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Reprieve for Banks, Foreclosure for Homeowners
Its first attempt at foreclosure relief--dubbed Making Home Affordable--having proven a dismal failure, the Obama administration recently implemented a new program called the Housing Finance Agency (HFA) Hardest Hit Fund. According to Bloomberg News, the new program "[gives] bankers a reprieve."1
Is this some kind of joke? Another reprieve for bankers? The total spent so far on mortgage relief is $75 billion. Meanwhile, Neil Barofsky, the inspector general charged with overseeing the Troubled Asset Relief Program (TARP), estimates that the total cost of the Wall Street bailouts could eventually reach $23.7 trillion!2
Foreclosures are at a record high. According to RealtyTrac, filings topped 367,000 last month, the highest monthly total since the reporting began. Nearly 260,000 homes and other properties were repossessed in the first quarter of the fiscal year. That's an all-time record and a 35 percent jump from the previous year. 10,000 homes are going into foreclosure daily.3
The Congressional Oversight Panel headed by Harvard professor Elizabeth Warren announced last week that the Obama program has helped just one borrower for every ten that have lost their homes. According to Warren, "The Treasury Department's response is lagging behind the pace of the crisis... [its] programs will not reach the overwhelming majority of homeowners in trouble." Permanent loan modifications have been made for fewer than 200,000 borrowers nationwide, leaving a growing backlog of distressed borrowers awaiting help.4
Another article on the Bloomberg site contains a breathtaking Deutsche Bank prediction that the number of ‘underwater' loans in the US may rise to 48 percent or 25 million homes by 2011!
On February 19, President Obama announced the first HFA Hardest Hit Fund with $1.5 billion in funding for "innovative measures to help families" in five states with home price declines greater than 20 percent. On March 29, the president announced the second HFA Hardest Hit Fund with $600 million in funding for five states in which the unemployment rate exceeded 12 percent in 2009.5
Unexplained on the Housing and Urban Development (HUD) website is the rationale for changing strategies over a mere 40 days-from targeting states in which the price of the real estate has slumped to states where unemployment has soared.
Regardless, it's revealing that at the same time the administration is committing paltry sums to foreclosure relief for homeowners, it announced spending $200 billion in taxpayer funds to soak up preferred stock in both Fannie Mae and Freddie Mac, twice what was previously pledged.6 Of course, both Fannie and Freddie are stockholder-owned corporations whose principal raison d'être is not rescuing drowning homeowners.
Where will dispossessed homeowners and their families go to get a roof over their heads? Will multiple families be forced to cram into apartments or converted motels? Will they go to shelters? Live in their cars or on the streets? And what will be the consequences of such massive dislocation? Could expectation of civil unrest resulting from economic calamity be a reason that for "the first time an active unit of the US military has been given a domestic assignment"?7 In a nation that already has by far the highest incarceration rates in the world, a new prison opens every week. How many of our soon-to-homeless fellow citizens will wind up inhabiting these cells?
Over the past year, even casual observers have witnessed an unmistakable pattern in this administration's approach to our national economic malaise-pennies for the poor and largesse for the wealthy. This pattern holds with respect to the debate on "cramdown" legislation. (A cramdown is a court-ordered reduction of the secured balance due on a home mortgage loan, granted to a homeowner who has filed for personal bankruptcy.8) Seven of the nine largest national banks, including JPMorgan Chase and Wells Fargo, oppose the legislation,9 calling cramdown "a dangerous concept."10 Only Citigroup and Bank of America, both of which have taken billions in handouts and "backstops" through the TARP, have maintained public silence.
Well, leave it to a bunch of pin-striped banksters to recognize a "dangerous concept" when they see one. Aren't these the same guys who recently brought the world economy to its knees with their financial legerdemain?
