally dispute any of the information contained herein or the statements made. If this is indeed true, how can any of these judges proceed with cases before them in this environment?
In Congressional hearings last week, Obama administration officials acknowledged that uncertainty over foreclosures could delay the recovery of the housing market. The implications for the economy are serious. For instance, the International Monetary Fund found that the persistently high unemployment in the United States is largely the result of foreclosures and underwater mortgages, rather than widely cited causes like mismatches between job requirements and worker skills.
This chapter of the financial crisis is a self-inflicted wound. The major banks and their agents have for years taken shortcuts with their mortgage securitization documents — and not due to a momentary lack of attention, but as part of a systematic approach to save money and increase profits. The result can be seen in the stream of reports of colossal foreclosure mistakes: multiple banks foreclosing on the same borrower; banks trying to seize the homes of people who never had a mortgage or who had already entered into a refinancing program.
Banks are claiming that these are just accidents. But suppose that while absent-mindedly paying a bill, you wrote a check from a bank account that you had already closed. No one would have much sympathy with excuses that you were in a hurry and didn’t mean to do it, and it really was just a technicality.
The most visible symptoms of cutting corners have come up in the foreclosure process, but the roots lie much deeper. As has been widely documented in recent weeks, to speed up foreclosures, some banks hired low-level workers, including hair stylists and teenagers, to sign or simply stamp documents like affidavits — a job known as being a “robo-signer.”
Such documents were improper, since the person signing an affidavit is attesting that he has personal knowledge of the matters at issue, which was clearly impossible for people simply stamping hundreds of documents a day. As a result, several major financial firms froze foreclosures in many states, and attorneys general in all 50 states started an investigation.
However, the problems in the mortgage securitization market run much wider and deeper than robo-signing, and started much earlier than the foreclosure process.
When mortgage securitization took off in the 1980s, the contracts to govern these transactions were written carefully to satisfy not just well-settled, state-based real estate law, but other state and federal considerations. These included each state’s Uniform Commercial Code, which governed “secured” transactions that involve property with loans against them, and state trust law, since the packaged loans are put into a trust to protect investors. On the federal side, these deals needed to satisfy securities agencies and the Internal Revenue Service.
This process worked well enough until roughly 2004, when the volume of transactions exploded. Fee-hungry bankers broke the origination end of the machine. One problem is well known: many lenders ceased to be concerned about the quality of the loans they were creating, since if they turned bad, someone else (the investors in the securities) would suffer.
A second, potentially more significant, failure lay in how the rush to speed up the securitization process trampled traditional property rights protections for mortgages.
The procedures stipulated for these securitizations are labor-intensive. Each loan has to be signed over several times, first by the originator, then by typically at least two other parties, before it gets to the trust, “endorsed” the same way you might endorse a check to another party. In general, this process has to be completed within 90 days after a trust is closed.
Evidence is mounting that these requirements were widely ignored. Judges are noticing: more are finding that banks cannot prove that they have the standing to foreclose on the properties that were bundled into securities. If this were a mere procedural problem, the banks could foreclose once they marshaled their evidence. But banks who are challenged in many cases do not resume these foreclosures, indicating that their lapses go well beyond minor paperwork.
Increasingly, homeowners being foreclosed on are correctly demanding that servicers prove that the trust that is trying to foreclose actually has the right to do so. Problems with the mishandling of the loans have been compounded by the Mortgage Electronic Registration System, an electronic lien-registry service that was set up by the banks. While a standardized, centralized database was a good idea in theory, MERS has been widely accused of sloppy practices and is increasingly facing legal challenges.
As a result, investors are becoming concerned that the value of their securities will suffer if it becomes difficult and costly to foreclose; this uncertainty in turn puts a cloud over the value of mortgage-backed securities, which are the biggest asset class in the world.
Other serious abuses are coming to light. Consider a company called Lender Processing Services, which acts as a middleman for mortgage servicers and says it oversees more than half the foreclosures in the United States. To assist foreclosure law firms in its network, a subsidiary of the company offered a menu of services it provided for a fee.
The list showed prices for “creating” — that is, conjuring from thin air — various documents that the trust owning the loan should already have on hand. The firm even offered to create a “collateral file,” which contained all the documents needed to establish ownership of a particular real estate loan. Equipped with a collateral file, you could likely persuade a court that you were entitled to foreclose on a house even if you had never owned the loan.
That there was even a market for such fabricated documents among the law firms involved in foreclosures shows just how hard it is going to be to fix the problems caused by the lapses of the mortgage boom. No one would resort to such dubious behavior if there were an easier remedy.
The banks and other players in the securitization industry now seem to be looking to Congress to snap its fingers to make the whole problem go away, preferably with a law that relieves them of liability for their bad behavior. But any such legislative fiat would bulldoze regions of state laws on real estate and trusts, not to mention the Uniform Commercial Code. A challenge on constitutional grounds would be inevitable.
