Whistleblower says BofA defrauded HAMP

By Jessica Dye - NEW YORK, March 7 | Wed Mar 7, 2012

(Reuters) - Bank of America NA prevented homeowners from receiving mortgage-loan modifications under a federal program in order to avoid millions of dollars in losses while benefitting from financial incentives for participating in the program, according to a complaint unsealed in federal court Wednesday.

The suit is the second whistleblower complaint unsealed so far with apparent ties to the $1 billion False Claims Act settlement announced by Bank of America and the U.S. Attorney's Office for the Eastern District of New York on February 9.

The Bank of America settlement is also part of the sweeping $25 billion agreement reached between state and federal authorities.

Final settlement documents have yet to be filed in the BoA settlement, which the U.S. Attorney's Office said was the largest ever False Claims Act payout related to mortgage fraud.

The settlement resolved claims that Bank of America's Countywide Financial subsidiaries defrauded the Federal Housing Administration by inflating appraisals used for government-insured home loans, as well as claims involving the Home Affordable Modification Program, a federal program to help American homeowners facing foreclosure.

The complaint unsealed Wednesday was filed by whistleblower Gregory Mackler, a Colorado resident who said he worked alongside Bank of America executives while an employee at Urban Lending Solutions, a company to which Bank of America contracted some of its HAMP work.

While working at Urban Lending, Mackler said he saw BofA and its loan servicing subsidiary, BAC Homes Loans Servicing LP, implement "business practices designed to intentionally prevent scores of eligible homeowners from becoming eligible or staying eligible for permanent HAMP modification."

The bank and its agents routinely pretended to have lost homeowners' documents, failed to credit payments during trial modifications and intentionally misled homeowners about their eligibility for the program, the complaint alleged.

BoA let through just enough HAMP modifications to avert suspicion and allay congressional critics, while not enough to incur any substantial losses to its own bottom line, according to the complaint.

"In other words, BoA has had it both ways. BoA has continued to maximize the value of its mortgage portfolio with anti-HAMP modification practices and managed to make money by committing fraud on homeowner," the lawsuit said.

A lawyer for Mackler could neither confirm nor deny that the complaint was tied to the settlement. A spokesman for the U.S. attorney's office and a representative for Bank of America declined to comment.

In February, a whistleblower complaint was unsealed from Kyle Lagow, a former employee in a Countrywide appraisal unit which detailed allegations of Countrywide's "corrupt underwriting and appraisal process." Bank of America purchased Countywide in June 2008.

Under the False Claims Act, successful whistleblower complaints can earn that whistleblower up to 25 percent of the settlement amount.

According to the docket, the U.S. Department of Justice has until March 16 to decide whether to intervene in both the Mackler and Lagow case. The case is United States of America v. Bank of America NA et al., in the U.S. District Court for the Eastern District of New York, no. 11-3270.

Why Hasn’t Anyone Gone to Jail?

The 50-State Foreclosure Settlement

by MIKE WHITNEY


Under the terms of the 50-state mortgage foreclosure settlement, US taxpayers could end up paying billions in penalties that were supposed to be paid by the banks. That’s the gist of a front-page story which appeared in the Financial Times on Thursday, February 17. The widely-cited article by Shahien Nasiripour notes that the 5 banks that will be affected by the settlement — Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial – will be able to use Obama’s Home Affordability Modification Program (HAMP) to reduce loan balances and “receive cash payments of up to 63 cents on the dollar for every dollar of loan principal forgiven.”

And that’s not all. If borrowers stay current on their payments after their loans are restructured, the banks could qualify for additional government funds which (according to the FT) “could then turn a profit for the banks according to people familiar with the settlement terms.”

How do you like them apples? Leave it to the bank-friendly Obama administration to turn a penalty into a windfall. In effect, the settlement will help the banks avoid losses on mortgages that are vastly overpriced on their books and which were probably headed into foreclosure anyway.

Taxpayers will stump up the money for the principle writedowns that will allow the banks to extract even more tribute from underwater homeowners. What kind of penalty is that?

Here’s how Mark Gongloff sums it up over at Huffington Post:

“Banks will get government cash as an incentive to work down mortgages as part of a settlement that is supposed to punish them for their malpractice. Banks have been getting taxpayer money under loan modification programs like HAMP all along: $615 million in modification incentives so far. Those incentives were tripled on Jan. 28 just days before the mortgage settlement was announced, making the deal appear even sweeter for the banks. 

“You can’t say this settlement has anything to do with deterrence or is punitive in nature if money is flowing into banks from taxpayers as part of the settlement,” said New York University Law professor Neil Barofsky, former special inspector-general of the Troubled Asset Relief Program.” (“Mortgage Foreclosure Settlement: Who Pays?”, Huffington Post)

Of course, no one knows for sure how many perks and “bennies” the banks will eventually nab, because the written copy of the settlement still hasn’t been released. Our guess is that the banks’ will come out smelling like a rose and that the 50 Attorneys General will end up looking like fools for taking their victory lap too soon.

Keep in mind, that the banks are really only on the hook for $5 billion in cash. The rest of the $25 billion settlement will be shrugged off onto investors in mortgage-backed securities (MBS) many of whom are retirees and pensioners. They’re going to get clobbered while the perpetrators of this nationwide crime walk away Scott-free.

It’s also worth reviewing what this case is all about, which is industrial-scale fraud directed at millions of people whose lives have been ruined by the banks. Here’s a clip from an article in Reuters that helps to put it all in perspective:

“A report this week showing rampant foreclosure abuse in San Francisco reflects similar levels of lender fraud and faulty documentation across the United States, say experts and officials who have done studies in other parts of the country. 

The audit of almost 400 foreclosures in San Francisco found that 84 percent of them appeared to be illegal, according to the study released by the California city on Wednesday. 

“The audit in San Francisco is the most detailed and comprehensive that has been done – but it’s likely those numbers are comparable nationally,” Diane Thompson, an attorney at the National Consumer Law Center, told Reuters. 

Across the country from California, Jeff Thingpen, register of deeds in Guildford County, North Carolina, examined 6,100 mortgage documents last year, from loan notes to foreclosure paperwork. 

Of those documents, created between January 2008 and December 2010, 4,500 showed signature irregularities, a telltale sign of the illegal practice of “robosigning” documents.” (“Foreclosure abuse rampant across U.S., experts say”, Reuters)

Repeat: “84 percent of them appeared to be illegal …(and) those numbers are comparable nationally.”
So, why are we talking about “mortgage foreclosure settlements” instead of criminal prosecutions? Why hasn’t anyone gone to jail with evidence this compelling?

Look: The banks have been foreclosing on homes they don’t even legally own. That’s what robosigning is. Would you be willing to accept a measly $2,000 for being tossed out of your home and onto the street by someone who doesn’t even own the mortgage? Of course, not.

9 million homes have been lost to foreclosure since 2007, and there will be another 9 million before we’re done. Homeowners have lost $8 trillion in home equity (in the last 4 years) and 11 million people are currently underwater on their mortgages. All of this is unprecedented. All of this is the result of fraud.

Forget about the mortgage-foreclosure settlement. It means nothing. Someone has to go to jail. That’s what matters.

$1.5 Trillion Still Owed to Treasury, Federal Reserve

Money Still Owed In Federal Bailout

WASHINGTON - August 3 - A new study released today by the Center for Media and Democracy (CMD) shows that, despite rosy statements about the bailout's impending successful conclusion from federal government officials, $1.5 trillion of the $4.8 trillion in federal bailout funds are still outstanding.

The analysis, presented in charts and an online table and program profiles, is based entirely on government records. This comprehensive assessment of the bailout goes beyond the relatively small Troubled Asset Relief Program (TARP) program to look at the rest of the Treasury and Federal Reserve’s multi-trillion dollar response to the financial crisis. It shows that while the TARP bailout of Wall Street (not including the bailout of the auto industry) amounted to $330 billion, the government also quietly spent $4.4 trillion more in efforts to stave off the collapse of the financial and mortgage lending sectors. The majority of these funds ($3.9 trillion) came from the Federal Reserve, which undertook the actions citing an obscure section of its charter.