It's doubtful that the meager Obamite sprinklings of help to beleaguered homeowners will do much good. Eligibility requirements are strict. In order to participate, a homeowner cannot have missed more than three payments. The homeowner must be receiving without a job and receiving unemployment benefits. The home in question must be worth 115% less than the value of the mortgage. The homeowner must also have a credit score above 500.11
Soon after the meltdown in the fall of 2008, former Fed chairman and Obama advisor Paul Volcker had a better idea for keeping people in their homes rather being thrown out on the streets. He pushed for the creation of a government entity mimicking the Resolution Trust Corporation of the late 1980s and early 1990s. According to Volcker, "this new governmental body would be able to buy up the troubled paper at fair market values, where possible keeping people in their homes..."12
A northern California realtor recently told us that banks are looking much more favorably on foreclosures than on "short sales." This indicates that banks are actually more interested in taking people's property than they are in any kind of "work outs" that might save a homeowner from bankruptcy. The realtor we spoke with didn't know why this was the case but ventured an educated guess that it's simply more profitable for the banks to take and hold property at this time.
Maybe this is what Bloomberg.com's Elizabeth Hester meant in writing that the Obama foreclosure relief program is really "a reprieve for bankers" rather than for homeowners.
The prevailing logic of our politics seems to be "what's good for bankers is good for America". With a quarter of American homeowners underwater, and a government too stingy or too cozy with industry to seriously address the problem, the stability of both the banking system and the social fabric of the country are threatened.
Addendum: What would happen if people across the country sent their notices of foreclosure to Washington, DC as a reminder of just how serious this crisis has become? We recommend sending notices to President Obama with an accompanying letter. A sample letter is at www.voiceoftheenvironment.org.
***
2 Matt Taibbi, “Obama’s Big Sellout”, Rolling Stone, December 10, 2010.
3 Amy Goodman, Democracy Now, April 15, 2010.
4 Renae Merle & Dina ElBoghdady, “Obama readies steps to fight foreclosures, particularly for unemployed”, Washington Post, March 26, 2010.
5 “Administration Announces Second Round of Assistance for Hardest-Hit Housing Markets”, makinghousingaffordable.gov, March 29. 2010.
6 Hester, op. cit.
7 Gina Cavallaro, “Brigade homeland tours start October 1”, Army Times, Sept. 30, 2008
8 en.wikipedia.org/wiki/cramdown
9 op. cit., Hester
10 www.makinghousingaffordable.gov
11 Paul A. Volcker, Nicholas A. Brady & Eugene A. Ludwig, “Resurrect the Resolution Trust Corporation”, Wall Street Journal, Sept. 17, 2010.
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12 Comments so far
Show AllWar has been declared on the Majority of Americans by the economically powerful Minority. This is what started the Revolutionary war to some degree. The powers that be have already stationed an active Army unit here on the mainland in case there is some " disruption' due to a number of conditions, but not excluding economic downturn.
When was this put in place? Late Sept 2008.
They are prepared to keep their ill-gotten booty at all costs!
Say good night Gracie
I lack adequate words to describe my outrage, continued outrage actually, over the ongoing theft and fraud that is wrecking this nation for 98% of us.
I am thankful that my wife and I once helped a young couple avoid foreclosure when we helped them pay when he and his family were in dire need. In Mexico, Hispanics used to live closer together instead of distances apart. The US, especially Texas, needs remedial training in Community Respect and Unity. The economy has sunk to where society would do well to stop having taboos on 2 or more families living under the same big house. Sharing and respect would fundamentally hold the banksters at bay while too much individualism and separation only empowers them at our expense.
At this point there should no longer be outrage. At this point it should be crystal clear who Obama serves and why. At this point progressives should be leaving the Democratic party in droves and creating a new electoral possibility for the American public. It's not happening---because we do not have a viable democracy. When has it been that moneyed interests did not get their way in Washington. This setup has no safety valve. One way or another, "We can't get any more out of her Captain--she's gonna blow."
'It's not happening---because we do not have a viable democracy"
You are caught up in one of the Catch 22's the elite designed especially for you.
You are waiting for "electoral possibility", which hinges on "viable democracy", and waiting for "viable democracy", which hinges on "electoral possibility."
You will be waiting a long time.
I don't expect a democratic resolution--for reasons stated--but I do expect a resolution and I din't think its going to take a long time--perhaps less than five years.
So, what are you drinking in the interim?
Do you happen to have a nice Medoc in the cave?
A large stock of pre-FSC Camel straights?
The fruity flavor of the best Costa Rican is good, but Nicaragua is getting there with its beans.