Asking for Congress’s help would also require the banks to tacitly admit that they routinely broke their own contracts and made misrepresentations to investors in their Securities and Exchange Commission filings. Would Congress dare shield them from well-deserved litigation when the banks themselves use every minor customer deviation from incomprehensible contracts as an excuse to charge a fee?
There are alternatives. One measure that both homeowners and investors in mortgage-backed securities would probably support is a process for major principal modifications for viable borrowers; that is, to forgive a portion of their debt and lower their monthly payments. This could come about through either coordinated state action or a state-federal effort.
The large banks, no doubt, would resist; they would be forced to write down the mortgage exposures they carry on their books, which some banking experts contend would force them back into the Troubled Asset Relief Program. However, allowing significant principal modifications would stem the flood of foreclosures and reduce uncertainty about the housing market and mortgage securities, giving the authorities time to devise approaches to the messy problems of clouded titles and faulty loan conveyance.
The people who so carefully designed the mortgage securitization process unwittingly devised a costly trap for people who ran roughshod over their handiwork. The trap has closed — and unless the mortgage finance industry agrees to a sensible way out of it, the entire economy will be the victim.
Yves Smith is the author of the blog Naked Capitalism and “Econned: How Unenlightened Self-Interest Undermined Democracy and Corrupted Capitalism.”
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Sep
19
The Ticking Time (Nuclear) Bomb- Faulty Title To Foreclosed Properties
Those of us who watch foreclosures every day know that the percentage of serious errors in these cases is very high. There are both glaring, extrinsic errors which are so glaring that they just jump right out at you and latent errors of fact and law that will take years and even decades to come forth.
These errors make title to foreclosed properties either void or voidable depending on their nature and quality. Whatever the nature of the error, the consequence is continued destabilization of the housing market and a serious undermining of real property ownership in this country (one of the bedrocks of our entire economic and political system).
What myself and other lawyers and activists are screaming about and trying desperately to get the attention of judges, press and policy makers is the fact that this Foreclosure Fiasco has repercussions that go so far beyond the borrower. Those who are informed have lost their respect for the courts because our courts have conceded their dignity and authority to the foreclosure mills and Wall Street con artists that caused all this mess. It is widely accepted that foreclosure files are a mess with deficient and fraudulent filings, yet our elected and senior judges just ignore all of this. (Damn those borrowers and damn the facts, they owe someone something, I don’t care who it is, I’m granting Summary Judgment.)
But their are consequences for institutionalized error, fraud and shysterism. After all, isn’t that what brought about the near collapse of the international financial system? Isn’t that what brought America to the brink of financial Armageddon? But how soon we all forget. How quick our leaders and judges are to forget those lessons. It’s not just lone wolves in the blogosphere sounding the alarm now, have a look at this article from a mainstream and very reputable source:
Then after reading the warnings on the risk, read how our policy makers are running us head on into that very risk:
Saturday, September 18, 2010
Latest Real Estate Time Bomb: Title of Foreclosed Properties Clouded; Wells Fargo Dumping Risk on Hapless Buyers
Another ticking time bomb in the realm of real estate bad behavior is bound to go off sooner rather than later, and it is likely to impede normalization of values of residential property.
As readers no doubt know, there is a lot of actual and shadow residential real estate inventory in the US. The time from serious delinquency to foreclosure has lengthened considerably, due not just to crowded court dockets, but also bank/servicer disinclination to take possession (reasons include that investors take a dim view of bank real estate holdings; the bank is liable for expenses, most important real estate taxes, once it takes possession; more foreclosures would lead banks to have to write down clearly overvalued second mortgages, leading to losses and lowering bank capital levels).
Most analysts have argued that it would be preferable to accelerate the process of clearing the overhang of housing inventory, since prices need ultimately to return to price level in relationship to incomes and rent rates more in line with long standing historical norms. And the officialdom seems to accept this view, since Fannie and Freddie are pressuring servicers to move faster on foreclosures.
But what if this resolution process has new land mines planted in it? What if there are not widely understood impediement to foreclosed properties ending up with new owners? If there are good reasons buyers will have reason to be leery of buying houses out of foreclosure, we could have a lot of homes sitting vacant, a blight on neighborhoods and a source of even greater losses to banks and investors.
Yet it appears that the very same sort of corners-cutting that led financial firms to shovel money to weak borrowers could impede working through the inventory of seized residential real estate. An article discusses an analysis by AFX Title, a title search company, that shows problems with title on foreclosed properties to be widespread:
As the number of real estate foreclosures skyrockets, the odds are higher that a home you live in today, or at some point in the future may have had a foreclosure in its history. Even if the foreclosure has long since passed, a loophole in the way mortgages are recorded can create a serious title defect for future owners. Title analysis performed this month by AFX Title has detected this error to be common in random samples of properties it reviewed. “This could affect the property ownership of millions of homes nationwide” said David Pelligrinelli, of AFX Title. “The mortgage recording method which created this title flaw did not exist until recently. As title abstractors are just seeing this problem emerge now but a wave of title claims is coming over the next year or so.”….