“In order to understand the big picture on the bailout, you have to look beyond TARP and examine the trillions the Federal Reserve has disbursed to keep the big banks above water. $4.8 trillion went out the door to aid financial companies and repair the damage they caused to financial markets, and $1.5 trillion of that is still outstanding,” said Mary Bottari, director of CMD’s Real Economy Project.

TOTAL WALL STREET BAILOUT COST TABLE: You can click here to see our a full list of each bailout program, the amount of money disbursed and the amount of money outstanding in each program.

Most of the bailout funds were comprised of aid to banks – the peak outstanding amount was $2.2 trillion in January 2009 – which took place at the height of the financial crisis in the form of loans with below-market interest rates and for questionable collateral to banks directly from the Treasury and Federal Reserve.

Mortgage-Backed Securities Purchases
CMD’s study also shows how the government is continuing to prop up the same banks that caused the crisis in its attempt to help the housing market. The government’s housing program – which peaked at $1.6 trillion outstanding in July 2010 – is aimed at keeping mortgage lending flowing by subsidizing deals Fannie Mae and Freddie Mac make with the banks. Treasury and the Federal Reserve’s main approach has been to buy more than a trillion dollars worth of mortgage-backed securities from Fannie Mae and Freddie Mac so that the two government-sponsored enterprises can continue to purchase and bundle mortgages from the banks, which they sell to Fannie and Freddie at a profit.

The banks also benefit from the hundreds of billions in direct loans the government has made to Fannie and Freddie, which the GSEs then turn around and make in insurance pay-outs to banks for mortgages that have gone bad. This massive effort is in stark contrast to the mere $2 billion the Treasury has spent to directly help homeowners stay in their homes via the widely criticized Home Affordable Mortgage Program (HAMP) program. With housing prices continuing to falter and the United States approaching 9.2 million foreclosure filings since the beginning of 2008, HAMP can be described as nothing less than an abject failure.

“The Federal Reserve and the Treasury have spent $1.6 trillion in a bank-shot to save the mortgage lending market by using the same financial companies that got us into this mess,” said Conor Kenny, lead author of the study. “That’s more than 800 times what they’ve spent directly to keep homeowners in their houses, and the banks have made money off the whole thing.” CMD’s analysis also shows how the $4.8 trillion bailout of the financial sector dwarfs the $600 billion that the Federal Reserve spent on the much-hyped “Quantitative Easing 2” of 2010-2011 that was intended to help the broader economy – not just the financial sector – by lowering interest rates across the board and preventing deflation.

Obama Broke Pledge to Force Banks to Help Homeowners, Dems say

Friday, February 4, 2011 by Pro Publica
by Paul Kiel and Olga Pierce

Before he took office, President Obama repeatedly promised voters and Democrats in Congress that he'd fight for changes to bankruptcy laws to help homeowners-a tough approach that would force banks to modify mortgages.

Candidate Obama had portrayed homeowners in a sympathetic light. But the president struck a cautious note when he unveiled the plan in February 2009. While the government had been relatively undiscriminating in its bank bailout, it would carefully vet homeowners seeking help. HAMP was written to exclude homeowners seen as undeserving, limiting the program’s reach to between 3 million and 4 million homes.

"I will change our bankruptcy laws to make it easier for families to stay in their homes," Obama told supporters at a Colorado rally on September 16, 2008, the same day as the bailout of AIG.

Bankruptcy judges have long been barred from lowering mortgage payments on primary residences, though they could do it with nearly all other types of debt, even mortgages on vacation homes. Obama promised to change that, describing it as exactly "the kind of out-of-touch Washington loophole that makes no sense."

But when it came time to fight for the measure, he didn't show up. Some Democrats now say his administration actually undermined it behind the scenes.

"Their behavior did not well serve the country," said Rep. Zoe Lofgren (D-CA), who led House negotiations to enact the change, known as "cramdown." It was "extremely disappointing."

Instead, the administration has relied on a voluntary program with few sticks, that simply offers banks incentives to modify mortgages. Known as Home Affordable Modification Program, or HAMP, the program was modeled after an industry plan. The administration also wrote it carefully to exclude millions of homeowners seen as undeserving.

The administration launched the program with a promise that it would help 3 million to 4 million homeowners avoid foreclosure, but it's likely to fall far short of that goal. The Congressional Oversight Panel now estimates [1] fewer than 800,000 homeowners will ultimately get lasting mortgage modifications.

Over the past year, ProPublica has been exploring why the program has helped so few homeowners. Last week, we reported how the Treasury Department has allowed banks to break the program's rules with few ramifications [2]. The series is based on newly released data, lobbying disclosures, and dozens of interviews with insiders, members of Congress and others.

As the foreclosure crisis grew through 2008, the large banks that handle most mortgages were slow to offer modifications to struggling homeowners. Homeowners were left to navigate an onerous process that usually did not actually lower their mortgage payment. More than half of modifications kept the homeowner's payment the same or actually increased it.

Many in Congress and elsewhere thought that mortgage servicers, the largest of which are the four largest banks, would make modifications only if they were pressured to do so.

Servicers work as intermediaries, handling homeowners' mortgage payments on behalf of investors who own the loans. Since servicers don't own the vast majority of the loans they service, they don't take the loss if a home goes to foreclosure, making them reluctant to make the investments necessary to fulfill their obligations to help homeowners.

To force those servicers to modify mortgages, advocates pushed for a change to bankruptcy law giving judges the power not just to change interest rates but to reduce the overall amount owed on the loan, something servicers are loath to do [3].

Congressional Democrats had long been pushing a bill to enact cramdown and were encouraged by the fact that Obama had supported it, both in the Senate and on the campaign trail.

They thought cramdowns would serve as a stick, pushing banks to make modifications on their own.

"That was always the thought," said Rep. Brad Miller (D-NC), "that judicial modifications would make voluntary modifications work. There would be the consequence that if the lenders didn't [modify the loan], it might be done to them."

When Obama unveiled his proposal to stem foreclosures a month after taking office, cramdown was a part of the package [4]. But proponents say he'd already damaged cramdown's chances of becoming law.

In the fall of 2008, Democrats saw a good opportunity to pass cramdown. The $700 billion TARP legislation was being considered, and lawmakers thought that with banks getting bailed out, the bill would be an ideal vehicle for also helping homeowners. But Obama, weeks away from his coming election, opposed that approach and instead pushed for a delay. He promised congressional Democrats that down the line he would "push hard to get cramdown into the law," recalled Rep. Miller.

Four months later, the stimulus bill presented another potential vehicle for cramdown. But lawmakers say the White House again asked them to hold off, promising to push it later.

An attempt to include cramdown in a continuing resolution got the same response from the president.

"We would propose that this stuff be included and they kept punting," said former Rep. Jim Marshall, a moderate Democrat from Georgia who had worked to sway other members of the moderate Blue Dog caucus [5] on the issue.

"We got the impression this was an issue [the White House] would not go to the mat for as they did with health care reform," said Bill Hampel, chief economist for the Credit Union National Association, which opposed cramdown and participated in Senate negotiations on the issue.

Privately, administration officials were ambivalent about the idea. At a Democratic caucus meeting weeks before the House voted on a bill that included cramdown, Treasury Secretary Tim Geithner "was really dismissive as to the utility of it," said Rep. Lofgren.

Larry Summers, then the president's chief economic adviser, also expressed doubts in private meetings, she said. "He was not supportive of this."

The White House and Summers did not respond to requests for comment.

Treasury staffers began conversations with congressional aides by saying the administration supported cramdown and would then "follow up with a whole bunch of reasons" why it wasn't a good idea, said an aide to a senior Democratic senator.

Homeowners, Treasury staffers argued, would take advantage of bankruptcy to get help they didn't need. Treasury also stressed the effects of cramdown on the nation's biggest banks, which were still fragile. The banks' books could take a beating if too many consumers lured into bankruptcy by cramdown also had their home equity loans and credit card debt written down.