A great book on the bubble, that reveals (surprisingly) how near total fault lies with Wall Street (Investment Banks like Goldman and ratings agencies like Moody's) is "Confessions of a Subprime Lender: An Insider's Tale of Greed, Fraud, and Ignorance"
Here's an excerpt from this book, where this particular business man sees the wheels come off the wagon, as Wall Street demands more toxic liars loans from Main Street. So they can wrap them up, rate 'em high, sell 'em and then bet against them:
"For me the turning point came in June 2005 .. Until that moment I thought that we still provided a valuable service to borrowers. For all the luncay of this businees I still wanted to believe that writing a mortgage for borrowers still meant the odds of their making their mortgage payment were greater then the likelihood of default Violating this basic tenant was never supposed to be part of the equation"
Mokhiber:
"Bill Black is one of the most prominent of those living corporate criminologists.
His specialty – control fraud.
Control fraud is when the CEO of a company uses the corporation as a weapon to commit fraud.
Bill Black is a lawyer and former federal bank regulator.
He’s the author of the corporate crime classic – The Best Way to Rob a Bank is to Own One: How Corporate Executives and Politicians Looted the S&L Industry (University of Texas Press, 2005.)
Black says there are steps we can take as a society to control corporate crime – in particular financial crime. "
http://www.counterpunch.org/mokhiber03052010.html
Yes there are steps--eliminating Corporate Executives and Corporations.
Also reforming the legal system so that it is no longer mercenary professionals.
The Cuban model, for example, is quite efficient and well thought out.
OK, Mr. President, you and all of those financial wizards you surrounded yourself with are blowing it again. You and your predecessor screwed up the first time by opening the treasury to big business. Now you are blowing it again by OPENING UP THE TREASURY TO BIG BUSINESS! People are losing their homes, so here is what you do. #1 Turn off all of the political and TV economists, you know, the ones you have been listening to for the last 16 months. The same ones who were telling everybody that everything was just peachy with the economy back in 2007. #2 Turn off the Republicans/Teabaggers and forget your absurd ideas about bipartisanship, the country is in trouble and we need a leader, not a corporate hack! #3 The first time you wasted trillions of dollars on some really bad ideas. This time you are going to waste billions of dollars on a better idea. You are going to have Mr. Geithner cut treasury checks in the amount of $300,000 to $400,000 for each working family in this country making $100,000 a year or less. After Mr. Geithner does this , you will then accept with great fanfare his resignation.
About this time you are going to hear some real high pitched squealing coming from the afore mentioned economists and Republicans/Teabaggers, just go over and shut the window. They are nothing more than those cravings you get when you are trying to quit smoking.
Now you distribute said treasury checks to the working folk across the country. (This would include those workers who are unemployed, I say this because I know how you corporate types try to squirm out of things.) #4 You take a minute to watch as the people start spending their government stimulus checks, paying their mortgages, buying new cars, refrigerators, stoves, washers, dryers, needed repairs to their homes and clothes. While you are standing there watching all of the frenzied spending it hits you just like an A-Bomb, you have just stimulated the American economy. #5 OK, breaks over, now you need to bash Harry Reid and Nancy Pelosi's heads together. You will tell them that effective immediately all goods entering the country will have a 20-50% tariff attached to them. This will include goods brought in by American companies too. This will force the American companies to decide whether or not they want to be able to do business in the U.S. market and bring the jobs that they sent to China, Mexico and India back home, or to have their products priced out of reach of most Americans by the addition of tariffs.
#6 Seeing as this rant of mine is going on for far too long, we the people will send our true representatives to counsel you on what you need to do to turn the country around. So tomorrow morning expect to see in the oval office, Elizabeth Warren, Ravi Batra, Joseph Stiglitz, Dean Baker, Robert Reich, Noam Chomsky and a lot of other wise men and women who are going to help you figure this all out.
Oh, and then, when this is all over, we will respectfully accept your resignation Sir.
And for those of you who say that this is socialism, that it will never work. I say to you, We tried it your way for thirty years and look what it got us. Now we will try something else.
For those who are in the position of being upside down - Bankers arguments about contract law are more then just dishonesty, they are legal acts of aggression. Here's an abstract of Brent White's "The Morality of Strategic Default" :
"Responding to those who argue that homeowners who strategically default on their mortgages are immoral and socially irresponsible, this article argues that breaching a mortgage contract is not only morally acceptable, it may be the most responsible course of action when necessary to fulfill more important obligations to one’s family. "
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1597835##