The problem is created through a break in the chain of mortgage ownership. Until the 1980’s, most mortgages were loans between the homeowner and a bank, who lent the money directly. More recently, the mortgage financing system transformed into an international system of securitization, with mortgage lenders packaging their loans into securities, bought and sold by investors like stocks. These transactions even split individual mortgages into sections, where each loan could have parts owned by different investment banks.
The transfer of ownership in these mortgage backed securities (MBS) was done with contracts on the balance sheets of Wall Street investment banks, such as Morgan Stanley and Goldman Sachs. The company who originally appeared to make the loan was normally a retail lending company such as Countrywide or Lending Tree, who typically acted as a sales company, and sometimes remained contracted to service the loan.
In the event that the loan goes into foreclosure at a later date, the then-current owner of the loan files the foreclosure and sells the property to a new owner, often at auction. The land records would show a deed of transfer from the investment bank to the new owner. This creates a break in the chain of ownership of the mortgage rights. In many cases, the transfer of ownership of the mortgage loan has gone from the original lender, through several owners, and then to the foreclosing bank, none of which is recorded on the property title history. Technically, the foreclosing bank has no recorded title rights to foreclose in the first place…
There are reports that some title insurers are indicating that they will not insure for this title defect.
Yves here. Some readers may take this all to be unduly alarmist. But confirmation that this problem is real and potentially serious comes via a new “gotcha” practice by Wells Fargo on foreclosure sales. Wells is sufficiently concerned about the risks of selling properties out of foreclosure that it is springing an addendum on buyers, shortly before closing, which effectively shifts all risk for any title deficiency on to the buyer.
Now why is this a big deal? Go reread the boldfaced sentence above. If a bank like Wells does not have the right to foreclose, it cannot have clean title to the property. So the bank could conceivably be selling something it does not own.
Let’s say you buy a vase from a store. You open the box when you get home and find out the box is empty. You’d clearly be within your rights to get your money back.
With the Wells Fargo addendum, even if the bank has sold you the equivalent of an empty box, you have no recourse to Wells. Zero. Zip. Nada.
Let’s go back and give a bit of context. Wells is encouraging buyers in foreclosures to use its attorney and title insurers and reportedly offers to split fees. So the bank is taking steps to steer buyers not to get legal advice. This matters because the problems in this document would not be evident to a layperson. And it’s not even evident to lawyers not expert in real estate; I learned about this situation because a lawyer I know who does a fair bit of real estate work had been contacted by a friend of his, a lawyer looking to buy a house over foreclosure. Wells had presented the prospective buyer with this supposed “standard” addendum on the day of closing and said they would not negotiate it (you can read it in full at ScribD). The buyer was advised not to sign it.
On the surface, this document may not seem all that troubling. But what it does, in effect, is say “Warning, warning, you are buying a property out of foreclosure, there is risk here, and you can’t hold us responsible for anything we told you in the sale process.” (see paragraphs 1 and 2). Now the not-trivial problem with that is: how can you possibly evaluate the risk of buying a property out of foreclosure without asking the current owner? And if the current owner isn’t legally responsible for what they say, or more important, what they deny is a problem, they buyer cannot perform effective due diligence. This vitiates a principle that is well embodied in most areas of consumer and business law, that a seller is liable for the representations he makes about his wares.
Now specifically, the potential problem with the deal is the bank in many states will at best be giving the buyer a “quitclaim” deed (the addendum finesses this in paragraph 18, that the buyer only gets a “special/limited warranty deed. As the lawyer who took a dim view of this addendum put it, “This is like the ‘Special Olympics,’ not like ‘You are my special someone’.” That means the bank is merely transferring whatever it interest it has.
But per the AFX article above, the bank may own nothing. It may have foreclosed without having a clear enforceable right to the property (this is the basis of the burgeoning number of cases where borrowers are successfully challenging the bank/servicer’s right to foreclose, because it cannot prove it actually owns the note, which is the IOU between the borrower and the lender; if you don’t own the note, in 45 states, you have no right to enforce the lien on the property).
Now this little problem can be solved by title insurance, right? Well, guess what, some title insurers have exited the business, some others are starting to write policies with meaningful exceptions when they can’t go to the courthouse and find a clear chain of title. Oh, and Wells is trying to steer you towards their title insurer. What do you think the odds are that their title insurance policy doesn’t have exceptions?