While the Obama administration was silent, the banking industry had long been mobilizing massive opposition to the measure.

"Every now and again an issue comes along that we believe would so fundamentally undermine the nature of the financial system that we have to take major efforts to oppose, and this is one of them," Floyd Stoner, the head lobbyist for the American Bankers Association, told an industry magazine.

With big banks hugely unpopular, the key opponents of cramdown were the nation's community bankers, who argued that the law would force them to raise mortgage rates to cover the potential losses. Democratic leaders offered to exempt the politically popular smaller banks from the cramdown law, but no deal was reached.

"When you're dealing with something like the bankruptcy issue, where all lenders stand pretty much in the same shoes, it shouldn't be a surprise when the smaller and larger banks find common cause," said Steve Verdier, a lobbyist for the Independent Community Bankers Association.

The lobbying by the community banks and credit unions proved fatal to the measure, lawmakers say. "The community banks went bonkers on this issue," said former Sen. Chris Dodd (D-CT). With their opposition, he said, "you don't win much."

"It was a pitched battle to get it out of the House," said Rep. Miller, with "all the effort coming from the Democratic leadership, not the Obama administration."

The measure faced stark conservative opposition. It was opposed by Republicans in Congress and earlier by the Bush administration, who argued that government interference to change mortgage contracts would reduce the security of all kinds of future contracts.

"It undermines the foundation of the capitalist economy," said Phillip Swagel, a Bush Treasury official. "What separates us from [Russian Prime Minister Vladimir] Putin is not retroactively changing contracts."

After narrowly passing the House, cramdown was defeated when 12 Democrats joined Republicans [6] to vote against it.

Many Democrats in Congress said they saw this as the death knell for the modification program, which would now have to rely on the cooperation of banks and other mortgage servicers to help homeowners.

"I never thought that it would work on a voluntary basis," said Rep. Lofgren.

At the time that the new administration was frustrating proponents of cramdown, the administration was putting its energies into creating a voluntary program, turning to a plan already endorsed by the banking industry. Crafted in late 2008, the industry plan gave banks almost complete freedom in deciding which mortgages to modify and how.

The proposal was drafted by the Hope Now Alliance, a group billed as a broad coalition of the players affected by the mortgage crisis, including consumer groups, housing counselors, and banks. In fact, the Hope Now Alliance was headquartered in the offices of the Financial Services Roundtable, a powerful banking industry trade group. Hope Now's lobbying disclosures were filed jointly with the Roundtable, and they show efforts to defeat cramdown and other mortgage bills supported by consumer groups.

The Hope Now plan aimed to boost the number of modifications by streamlining the process for calculating the new homeowner payments. In practice, because it was voluntary, it permitted servicers to continue offering few or unaffordable modifications.

The plan was replaced by the administration's program after just a few months, but it proved influential. "The groundwork was already laid," said Christine Eldarrat, an executive adviser at the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac. "Servicers were onboard, and we knew their feelings about certain guidelines."

As an official Treasury Department account of its housing programs later put it, "The Obama Administration recognized the momentum in the private sector reflected in Hope Now's efforts and sought to build upon it." It makes no mention of cramdown as being needed to compel compliance.

Ultimately, HAMP kept the streamlined evaluation process of the Hope Now plan but made changes that would, in theory, push servicers to make more affordable modifications. If servicers chose to participate, they would receive incentive payments, up to $4,000, for each modification, and the private investors and lenders who owned the loans would also receive subsidies. In exchange, servicers would agree to follow rules for handling homeowner applications and make deeper cuts in mortgage payments. Servicers who chose not to participate could handle delinquent homeowners however they chose.

The program had to be voluntary, Treasury officials say, because the bailout bill did not contain the authority to compel banks to modify loans or follow any rules. A mandatory program requires congressional approval. The prospects for that were, and remain, dim, said Dodd. "Not even close."

"The ideal would have been both [cramdown and HAMP]," said Rep. Barney Frank (D-MA), then the chairman of the House Financial Services Committee. But given the political constraints, HAMP on its own was "better than nothing."

"We designed elegant programs that seemed to get all the incentives right to solve the problem," said Karen Dynan, a former senior economist at the Federal Reserve. "What we learned is that the world is a really complicated place."

The program was further limited by the administration's concerns about using taxpayer dollars to help the wrong homeowners. The now-famous "rant" by a CNBC reporter [7], which fueled the creation of the Tea Party movement, was prompted by the idea that homeowners who had borrowed too much money might get help.

Candidate Obama had portrayed homeowners in a sympathetic light. But the president struck a cautious note when he unveiled the plan in February 2009 [8]. The program will "not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans," said Obama. "It will not reward folks who bought homes they knew from the beginning they would never be able to afford."

While the government had been relatively undiscriminating in its bank bailout [9], it would carefully vet homeowners seeking help. HAMP was written to exclude homeowners seen as undeserving, limiting the program's reach to between 3 million and 4 million homes.

In order to prove their income was neither too high nor too low for the program, homeowners were asked to send in more documents than servicers had required previously, further taxing servicers' limited capacity. As a result, some servicers say eligible homeowners have been kept out. According to one industry estimate [10], as many as 30 percent more homeowners would have received modifications without the additional demands for documentation.

A lot of the program is focused on "weeding out bad apples," said Steven Horne, former Director of Servicing Risk Strategy at Fannie Mae. "Ninety percent is not focused on keeping more borrowers in their homes."

Why Is the Treasury Not Releasing Data on Who’s Getting Loans?

Friday, January 21, 2011 by New American Media
by Ngoc Nguyen

At the end of this month, for the first time ever, the US Treasury plans to release to the public a treasure trove of demographic information on people who have received loan modifications. That is, if the government releases the information as promised – information that has a critical impact on policies that prevent home foreclosures.

So far, the Treasury has stalled on making this key information available, despite requests by housing and consumer advocacy groups and media organizations, including New America Media, under the federal Freedom of Information Act (FOIA). Loan modifications are changes made to the terms of a home loan and could include such things as being granted a different interest rate, a principal reduction, or a decrease in how often the loan must be paid off.

Housing advocates say they have been waiting for the Treasury to the release the information for more than a year.

National Consumer Law Center attorney Geoffry Walsh, whose organization filed a FOIA at the end of 2009, says the Treasury still hasn’t provided the information. Walsh says his group requested data detailing why borrowers were denied loan modifications.

“There were promises from the FOIA people that they would be sending [the data]…and that just went on and on for months,” he said. “They sent a few relevant things, but nothing substantial pertaining to what we asked for.”

New America Media first asked the Treasury for race and ethnicity data of those who received loan modifications under President Obama’s Home Affordability Modification Program (HAMP) last September. A Treasury spokesperson said the information would be released at the end of October. The release date was then pushed back to November. New America Media submitted a FOIA request last November, and is still waiting for the requested data. The Treasury now promises to release the data by the end of the month.

“Any delay in publishing the file is to ensure all proper precautions have been taken to protect homeowner privacy - our utmost concern,” Treasury spokesperson Andrea Risotto, said in an emailed reply to New America Media.

For housing advocates, the delay means not having access to critical data that could shed light on who’s getting loan modifications, which has been the key policy for preventing foreclosures, according to Kevin Stein, associate director of the San Francisco-based California Reinvestment Coalition.

The number of foreclosures nationally continues to rise and Stein believes they could reach 12 million by 2013.

“Many people will still need help,” Stein says, “and [loan modifications are] still the main way people will get help.” But, there’s little public information about who is getting the loan modifications and the terms of the deal, “except [what is] in the hands of the banks.”

According to Stein, in much the same way that demographic information on lending has revealed racial disparities, the HAMP data could be used to ensure fair housing laws are not being violated. The HAMP data has limitations though, as 80 percent of loan medications occur outside of the program, Stein said, citing figures by bank regulators.

Walsh of the National Consumer Law Center says his organization was denied a request for information about a calculator that loan servicers use to determine who qualifies for a loan modification. The calculator, referred to as a net present value (NPV) calculator, takes inputs such as the borrower’s income, property value, length of time behind on payments, credit score, and modification amount and “shows if the investor would do better under the loan modification or by foreclosing,” Walsh said.