So what is the risk? The lawyer explains:
The typical (unsophisticated) buyer thinks that because they have a lawyer at closing (no matter whose lawyer it is), a title policy, etc…….that they are all safe and sound. They struggle through one of these REO transactions for a month or two, finally get in the house, something bad goes wrong, and they find out that 1) the title policy won’t cover them and 2) the land isn’t unique (see the nasty provision in paragraph 27 on “specific performance”), so a refund is all you get – and you are out on your ear. Hopefully, with a refund – and that may be the best outcome. But if somebody comes in, and voids a foreclosure, your title policy doesn’t pay – Wells Fargo has clearly disclosed that this was a foreclosure, so you only got what they had (nothing), and you have no recourse, no insurance, and guess what, an unsecured loan for half a million bucks.
Given how many sales will be done out of REO, and the rising number of problems surfacing with making sure that mortgage securitizations took all the steps to become the real party of interest in a particular property, it is only a matter of time before we see some blowups of the sort the attorney was worried about, of a buyer shelling out hard dollars for a house, or taking a big mortgage, and winding up with nothing. And a few incidents like that getting the press they deserve will put a pall on REO sales.
Think the risk isn’t real? Then why has Wells bothered to insist that REO buyers sign a new type of addendum, when it has been selling REO for decades? This effort to shift all title risks on to the buyer is a tacit admission of problems. And look at the document itself. The buyer has to initial it in eight places as well as sign it. That’s a clear statement of Wells’ intent to shift the risk to the buyer.
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Aug
12
HELOC LOANS WORTHLESS
EDITOR’S NOTE: It is ironic how reality eventually catches up with illusion. While we have been pounding on the issue of principal reduction as the only realistic way out of the recession, and while the financial industry has been busy convincing people that principal reduction is somehow immoral, the contraction of home prices back to reality is having its own consequences.
In the article below the art and necessity of strategic default is revealed as mainstream in the current housing market. In the case of home equity loans or home equity lines of credit the bloating of appraisals at the time of the transactions has blown up in the face of the financial industry. Many of those home equity loans were in reality part of the initial transaction without which the buyer would have been unable to purchase the home. The transaction would have been valid if the appraisal had been valid. It wasn’t.
A simple analysis of basic fundamental figures published monthly over the last 120 years easily demonstrates that the appraised values that were unverified by the alleged “lender” as part of a nonexistent “underwriting process” could not sustain the test of time or circumstance.
In point of fact most new homeowners quickly found out within weeks or months of the initial transaction that their property was worth far less than the representations made to them at the time of closing. The true value was so far below the so-called appraised value that it didn’t cover the home equity part of the transaction even at the time that the transaction was closed.
The reaction of homeowners to the disappearance of the illusion of wealth has been entirely predictable. For the present the number of home equity loans which are going unpaid is soaring both in numbers and percentages, regardless of the borrower’s ability to pay. Any party that wishes to assert itself as the “owner” of the loan is stuck in the position of holding a predatory loan subject to numerous defenses that is completely unsecured by any equity in the home. According to this article there is at least one debt collector that won’t pay more than $500 per loan regardless of the principal amount due.
The rising number of strategic defaults on primary loans is also rising, also predictable and also inevitable. This is the obvious reaction of a marketplace seeking equilibrium and dependable valuations. Until policy makers accept the reality that the wealth of our economy is largely buried under the illusion of debt that is neither secure nor perfected arising from transactions that were illegal, predatory and fraudulent, there is no way out.
Restoring consumers to the position they were in before they were defrauded is the only way to restore confidence in our society that has permitted the privatization of the issuance of money. Financial reform without providing an easy path to restoration of wealth in the middle-class is meaningless.
August 11, 2010Debts Rise, and Go Unpaid, as Bust Erodes Home Equity
By DAVID STREITFELD
PHOENIX — During the great housing boom, homeowners nationwide borrowed a trillion dollars from banks, using the soaring value of their houses as security. Now the money has been spent and struggling borrowers are unable or unwilling to pay it back.
The delinquency rate on home equity loans is higher than all other types of consumer loans, including auto loans, boat loans, personal loans and even bank cards like Visa and MasterCard, according to the American Bankers Association.
Lenders say they are trying to recover some of that money but their success has been limited, in part because so many borrowers threaten bankruptcy and because the value of the homes, the collateral backing the loans, has often disappeared.
The result is one of the paradoxes of the recession: the more money you borrowed, the less likely you will have to pay up.
“When houses were doubling in value, mom and pop making $80,000 a year were taking out $300,000 home equity loans for new cars and boats,” said Christopher A. Combs, a real estate lawyer here, where the problem is especially pronounced. “Their chances are pretty good of walking away and not having the bank collect.”
Lenders wrote off as uncollectible $11.1 billion in home equity loans and $19.9 billion in home equity lines of credit in 2009, more than they wrote off on primary mortgages, government data shows. So far this year, the trend is the same, with combined write-offs of $7.88 billion in the first quarter.
Even when a lender forces a borrower to settle through legal action, it can rarely extract more than 10 cents on the dollar. “People got 90 cents for free,” Mr. Combs said. “It rewards immorality, to some extent.”
Utah Loan Servicing is a debt collector that buys home equity loans from lenders. Clark Terry, the chief executive, says he does not pay more than $500 for a loan, regardless of how big it is.
“Anything over $15,000 to $20,000 is not collectible,” Mr. Terry said. “Americans seem to believe that anything they can get away with is O.K.”
But the borrowers argue that they are simply rebuilding their ravaged lives. Many also say that the banks were predatory, or at least indiscriminate, in making loans, and nevertheless were bailed out by the federal government. Finally, they point to their trump card: they say will declare bankruptcy if a settlement is not on favorable terms.
“I am not going to be a slave to the bank,” said Shawn Schlegel, a real estate agent who is in default on a $94,873 home equity loan. His lender obtained a court order garnishing his wages, but that was 18 months ago. Mr. Schlegel, 38, has not heard from the lender since. “The case is sitting stagnant,” he said. “Maybe it will just go away.”
Mr. Schlegel’s tale is similar to many others who got caught up in the boom: He came to Arizona in 2003 and quickly accumulated three houses and some land. Each deal financed the next. “I was taught in real estate that you use your leverage to grow. I never dreamed the properties would go from $265,000 to $65,000.”
Apparently neither did one of his lenders, the Desert Schools Federal Credit Union, which gave him a home equity loan secured by, the contract states, the “security interest in your dwelling or other real property.”
Desert Schools, the largest credit union in Arizona, increased its allowance for loan losses of all types by 926 percent in the last two years. It declined to comment.
The amount of bad home equity loan business during the boom is incalculable and in retrospect inexplicable, housing experts say. Most of the debt is still on the books of the lenders, which include Bank of America, Citigroup and JPMorgan Chase.
“No one had ever seen a national real estate bubble,” said Keith Leggett, a senior economist with the American Bankers Association. “We would love to change history so more conservative underwriting practices were put in place.”
The delinquency rate on home equity loans was 4.12 percent in the first quarter, down slightly from the fourth quarter of 2009, when it was the highest in 26 years of such record keeping. Borrowers who default can expect damage to their creditworthiness and in some cases tax consequences.
Nevertheless, Mr. Leggett said, “more than a sliver” of the debt will never be repaid.
Eric Hairston plans to be among this group. During the boom, he bought as an investment a three-apartment property in Hoboken, N.J. At the peak, when the building was worth as much as $1.5 million, he took out a $190,000 home equity loan.
Mr. Hairston, who worked in the technology department of the investment bank Lehman Brothers, invested in a Northern California pizza catering company. When real estate cratered, Mr. Hairston went into default.
The building was sold this spring for $750,000. Only a small slice went to the home equity lender, which reserved the right to come after Mr. Hairston for the rest of what it was owed.
Mr. Hairston, who now works for the pizza company, has not heard again from his lender.
Since the lender made a bad loan, Mr. Hairston argues, a 10 percent settlement would be reasonable. “It’s not the homeowner’s fault that the value of the collateral drops,” he said.
Marc McCain, a Phoenix lawyer, has been retained by about 300 new clients in the last year, many of whom were planning to walk away from properties they could afford but wanted to be rid of — strategic defaulters. On top of their unpaid mortgage obligations, they had home equity loans of $50,000 to $150,000.
Fewer than 5 percent of these clients said they would continue paying their home equity loan no matter what. Ten percent intend to negotiate a short sale on their house, where the holders of the primary mortgage and the home equity loan agree to accept less than what they are owed. In such deals primary mortgage holders get paid first.
The other 85 percent said they would default and worry about the debt only if and when they were forced to, Mr. McCain said.
“People want to have some green pastures in front of them,” said Mr. McCain, who recently negotiated a couple’s $75,000 home equity debt into a $3,500 settlement. “It’s come to the point where morality is no longer an issue.”
Darin Bolton, a software engineer, defaulted on the loans for his house in a Chicago suburb last year because “we felt we were just tossing our money into a hole.” This spring, he moved into a rental a few blocks away.
“I’m kind of banking on there being too many of us for the lenders to pursue,” he said. “There is strength in numbers.”
John Collins Rudolf contributed reporting.
Filed under: bubble, CDO, CORRUPTION, Eviction, evidence, expert witness, foreclosure, foreclosure mill, GTC | Honor, HERS, investment banking, Investor, Mortgage, Motions, Pleading, securities fraud, trustee Tagged: appraisals, David Streitfeld, fraud, home equity, Mortgage, predatory
Jul
27
The Federal Reserve Made a Record $47.4 Billion HELPING Housing Market in 2009?
Well, how nice for them. And very well done indeed.
You think I’m making this up, don’t you? Well, I’m not. I’m creative, but I’m not that creative. I’ve actually known about this headline since it ran on April 22nd of this year. I just couldn’t bring myself to write about it, so I just carried it around with me for the last three months, and every week or so I’d pull it out, stare at it for a minute, check to make sure it ran in the New York Times and not in The Onion, shake my head and go back to whatever I was doing. I guess I simply couldn’t face it.