The request was denied on the grounds that it was proprietary information. “Basically, they said it belongs to Fannie Mae and private businesses,” Walsh said. “We don’t agree with that.” The group appealed the decision, but the appeal was also denied. “Under HAMP rules, if the NPV test shows that the loan modification is the better option, the servicer has to do the loan modification, they can’t foreclose,” he added.

Homeowners have expressed frustration with the lack of transparency on the part of the bank, while trying to modify home loans with their lenders. Walsh says at least two changes set to begin next month will offer homeowners more transparency about their loan modification process.

As a part of the Wall Street Reform Act of 2010, banks will be required to list the figures that they used in the NPV calculator in denial letters to homeowners. In addition, Walsh says, the Treasury has said it will make the calculators available in the spring. That too, remains to be seen.

Corporate Mortgage Scams Threaten to Crash an Already Shaky Housing Market

A foreclosure pandemic riddled by corruption may stall America's recovery.
By Scott Thill, AlterNet
Posted on September 29, 2010

The Great Recession may have ended in June 2009, according to the National Bureau of Economic Research, but U.S. Treasury Secretary Timothy Geithner isn't buying it. Neither are recently revealed foreclosure and eviction scams at GMAC Mortgage, JP Morgan Chase, Bank of America, Wells Fargo and other too-big-to-fail financial firms swimming in both American taxpayer cash and the Federal Reserve Bank's divine intervention.

“I'm not an economist, and I'm not an academic," Geithner ducked when asked last week during a Financial Services Committee hearing to agree with NBER's suspicious assessment. "I would just say the following: This is still a very tough economy."

That's a colossal understatement; our creaking housing market is being capsized by a foreclosure pandemic riddled by corruption. Last week, predictable news emerged that Jeffrey Stephan, a GMAC Mortgage team leader for affidavit execution, signed off on nearly 10,000 foreclosures each month without even bothering to read them, although he is legally tasked with doing so. That's a rate of one a minute, if he works an eight-hour day, according to the Washington Post. Afraid it would look like it was blithely executing foreclosures on a callous conveyor belt -- which is precisely the case -- GMAC quickly put the brakes on any further evictions in 23 states until it could find a way to massage the problem.

"Do not proceed with evictions, cash for keys transactions, or lockouts,” GMAC's official memo explained. “All files should be placed on hold, regardless of occupant type. Do not proceed with REO sale closings.”

Real estate owned (REO) sales are sales of lender-owned properties that banks failed to unload at foreclosure auctions, and are busily trying to dump by any means necessary. That includes selling them to whatever deal-hunting home buyers still exist in this anemic economy.

But prospective home buyers could be inheriting damaged goods. Because of their dense securitization, each mortgage is divided between so many parties that banks are foreclosing and selling homes that may not even belong to them.

"Wells [Fargo] 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 onto the buyer," Yves Smith explained on Naked Capitalism. [But] 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."

Worse, titles to REO properties are being compromised and confused by these crafty banks and their lawyers. In one particularly ridiculous case, Bank of America foreclosed on a Countrywide-brokered Florida home and transferred its title to Fannie Mae, even though it had already been paid off in cash for it and no mortgage existed.

This securitized madness is exactly how owners were saddled with predatory adjustable-rate mortgages to begin with. The plan was never to keep them in their hastily constructed properties, built during a post-9/11 housing boom that more or less functioned as a casino for hedge funds and other deregulated power players. The plan was to saddle homeowners with artificially inflated loans that would exist long after their assets' true value was reached, in the best case. Or, in the worst case, long after they were kicked out of their homes, or could have their homes illegally repossessed thanks to obscure legalese and naked grift.

It is no accident that, according to CoreLogic (PDF), as of Q2 2010, nearly a quarter of all residential properties with mortgages are underwater. (Or experiencing negative equity, as bean counters looking for less scary terminology are wont to say.) Nor is it surprising that housing prices have not yet bottomed, even though they've fallen by nearly 30 percent since 2006.

Nor is it illogical to suggest the situation is only going to get worse, given the 12 million properties entering a market already swamped by underwater homeowners, as well as banks not only unwilling to take on any major housing risk but also shiftily masking title defects to those still interested in taking on the burden of their compromised REOs. It's enough to make you lose your mind in legalese. Which is also the plan.

GMAC's recent controversy is nothing new to anyone who has been paying attention to the issue. The one-time financial services arm of General Motors -- which now goes by the less offensive name Ally Financial, after a $17 billion TARP bailout brought a 56 percent government stake courtesy of American taxpayers -- was legally sanctioned in 2006 for the same scam. But they are no worse than their banking counterparts like JP Morgan Chase, which "committed fraud" according to Florida Circuit Court Judge Jean Johnson, who blocked the too-big-to-fail monster in August from foreclosing on a property that actually belonged to Fannie Mae. And of course, the preposterous Bank of America, whose financial shenanigans are simply too numerous to name here.

The insulting fiasco is another slap in the face to the Obama administration's Home Affordable Modification Program (HAMP), which was supposed to be a collaborative loan-modification effort between government and industry to lower homeowner payments and stave off foreclosures. But like government and industry's previously disastrous collaborations -- deregulation, bailouts, should I go on? -- the people foot the exorbitant bill and interminably suffer while industry players suck dry everything worth value, whether they own it or not. As of August, HAMP helped about 450,000 of a promised 3-4 million homeowners modify their loans, while foreclosures hit a monthly record of 95,000 homes, the highest monthly total ever recorded by housing industry analysts RealtyTrac. Those failures will only increase repossessions and evictions, which will spark off a persistent unemployment crisis featuring 15 million out-of-work Americans.

Meanwhile, more than half of the $400 billion government has recently spent to promote home ownership has benefited not the people-at-large but the wealthiest 5 percent of taxpayers, according to a new study funded by the nonprofit Annie E. Casey Foundation and the Corporation for Enterprise Development (CFED). Now we can add shocking -- shocking! -- revelations of corporate boilers courtesy of GMAC, the nation's fourth-largest lender, getting caught illegally mass-producing foreclosures using robo-signing slaves. Great.

The hard lesson, and truth, in this mayhem is that the so-called Great Recession is only over for corporations, whose profits have returned to pre-crisis levels and whose balance sheets haven't been this solvent since 1956, according to the Commerce Department. You're welcome.

For the rest of us, there are too few jobs or fair-minded loans on the horizon. Real unemployment is closer to 20 percent than it is to 10 percent. Like ourselves, our houses are increasingly underwater, submerged by disingenuous banks looking to callously capitalize on properties and securities they may not even own, all while willingly committing fraud on the nation.

But there are some shining lights willing to put it on the line for the American people.

"I'm pushing to establish an Office of the Homeowner Advocate at the Department of Treasury that would assist borrowers in the HAMP program who believe their mortgage servicer is breaking the rules," Senator Al Franken told the Huffington Post. "Right now, these families have nowhere to turn when wrongly denied from the assistance program or when they encounter difficulties in navigating an incredibly complicated system of avoiding foreclosure."

Let's hope Franken succeeds. Without that complexity, the banking and housing industry as we know it would disappear. Without the ability to splice mortgages into sci-fi nanostrands deliberately engineered to avoid simplicity (and liability), banks would suddenly have to increase their capital requirements, increase transparency and lend directly to homeowners without the benefit of a servicing industry whose very purpose is to distance risk as far away from lenders as possible. So far, it's working like a well-funded machine, even in spite of the GMAC controversy, which is years-old news, to say nothing of the overall recession. If banks can lock homeowners into dense legalese and massive interest payments, they can lock out those same homeowners and make hay in the foreclosure aftermarket.