The Federal Reserve MADE A RECORD $47.4 BILLION HELPING the Housing Market in 2009??? Come again?
First if all, I want everyone to know that I’ve never used more than one question mark in my life. And secondly, I want to run to my window, throw it open and scream at the top of my lungs:
“STOP HELPING! I CAN’T TAKE ANYMORE OF YOUR HELP!”
I’m not sure I even care how the Fed made the money damn it… just give the money back! We need it to stop the flood of foreclosures that is drowning this country as it destroys trillions upon trillions in consumer wealth. The Fed doesn’t need or deserve $47.4 billion for anything it did in 2009. They’re the people who make money out of thin air, right? So, give it back and we’ll forget the whole thing ever happened, okay?
Apparently, Vincent Reinhart, the former director of monetary affairs at the Fed was joking when talking with the reporter from the New York Times when he said: “Central banking is a great business.”
Hahahahaha… he slays me. (Actually, hey Vince… I’ll do the jokes from this point forward, okay? Please sign the form below and return to me at your earliest convenience.)
The Federal Reserve, by the way, doesn’t exist to make a profit like the commercial banks. Until 2009, the Fed paid no interest on the bank reserves and other monies it holds, and it earns interest on the Treasury securities it holds. According to the story in the Times, the “Fed’s profitability increased as an incidental result of the financial turmoil that began in 2007.”
Here’s what happened according to the story in the Times…
When the meltdown started the Fed wanted to hold down long-term interest rates in order to prop up the housing market, so it started buying more Treasuries, mortgage backed securities, and the debts of Fannie and Freddie. As a result, the Fed’s balance sheet is now $2.3 TRILLION, which is roughly 2.5 times what it was before the crisis began. Eventually, however, Bernanke will have to take steps to tighten monetary policy and return the Fed’s balance sheet to a more normal size. If he doesn’t, that’s when we’d see real inflation and a significant depreciation of the dollar. It’s a balancing act that no one wants to screw up, that’s for sure.
The Fed also made money charging troubled banks that needed the discount window and other emergency lending programs. So, how nice for them that we were having such an emergency, I suppose.
The Fed also started paying .25 percent interest on deposits in October of 2008, when Bernanke realized that he could vacuum up all the excess cash that the banks were hoarding ever since the secondary mortgage market froze in 2007 when the triple A rated bonds came up short. He used that cash to fund the programs that have propped up the banks without having to go back to Congress for more money, because frankly, TARP was enough for everyone.
And then there’s Maiden Lane I, Maiden Lane II, and Maiden Lane III… three Limited Liability Companies that the Fed formed to buy up the assets (read: mortgage backed securities and credit default swaps) of Bear Stearns, WaMu, and AIG that JPMorgan Chase and no one else for that matter wanted. Of course, the Fed says that they don’t expect to lose money on any of those assets that no one else wanted… why would they, after all?
(By the way, I looked it up and the name, “Maiden Lane,” came from the little side street next to the Federal Reserve Bank of New York… Tim Geithner’s old stomping grounds.)
Okay, so that’s about as much boredom as I can stand… I don’t actually care what the Fed does or says mostly because I don’t believe a word they tell us. But, when it comes to making record profits on HELPING the housing market in 2009, well… that just may be the most offensive thing I’ve ever heard, and it’s not easy to top that list after the last 18 months of Tim Geithner.
Time to get back to circling the drain… but you know my motto… Business is great, life is wonderful and people are terrific.
Mandelman out.
Jul
24
Barofsky’s Report: Taxpayer Support for Financial Sector Now $3.7 Trillion
Neil Barofsky, Special Inspector General for the Troubled Asset Relief Fund (TARP) has issued a report that shows that taxpayer support for the financial system grew by $700 billion last year, and has now reached roughly $3.7 trillion, including TARP, Federal Reserve programs, asset guarantees and federal bank deposit insurance, among other commitments.
Taxpayer support grew by $700 billion last year… that is to say, last year alone taxpayer support of the banks increased by the same amount as the original TARP cost in the first place.
I remember the debate over the original $700 billion TARP like it was yesterday. But, I don’t remember Congress debating anything this past year about giving the banks an additional $700 billion, do you? Was I out sick that week? I’m sure I would have remembered the $3.7 trillion number, even with the flu.
A significant portion of this colossal increase in taxpayer support was the result of the government’s futile attempt to prop up the housing market by purchasing Fannie Mae’s and Freddie Mac’s securities, and guaranteeing mortgages through the FHA, VA and Ginnie Mae.
So, when Treasury Secretary Tim “Transparency” Geithner said a month or two ago that we’ve been paid back $300 billion in TARP funds as if it was good news and a sign of progress… he wasn’t exactly telling us the whole story, now was he? No, I guess he wasn’t.
That is so cool.
Going forward, however, Treasury has been limited to $475 billion in TARP spending, and is not allowed to take on any new TARP obligations. In fact, Treasury now says it’s shrinking several programs and dropping $30 billion that was supposed to be for small business lending. Assistant Secretary Herb Allison says the current estimate of $105 billion is “conservative,” but why anyone would believe what Allison or anyone at Treasury has to say, is beyond me.
Ergo bibamus.
Jul
12
15 Texas Homeowners Sue Bank of America for Abusive Practices – Don’t Mess With Texas
I’ll tell you what… there are times in life when you’ve just got to love Texas. People in Texas just don’t like getting misled, lied to, pushed around, and generally abused, so it’s not a great place for banks to do what banks do. But apparently, Bank of America is just as abusive to the homeowners in Texas as they are to the homeowners in the other 49 states, and they’re being treated to a little Texas hospitality as a result.
The Texas Housing Justice League and 15 Texas homeowners have filed suit against Bank of America N.A. and its subsidiary, BAC Home Loans Servicing, alleging abusive servicing practices. I’m not saying that homeowners in other states aren’t just as upset about being abused by the banks, but it’s the homeowners in Texas that aren’t just complaining, they’ve banded together to file the suit, and I’m guessing that not only is this going to be interesting, but it’s probably only the beginning of these types of actions.
I’ve said it before, I’ve even told bankers before… the banks may have taken an early lead against homeowners in this crisis, and they may think they’re winning, but in this country, if you push people far enough, they’re going to fight back. And in the long run, Americans have a long history of coming out on top, as in… would you like a torch or a pitchfork?
The lawsuit, filed in US District Court, Southern District of Texas, Victoria Division, describes:
“… a systematic home loan servicing scheme that includes hours of telephone runaround, misleading and inconsistent information, lost correspondence, verbal abuse, and extensive delay, all of which have documented costs not only in terms of money, but in health. The facts in this case reveal the harsh reality that underlies the loan servicer’s press statements about loan modifications and forbearance agreements following collapse of the U.S. housing market.”
Yeah, that sounds about right. I’d recognize Bank of America anywhere.
I’m no lawyer, but is Bank of America going to dispute these allegations, or just stipulate to them and go from there? Because I would think even the judge would have to suppress the urge to snicker if the Bank of America lawyer started out by saying the bank didn’t do what the homeowners are alleging.
As in: “It’s not true, your honor.” HAHAHAHAHAHAHAHA… “Order in the court, this court will come to order.” Isn’t that about how that would go?
Here are some of the highlights from the complaint:
“Many of the Plaintiffs were told that they were eligible for loan modifications or other workout assistance, only to spend months being shuffled through Defendant BAC’s “Home Retention,” “HOPE”, “Foreclosure,” “Bankruptcy” and “Collections” departments with no resolution.”
Okay, so that’s standard operating procedure at Bank of America, right? I mean, they probably have a manual that describes that runaround, wouldn’t you think?
“Others simply wanted to know that they had been reviewed accurately for eligibility in any available programs, that a denial of assistance was final, and that their arrearage had been correctly calculated. Instead of providing Plaintiffs with basic information about the servicing of their loans and providing timely screenings for workout assistance, however, Defendant BAC misrepresented material information to the Plaintiffs about their loans, and forced them into a scheme of operation so dysfunctional that the constant barrage of misinformation, misdirection, and deliberate inactivity amounted to abuse and harassment.”
“Plaintiffs describe feeling “harassed,” “like a yo-yo,” and “blocked at every turn.”
Are you loving this as much as I am? A yo-yo, huh? I like it… I might have used a different metaphor, but I suppose in court you can’t just say what you’d want to say.
“When Plaintiffs called Defendant BAC the information they received over the telephone often conflicted with written statements or prior telephone conversations. In many of the telephone calls Defendant BAC spun Plaintiffs in a labyrinth of transfers from one department to another and back again. Plaintiffs spent hundreds of hours on the telephone, explaining their stories to a different person each time they called; often they were transferred between departments, knowing they would never speak to the same person again, and wondering if the information being provided would be contradicted by the next person they spoke with. Often, it was.”
Oh my God, I wish I made money at this, because I’d love to be able to go to Texas and watch this case proceed in person. It’s going to be one for the books, that’s for sure. I’m thinking there would have to be some stand up and cheer moments. And I wonder how much trouble I’d get in for throwing rotten tomatoes at Bank of America’s lawyer in the parking lot. I know, so immature, but guess what? I know you are, but what am I?
What’s interesting about this case is that they’re using RESPA, the Real Estate Settlement and Procedures Act, as the basis for the complaint. As in…
RESPA Count: Part A
Plaintiffs each sent Defendant BAC written applications for a loan modification, including a hardship affidavit, and written submissions of financial information that were “qualified written requests” within the meaning of RESPA, in that Plaintiffs sought information about their eligibility for a loan modification or other methods to minimize their losses.
The complaint also describes how special it is to call Bank of America on the phone.