Meanwhile, all the homes industry just couldn't wait to build in the housing bubble are rotting away, toxic footballs punted between players paranoid of getting stuck in money pits. Which, in turn, is creating multiple monsters, from increasing family homelessness, an unsustainable housing glut, depressed property values, rising public fury and worse. And it's time the American people withdrew from the war, like the United Auto Workers, who are so fed up with JP Morgan Chase's refusal to implement a two-year freeze on foreclosures they are planning mass bank withdrawals in the hundreds of millions. More taxpayer revolt against the banks, as well as a double-dip recession, are practically guaranteed unless the government gets serious about protecting its people, not just corporations, from systemic financial failure.

"Popular anger against taxpayer dollars going to the largest banks, especially when the economy continues to struggle, remains high," explained the Congressional Oversight Panel -- whose chairwoman Elizabeth Warren was named by the Obama administration to head a new consumer watchdog -- explained in its September report. "The program's unpopularity may mean that unless it can be convincingly demonstrated that the TARP was effective, the government will not authorize similar policy responses in the future. Thus, the greatest consequence of the TARP may be that the government has lost some of its ability to respond to financial crises in the future."

So NBER may think the Great Recession is over, but it's really just beginning for the majority of Americans, who are running out of hope, change and time. If economic history, which is littered with recessions and depressions, is any guide, Americans have years to wait before this Titanic turns around, if it ever does.

"If you allow a financial market to spin wildly until it breaks down, it really does seem that you run the risk of years of economic malaise," explained Yale economist Robert Shiller. "That is a historical pattern."

Housing Prices Will Plunge ... Again

The Swelling Backlog
By MIKE WHITNEY

Home ownership has become an albatross. Prices are falling, demand is weak, foreclosures are soaring, and inventory is backed up to the moon. If there's an upside, it's a mystery to me.

Many of the people who bought homes in the last 6 to 7 years, realize now that they were caught in a massive mortgage laundering scam. The banks lured unqualified applicants into "easy-term" loans to so they could peddle their "fishwrap" mortgage paper to clueless investors. The con worked so well, that housing prices doubled or--in some cases--tripled in value. But the inflated prices did not reflect supply/demand fundamentals. They reflected fraud-- industrial-scale fraud that created an $8 trillion housing bubble. Now the bubble has burst and prices are returning to trend. That means foreclosures will rise while millions of homeowners will slip deeper into the red.

This is from Bloomberg News:

"The slide in U.S. home prices may have another three years to go as sellers add as many as 12 million more properties to the market. Shadow inventory---the supply of homes in default or foreclosure that may be offered for sale---is preventing prices from bottoming after a 28 percent plunge from 2006, according to analysts from Moody’s Analytics Inc., Fannie Mae, Morgan Stanley and Barclays Plc. Those properties are in addition to houses that are vacant or that may soon be put on the market by owners.

“The best thing that could happen is for prices to get to a level that clears the market,” said Joshua Shapiro chief U.S. economist of Maria Fiorini Ramirez Inc, who predicts prices may fall another 10 percent to 15 percent. “Right now, buyers know it hasn’t hit bottom, so they’re sitting on the sidelines.” (U.S. Home Prices Face 3-Year Drop as Inventory Surge Looms, John Gittlesohn and Kathleen Howley, Bloomberg)

The Obama administration has tried everything to boost housing sales--incentives, subsidies, tax breaks, even record-low interest rates--but nothing has worked. Now it looks like they're ready to throw in the towel and let prices fall, but that presents risks, too. Presently, there's a backlog of 4 million homes listed with brokers. (At the current pace, it would take 12 months to sell that number of homes.) However, as Bloomberg notes, there's another 12 million properties that have been kept off the market. As those homes gradually come on-line, demand will weaken and prices will fall.

This is from CNBC's Diana Olick:

Prices have been recovering since last Fall, largely thanks to the artificial stimulus of the $8000/$6500 home buyer tax credit. But prices were also benefiting from a slight bump in confidence in the housing market, fed by an apparent drop in the foreclosure numbers. In reality, the foreclosure numbers were dropping only because banks and states were delaying the process, as they tried to cram as many borrowers as possible into what we now know is a largely unsuccessful government-backed mortgage modification program....

Now home buyer confidence is back in the dumps, which is clear from another report out today showing that for the 3rd straight month the percentage of home sellers on the market who have slashed their asking prices at least once has gone up....Unless we see a marked, widespread increase in home sales over the next several months, prices will go from flat to down once again. ("Home price double dip begins, Diana Olick, CNBC)

Actually, prices have begun to double dip already. According to CoreLogic:

"The majority of states experienced price declines and price declines are spreading across more geographies relative to a few months ago. Home prices fell in 36 states in July, nearly twice the number in May and the highest since last November when national home prices were declining," said Mark Fleming, chief economist for CoreLogic."

Now that the administration's incentives programs have ended, the underlying trend has started to reassert itself. Experts figure that prices could slide another 10 to 20 percent, but no one knows for sure.

As prices continue to tumble, people will want to know why the Fed's $1.25 trillion Quantitative Easing (QE) program didn't stabilize prices as Fed chairman Ben Bernanke said it would.

The fact is, Bernanke's QE program had no effect on prices. Prices are a function of supply and demand. The banks simply withheld supply while the exchange of assets took place ($1.25 trillion reserves for the banks non performing loans and mortgage-backed securities) so the bailout could go forward without inciting too much public rage. (The last thing Bernanke wanted, was another TARP firestorm.) But QE did not increase demand, decrease supply, improve sales or lower interest rates. In fact, interest rates have fallen further since the program ended. Some pundits say that the deal was a "wash", that the Fed merely exchanged illiquid assets for liquid assets. But this is misleading, too. The bottom line is, the banks are now stuffed with a trillion in reserves while while the Fed's balance sheet is loaded with downgraded, toxic assets for which there is no market. It's not hard to figure out who got the better end of the deal.

Now that the banks have beefed up their equity, they don't need to play-along anymore, which is why they've started dumping their housing stockpile on the market. Here's a clip from an article in the Wall Street Journal that helps to fill out the details:

"The Home Affordable Modification Program has fallen short of its goals. So far, fewer than 500,000 loans have been modified, below the target of three million to four million. Yet the program served as a “closet moratorium” on foreclosures that stanched the flow of bank-owned homes to the market, said Ronald Temple, portfolio manager at Lazard Asset Management."

Of course, the HAMP program failed. It was designed to fail. It was a stalling device like the other foreclosure moratoria. All of the subsidies, incentives and tax credits were designed to run-out-the-clock while the banks offloaded their garbage loans onto the Fed's balance sheet. Now that the Fed has successfully transferred the reserves, there's no reason to continue the charade. The great housing inventory purge can resume with gusto. And, it has. Servicers have already picked up the pace of foreclosures while "home seizures reached a record for the third time in five months in August" according to RealtyTrac Inc.

This is from the WSJ:

“We see the perfect storm brewing with rising supply and falling demand,” said Ivy Zelman, chief executive of research firm Zelman & Associates and one of the first to warn of trouble five years ago. She estimated that distressed sales could account for half of the market by year-end if traditional sales didn’t rebound….."

Homeowners have already seen prices drop 30% from their bubble-highs in 2006. Another sharp dip would be disastrous for people facing retirement or living on fixed income. If Obama's got something up his sleeve--like emergency cramdown legislation that will force banks to lower the face-value of the mortgage---he'd better get to it. Things could get ugly fast.

Treasury Admits Program for Struggling Homeowners a Ploy to Enrich Big Banks

The Treasury Dept.'s mortgage relief program isn't just failing, it's actively funneling money from homeowners to bankers, and Treasury likes it that way.
By Zach Carter, AlterNet
Posted on August 25, 2010

The Treasury Department's plan to help struggling homeowners has been failing miserably for months. The program is poorly designed, has been poorly implemented and only a tiny percentage of borrowers eligible for help have actually received any meaningful assistance. The initiative lowers monthly payments for borrowers, but fails to reduce their overall debt burden, often increasing that burden, funneling money to banks that borrowers could have saved by simply renting a different home. But according to recent startling admissions from top Treasury officials, the mortgage plan was actually not really about helping borrowers at all. Instead, it was simply one element of a broader effort to pump money into big banks and shield them from losses on bad loans. That's right: Treasury openly admitted that its only serious program purporting to help ordinary citizens was actually a cynical move to help Wall Street megabanks.