“Requests to speak with supervisors or managers were met with resistance. During the course of telephone calls to Defendant BAC, Plaintiffs often found themselves disconnected after waiting on hold to speak to a supervisor, or were told that no supervisors were available. Some Plaintiffs sought out face-to-face interviews by contacting Bank of America branch offices, but simply found themselves on speakerphones with the same unaccountable departments that had previously been providing them with misinformation by telephone.”
Well, wait a minute… maybe they should have tried communicating with Bank of America in writing, instead of just by phone. Could be… right? Maybe they just don’t have good phone skills.
“Written communications did not fare better. Plaintiffs’ written submissions were often lost or misplaced. Plaintiffs were asked to sign the same documents three, four or even five times, and were asked to provide the same information repeatedly. Many of the Plaintiffs were assigned multiple “negotiators” who would not return telephone calls, or provide timely information to Plaintiffs.”
Oh well, I guess not. So, maybe Bank of America is hoping that the judge will think that it’s all just an isolated incident, and that it’s not something that happens to everyone.
“Plaintiffs’ experiences are not isolated incidents, but instead reveal a pattern and practice by Defendant BAC of deliberately misinforming borrowers in default or at risk of default, and refusing to respond to Plaintiffs’ legitimate, written and oral requests for information.”
Whoops… I guess that’s not going to be an easy case to make either. So, what about the damages?
Damages
Plaintiffs suffered damages including, but not limited to loss of credit, foreclosure, emotional harm, embarrassment and humiliation. Plaintiffs’ damages were proximately caused by Defendant BAC’s noncompliance with the requirements of the mortgage servicer provisions of RESPA.
Defendant BAC has engaged in a pattern and practice of non-compliance with the requirements of the mortgage servicer provisions of RESPA, and Plaintiffs seek $1,000 in statutory damages per violation.
Plaintiffs seek attorney fees under 12 U.S.C. § 2605(f)(3).
So, anyway… there’s of course a lot more involved and I’m not going to include it all in this article, or it will be longer than my usual articles, and that would make it REALLY LONG, I realize. Here are the other Counts listed in the complaint, but I’ll provide a link at the bottom to the actual complaint, so the attorneys reading this can dive right in to the details. But here’s the overview:
Count Two: Breach of Contract – Loan Modification Agreement
Count Three: Breach of Contract – Forbearance Agreement
Count Four: Breach of Contract-Promissory Note and Deed of Trust
Count Five: Violation of the Texas Property Code
Count Six: Breach of Oral Contract-HAMP Trial Modification
Count Seven: Unreasonable Collection Efforts
Count Eight: Intentional Misrepresentation
Count Nine: Texas Debt Collection Act
Here’s how the complaint wraps up, with that wonderful Request for Relief section that always asks for the order, as they say in the sales biz. And this one’s a good read.
REQUEST FOR RELIEF
A home is uniquely valuable. It is the largest investment many low income Texans will make in their lifetimes, and provides one of the few opportunities for low income Texans to build wealth. But a home is also where many of the Plaintiffs and other low income Texans raise their children and accumulate their memories. Misrepresentations that jeopardize a borrower’s home are unconscionable and the damage is irreparable. Defendant BAC’s misrepresentations to borrowers are systemic in nature and widespread in practice. Plaintiffs therefore ask that this court:
(1) Enter a temporary and permanent injunction that Defendant BAC, including its agents employees and contractors, refrain from practices, policies, and plans that result in or increase Defendants’ misrepresentations, errors, falsehoods, barriers to timely, accurate communication with Plaintiffs which are identified by the Court through the course of this litigation;
(2) Award each individual Plaintiff their actual, statutory, and exemplary damages;
(3) Award Plaintiffs their costs and attorney fees; and
(4) Grant such other relief as Court finds necessary and just.
Here’s a link to the actual complaint: 15 Texas Homeowners v. Bank of America.
Although for lawyers, I’m sure I’m stating the obvious, but for others… RESPA is a federal statute so I would think that this sort of thing could be happening all over the place… like in all 50 states. And it’s also worth mentioning that what Bank of America is accused of here, is every bit as true for Chase, Wells, One West, US Bank, Aurora, Saxon… are you feeling me here? Come on, multiply the number of banks and servicers times fifty states, and before you know it we could be having a national block party… I’ll bring the beer.
So, let’s all keep an eye on this, okay? And not throw in the towel just yet. There’s a lot going on around this country related to the foreclosure crisis. We’re in a river, not a lake… the water we’re standing in today, won’t be the same water we’ll stand in tomorrow.
We have to win this eventually, we just have to. We cannot just let this country deteriorate into a depressed land of inequality, lacking in opportunity, rife with corruption, besieged by poverty and dominated by a small oligarchy of immensely wealthy bankers and corporate executives who drive our elected officials like slaves. Think that’s too dramatic? Do you? Which part, specifically?
We cannot lose this. I have a daughter.