Treasury Secretary Timothy Geithner has long made it clear his financial repair plan was based on allowing large banks to "earn" their way back to health. By creating conditions where banks could make easy profits, Getithner and top officials at the Federal Reserve hoped to limit the amount of money taxpayers would have to directly inject into the banks. This was never the best strategy for fixing the financial sector, but it wasn't outright predation, either. But now the Treasury Department is making explicit that it was—and remains—willing to let those so-called "earnings" come directly at the expense of people hit hardest by the recession: struggling borrowers trying to stay in their homes.

This account comes secondhand from a cadre of bloggers who were invited to speak on "deep background" with a handful of Treasury officials—meaning that bloggers would get to speak frankly with top-level folks, but not quote them directly, or attribute views to specific people. But the accounts are all generally distressing, particularly this one from economics whiz Steve Waldman:

The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks. Policymakers openly judged HAMP to be a qualified success because it helped banks muddle through what might have been a fatal shock. I believe these policymakers conflate, in full sincerity, incumbent financial institutions with "the system," "the economy," and "ordinary Americans."

Mike Konczal confirms Waldman's observation, and Felix Salmon also says the program has done little more than delay foreclosures, as does Shahien Nasiripour.

Here's how Geithner's Home Affordability Modification Program (HAMP) works, or rather, doesn't work. Troubled borrowers can apply to their banks for relief on monthly mortgage payments. Banks who agree to participate in HAMP also agree to do a bunch of things to reduce the monthly payments for borrowers, from lowering interest rates to extending the term of the loan. This is good for the bank, because they get to keep accepting payments from borrowers without taking a big loss on the loan.

But the deal is not so good for homeowners. Banks don't actually have to reduce how much borrowers actually owe them—only how much they have to pay out every month. For borrowers who owe tens of thousands of dollars more than their home is worth, the deal just means that they'll be pissing away their money to the bank more slowly than they were before. If a homeowner spends $3,000 a month on her mortgage, HAMP might help her get that payment down to $2,500. But if she still owes $50,000 more than her house is worth, the plan hasn't actually helped her. Even if the borrower gets through HAMP's three-month trial period, the plan has done nothing but convince her to funnel another $7,500 to a bank that doesn't deserve it.

Most borrowers go into the program expecting real relief. After the trial period, most realize that it doesn't actually help them, and end up walking away from the mortgage anyway. These borrowers would have been much better off simply finding a new place to rent without going through the HAMP rigamarole. This example is a good case, one where the bank doesn't jack up the borrower's long-term debt burden in exchange for lowering monthly payments

But the benefit to banks goes much deeper. On any given mortgage, it's almost always in a bank's best interest to cut a deal with borrowers. Losses from foreclosure are very high, and if a bank agrees to reduce a borrower's debt burden, it will take an upfront hit, but one much lower than what it would ultimately take from foreclosure.

That logic changes dramatically when millions of loans are defaulting at once. Under those circumstances, bank balance sheets are so fragile they literally cannot afford to absorb lots of losses all at once. But if those foreclosures unravel slowly, over time, the bank can still stay afloat, even if it has to bear greater costs further down the line. As former Deutsche Bank executive Raj Date told me all the way back in July 2009:

If management is only seeking to maximize value for their existing shareholders, it's possible that maybe they're doing the right thing. If you're able to let things bleed out slowly over time but still generate some earnings, if it bleeds slow enough, it doesn't matter how long it takes, because you never have to issue more stock and dilute your shareholders. You could make an argument from the point of view of any bank management team that not taking a day-one hit is actually a smart idea.

Date, it should be emphasized, does not condone this strategy. He now heads the Cambridge Winter Center for Financial Institutions Policy, and is a staunch advocate of financial reform.

If, say, Wells Fargo had taken a $20 billion hit on its mortgage book in February 2009, it very well could have failed. But losing a few billion dollars here and there over the course of three or four years means that Wells Fargo can stay in business and keep paying out bonuses, even if it ultimately sees losses of $25 or $30 billion on its bad loans.

So HAMP is doing a great job if all you care about is the solvency of Wall Street banks. But if borrowers know from the get-go they're not going to get a decent deal, they have no incentive to keep paying their mortgage. Instead of tapping out their savings and hitting up relatives for help with monthly payments, borrowers could have saved their money, walked away from the mortgage and found more sensible rental housing. The administration's plan has effectively helped funnel more money to Wall Street at the expense of homeowners. And now the Treasury Department is going around and telling bloggers this is actually a positive feature of the program, since it meant that big banks didn't go out of business.

There were always other options for dealing with the banks and preventing foreclosures. Putting big, faltering banks into receivership—also known as "nationalization"—has been a powerful policy tool used by every administration from Franklin Delano Roosevelt to Ronald Reagan. When the government takes over a bank, it forces it to take those big losses upfront, wiping out shareholders in the process. Investors lose a lot of money (and they should, since they made a lousy investment), but the bank is cleaned up quickly and can start lending again. No silly games with borrowers, and no funky accounting gimmicks.

Most of the blame for the refusal to nationalize failing Wall Street titans lies with the Bush administration, although Obama had the opportunity to make a move early in his tenure, and Obama's Treasury Secretary, Geithner, was a major bailout decision-maker on the Bush team as president of the New York Fed.

But Bush cannot be blamed for the HAMP nightmare, and plenty of other options were available for coping with foreclosure when Obama took office. One of the best solutions was just endorsed by the Cleveland Federal Reserve, in the face of prolonged and fervent opposition from the bank lobby. Unlike every other form of consumer debt, mortgages are immune from renegotiation in bankruptcy. If you file for bankruptcy, a judge literally cannot reduce how much you owe on your mortgage. The only way out of the debt is foreclosure, giving banks tremendous power in negotiations with borrowers.

This exemption is arbitrary and unfair, but the bank lobby contends it keeps mortgage rates lower. It's just not true, as a new paper by Cleveland Fed economists Thomas J. Fitzpatrick IV and James B. Thomson makes clear. Family farms were exempted from bankruptcy until 1986, and bankers bloviated about the same imminent risk of unaffordable farm loans when Congress considered ending that status to prevent farm foreclosures.

When Congress did repeal the exemption, farm loans didn't get any more expensive, and bankruptcy filings didn't even increase very much. Instead, a flood of farmers entered into negotiations with banks to have their debt burden reduced. Banks took losses, but foreclosures were avoided. Society was better off, even if bank investors had to take a hit.

But instead, Treasury is actively encouraging troubled homeowners to subsidize giant banks. What's worse, as Mike Konczal notes, they're hoping to expand the program significantly.

There is a flip-side to the current HAMP nightmare, one that borrowers faced with mortgage problems should attend to closely and discuss with financial planners. In many cases, banks don't actually want to foreclose quickly, because doing so entails taking losses right away, and most of them would rather drag those losses out over time. The accounting rules are so loose that banks can actually book phantom "income" on monthly payments that borrowers do not actually make. Some borrowers have been able to benefit from this situation by simply refusing to pay their mortgages. Since banks often want to delay repossessing the house in order to benefit from tricky accounting, borrowers can live rent-free in their homes for a year or more before the bank finally has to lower the hatchet. Of course, you won't hear Treasury encouraging people to stop paying their mortgages. If too many people just stop paying, then banks are out a lot of money fast, sparking big, quick losses for banks -- the exact situation HAMP is trying to avoid.

Borrowers who choose not to pay their mortgages don't even have to feel guilty about it. Refusing to pay is actually modestly good for the economy, since instead of wasting their money on bank payments, borrowers have more cash to spend at other businesses, creating demand and encouraging job growth. By contrast, top-level Treasury officials who have enriched bankers on the backs of troubled borrowers should be looking for other lines of work.

More Foreclosures, More Bank Failures, Big Trouble for the FDIC

Published on 08-11-2010
Source: Yahoo Finance

The U.S. housing market continues to send mix signals. More homes continue to enter foreclosure but the number of homeowners carrying so-called “under water mortgages,” declined in the second quarter, Zillow.com reported Monday.

21.5% of homeowners owed more on their mortgage than their home was worth in the second quarter, that’s down from 23.3% in the first quarter and 23% a year ago.

“There are a lot homes caught up in mortgage modifications,” explains Richard Suttmeier of ValuEngine.com, which he says results in a temporary stability in home prices. The key word: temporary.

“There’s waves of more foreclosures coming in the housing market because very few of the HAMP modifications are becoming permanent,” he says.

Meanwhile, the backdoor bailout of the housing market continues. Freddie Mac reported a $4.7 billion second quarter loss Monday and asked the government for another $1.8 billion in aid. Last week, Fannie Mae - Freddie Mac’s larger counterpart - asked the government for $1.5 billion. That brings the total tab for the government-sponsored entities to $148 billion. Suttmeier estimates, Fannie and Freddie, will wind up costing taxpayers at least $400 billion.

All of this housing trouble creates a vicious cycle for the economy, jobs and the fragile banking system, Suttmeier tells Aaron in this clip, predicing another 30% drop in home prices by 2014, as measured by the Case-Shiller Index.

“If you’re not building homes, you’re not creating jobs. Construction is the biggest component of job creation on Main Street USA,” he says. “Community banks can’t lend because they’re stuffed with loans they wrote 2003-2007. They are going bad.”

The 'negative feedback loop’ is going to lead to more bank failures and that leads to another problem – a lack of money in the FDIC Insurance Fund.

"The FDIC Deposit Insurance fund has now been drained by just $1.33 billion so far this quarter bringing the year to date total to $18.93 billion well above the $15.33 billion prepaid assessments for all of 2010,” Suttmeier recently wrote clients. Ironically, filling that gap will fall on the shoulders of the ‘Too Big To Fail Banks’ he says. “Because they can afford it.”

The big banks can afford it thanks to TARP and other taxpayer subsidies but the rising cost of replenishing the FDIC fund means lower profits for the big banks, which means they'll be even less inclined to lend money to the rest of us, further curtailing economic activity.

Did somebody say "negative feedback loop"?

Hundreds Protest Outside Bankers' Houses In DC

Class Warfare...
by Arthur Delaney

Huge angry mobs converged outside bank employees' houses on Sunday afternoon to demand banks stop lobbying against Wall Street reform.

"Bank of America: bad for America!" shouted community leaders outside the house of Bank of America general counsel Gregory Baer.

The Chicago-based grassroots organization National People's Action, in coordination with the SEIU, bused more than 700 workers from 20 states to Baer's neighborhood, one of the wealthiest corners of Washington. The action kicks off several days of protests targeting K Street for lobbyists' role in financial reform.

Baer himself apparently tried to blend in with the crowd until a neighbor outed him. The mob booed loudly as he walked into his house. "I don't have time for you," he said, according to Trenda Kennedy of Springfield, Ill. who used a bullhorn to tell the crowd about her trouble getting a mortgage modification from Baer's bank.

Kennedy told HuffPost she'd been making reduced monthly payments thanks to a trial modification via the Home Affordable Modification Program. She said that when the bank turned her down for a permanent mod, she was told she still owed all the money she'd been paying during the trial. She said she's been notified of several sheriff's sale dates but has somehow managed to keep her home.

"Every time I'm inches away from losing my house, by some miracle it's been pushed off," said Kennedy, who is a member of Illinois People's Action.

Passersby and dogwalkers smiled at the sight of people gathered all over Baer's lawn and blocking the road. Baer's neighbor from across the street won little sympathy when he angrily yelled at protesters for waking up his two-year-old daughter. Kennedy was one of several people who used a bullhorn to tell personal bank horror stories.

Baer, formerly a senior official at the Treasury department, is a lawyer for the bank's regulator and public policy legal group. Bank of America declined to comment.

"Bank of America came to the homes of everyday Americans when you spread predatory loans in neighborhoods across, the country, when you financed payday-lending storefronts, when your reckless behavior sent the economy to the brink of disaster, and when your bank-owned properties littered neighborhoods from coast to coast," said a letter the group asked Baer to deliver to CEO Brian Moynihan. "You've created a historic mess and have been unreceptive to very polite, very formal and very consistent requests to fix the problems you helped create."

The group also protested outside the house of Peter Scher, a lobbyist for JPMorgan Chase. Nobody answered the door.

Housing Market Crashes Again

This morning on MSNBC, they were saying that a housing boom had begun or was beginning. Heh...

***

A World of Pain Ahead

By MIKE WHITNEY

The brief period of stabilization in housing appears to be over and the next leg-down has begun. Mortgage rates are edging higher, foreclosures are on the rise, and the government programs that supported the sector, are being phased out. The uptick in bank-owned properties (REO) is adding to surplus inventory and pushing down prices. A recently released report from First American CoreLogic shows that "distressed sales accounted for 29 per cent of all sales nationwide." Nearly one-third of all home sales are distressed REOs. Also, according to a report from Clear Capital, "Home prices nationally have dropped 3.9 percent quarter to quarter, the first quarterly drop in nine months. (Thanks to Diana Olick, Realty Check, CNBC) Bottom line: More people are being forced from their homes, the banks are facing bigger losses, and the housing market is on the skids.

The Obama administration's Home Affordability Modification Program (HAMP) has largely been a bust. Of the 3 to 4 million potential modifications, only 170,000 homeowners have successfully converted into a new mortgage. Under the new "principal reduction" plan, borrowers will be able to refinance into a FHA loan if lenders agree to slash the face-value of the mortgage. This puts the government on the hook if the homeowner defaults, which will lead to heftier losses for Uncle Sam. One of the main sticking points with the new program has been second liens, which are the home equity loans that were made using the mortgage as collateral. Falling home prices have made these loans essentially worthless, but the banks have resisted writing them off altogether because hundreds of billions of dollars are at stake. Even so, the four biggest banks have signed on to the new program hoping to stem the surge in foreclosures. Here's an excerpt from an article on Housingwire that shows how desperate the banks are to stop the bleeding:

"Two major banks are expecting major increases in foreclosures, by the end of 2010.

"According to the Irvine Housing blog, Bank of America, which currently forecloses on 7,500 homes every month will see that number rise to 45,000 by December 2010.....

“JPMorgan Chase is forecasting bigger foreclosure numbers in the coming months. According to a presentation at the end of February, JPMorgan expects the amount of real estate owned (REO) properties in its portfolio to reach between 33,000 to 45,000 in Q410. By comparison, in Q409, REO inventories were at 23,100." ("Big Banks Prepare for Major Rise in Foreclosures Ending 2010" Jon Prior, Housingwire.)

Bank of America's 6X increase in projected foreclosures is a real eye-popper. It suggests that housing prices (particularly in California) have quite a bit further to tumble. This will effect everything from private consumption to state revenues. It's a disaster.

Worth noting is that subprime defaults are largely over, and that, the new wave of foreclosures is made up of option ARMs, primes and Alt As. Many of these are high-income individuals who are using "strategic default" as a way to cut their losses and walk away from what has turned out to be a bad business deal. In fact, the data show that well-heeled homeowners are almost twice as likely to default than middle or low income people. So much for moral hazard.

Obama's revised HAMP program could keep as many as one million homeowners out of foreclosure, but, even so, it's just a trickle in the bucket. Foreclosures and short sales will soar into 2011 no matter what the government does. In fact, the torrent has already begun as CNBC's Diana Olick reports on Tuesday:

"Lender Processing Services just put out its "Mortgage Monitor Report," and we have a new record: The nation's foreclosure inventories reached record highs. February's foreclosure rate of 3.31 per cent represented a 51.1 per cent year-over-year increase. The percentage of new problem loans also remains at a five-year high. The total number of non-current first-lien mortgages and REO properties is now more than 7.9 million loans. Furthermore, the percentage of new problem loans is also at its highest level in five years." (CNBC, Diana Olick, Realty Check.)

Whoa. 8 million homeowners are behind on their payments! And, that's not all; mortgage applications dropped 9.6 per cent last week while the Refinance Index (refis) fell 9 per cent in the same period. So, mortgage apps are down even though the Firsttime Homebuyer Tax Credit is still in effect (it ends in two weeks) and, even though this is the "peak season" for home sales.

So, why the sudden spike in foreclosures a full four years into the housing crash?

Because the banks have been withholding supply to keep prices artificially high. There may have been an understanding between the banks and the Fed (a quid pro quo?) to keep inventory low so it looked like Bernanke's $1.25 trillion Quantitative Easing (QE) program was actually stabilizing the market. But now that the banks are stuffed with reserves, there's no need to continue the charade. So the dumping of backlog homes has begun. That will cause inventories to rise and prices to fall. More homeowners will slip into negative equity which will lead to even more foreclosures. It's a vicious circle. If the coming wave of foreclosures is anything close to Bank of America's projections, there's a world of pain ahead.

Mortgage Aid Plan Wastes Billions

Watchdog Group: Obama's Mortgage Aid Plan Wastes Billionsby Matthew Jaffe

The Obama administration's embattled mortgage aid plan is coming under fresh criticism from a government watchdog who says the program is wasting billions of taxpayer dollars simply to delay -- rather than prevent -- foreclosures.

In the last year, the Treasury Department's $75 billion Home Affordability Modification Program (HAMP) has been blasted by Democrats, Republicans and watchdogs alike.

Despite a flurry of recent changes to the program, the Congressional Oversight Panel, chaired by Harvard Prof. Elizabeth Warren, outlines a slew of criticisms in a new report to be released today.

"Treasury's programs are not keeping pace with the foreclosure crisis," the panel says in the report. "Treasury is still struggling to get its foreclosure programs off the ground as the crisis continues unabated."

Click here to read the full report.

To date, only around 170,000 borrowers have received permanent mortgage modifications under the program.

While Treasury has said that 1.3 million borrowers have been offered trial mortgage modifications, a total of 2.8 million homeowners received foreclosure notices last year, a fact the Panel says indicates that the administration's response is lagging "well behind" the speed of the crisis.


"For every borrower who avoided foreclosure through HAMP last year, another 10 families lost their homes," the panel says. "It now seems clear that Treasury's programs, even when they are fully operational, will not reach the overwhelming majority of homeowners in trouble."

Even if the program fulfills its goal of helping 3 million to 4 million borrowers stay in their homes, the panel said, "the goal itself seems small in comparison to the magnitude of the problem."

Mortgage Aid Program Under Fire

Specifically, the panel finds problems with three areas of Treasury's program: the timeliness of the government's response, the accountability of the program and the sustainability of the mortgage modifications.

It is on the latter where the Panel makes its strongest criticisms.

"Most borrowers who proceed through HAMP will face a precarious future, but their resources will be severely constrained," the panel says. "Many will have no equity in their homes and are likely to question whether it makes sense to struggle so hard and for so long to make payments on homes that could remain below water for years.

"Many borrowers will eventually re-default and face foreclosure. Others may make payments for five years under a so-called permanent modification, only to see their payments rise again when the modification period ends," the panel says.

"The re-defaults signal the worst form of failure of the HAMP program: Billions of taxpayer dollars will have been spent to delay rather than prevent foreclosures."

On the issue of timeliness, the panel says Treasury's continuous changes to the program have caused confusion among banks and could even cause banks to delay loan modifications in the hopes of receiving greater incentives in the future.

Even if Treasury's most recent changes to help unemployed and underwater borrowers prove successful, the panel says, the impact of those changes will not be felt until early next year.

On accountability, the panel says Treasury should be clearer about the amount of taxpayer money set aside for foreclosure prevention programs. The panel also calls on Treasury to closely monitor the performance of banks in helping homeowners, after banks were blasted for giving homeowners the run-around.

Treasury spokeswoman Meg Reilly has responded to the panel's report by highlighting new data for the foreclosure prevention program that will be released on Wednesday.

As of the end of last month, "More than 1.4 million homeowners have received offers for trial modifications and more than 1.1 million borrowers were receiving a median savings of $500 each month," Reilly said in a statement.

"Permanent modifications have been granted to more than 230,000 homeowners and an additional 108,000 permanent modifications have been approved by servicers and are pending only borrower acceptance," Reilly said.

"We strongly agree with the COP's assessment that foreclosures are at an unacceptable high rate, which is why this program has been designed to prevent avoidable foreclosures," Reilly said.

"These programs are not intended to help every homeowner in trouble," she said. "The Administration's programs were designed to help responsible, eligible families keep their homes, not for investors or speculators, and not to save million dollar houses or vacation homes. We also must recognize that we cannot help those who simply bought a home that they could not afford."

Wednesday, the same day Treasury releases the latest HAMP data, the House Financial Services Committee will hold a hearing on HAMP featuring Treasury official Phyllis Caldwell.

Obama May Prohibit Home-Loan Foreclosures Without HAMP Review

If this is true, it's a good thing. Bravo! But I have my doubts Obama will do something like this which will be perceived as an affront to the bankers. We'll see.

Obama May Prohibit Home-Loan Foreclosures Without HAMP Review 

By Dawn Kopecki

Feb. 25 (Bloomberg) -- The Obama administration may expand efforts to ease the housing crisis by banning all foreclosures on home loans unless they have been screened and rejected by the government’s Home Affordable Modification Program.

The proposal, reviewed by lenders last week on a White House conference call, “prohibits referral to foreclosure until borrower is evaluated and found ineligible for HAMP or reasonable contact efforts have failed,” according to a Treasury Department document outlining the plan.

“It is one of the many ideas under consideration in the administration’s ongoing housing stabilization efforts,” Treasury spokeswoman Meg Reilly said in an e-mail. “This proposal has not been approved and there are no immediate planned announcements on the issue.”

She confirmed the authenticity of the document, which hasn’t been made public.

At present, lenders can initiate foreclosure proceedings on any loan that hasn’t been submitted for HAMP eligibility. Under current HAMP rules, foreclosure litigation can proceed while borrowers are under review for the program or even in a trial modification.

The proposed changes would prohibit lenders from initiating new foreclosure actions before loan screening by HAMP and would require lenders to halt existing proceedings for borrowers once they are in a trial repayment plan.

‘Improved Protections’

The Treasury Department will soon release guidance “which will include a set of improved protections for borrowers” in HAMP, Phyllis Caldwell, chief of Treasury’s Homeownership Preservation Office, said today in testimonyprepared for a House Oversight and Government Reform subcommittee. She didn’t provide details.

The proposal goes further than rules adopted amid the crisis by federally controlled mortgage-finance companies Freddie Mac and Fannie Mae, which require lenders to review borrowers for a federal loan modification before a foreclosed property can be sold.

Foreclosure proceedings can still be initiated without a review, said Freddie Mac spokesman Doug Duvall. Fannie Mae spokeswoman Amy Bonitatibus said it adopted the same policy last March.

About 89 percent of outstanding residential mortgage loans are covered by the voluntary HAMP program.

About 2.82 million U.S. homeowners lost properties to foreclosure last year and 4.5 million filings are expected in 2010, RealtyTrac Inc., an Irvine, California data company, said last month.

Seven Million

Obama’s foreclosure prevention initiative, announced in February 2009 to help as many as 4 million Americans avert foreclosure, has modified 116,297 loans through steps such as lowering interest rates or lengthening repayment terms. More than 830,000 borrowers received trial repayment plans through January, according to Treasury data.

“Foreclosure processes differ among states, and the process is often confusing to homeowners already facing distress,” Caldwell said in her prepared testimony. “Treasury has been reviewing guidelines around outreach and the foreclosure process as part of its continual assessment of program effectiveness and transparency.”

Foreclosures may reach as many as 7 million mortgages, and an additional 5 million are at risk of default because borrowers owe more than the property is worth, Laurie Goodman, senior managing director at Amherst Securities Group LP in New York, said in a Feb. 17 interview.

Republican Criticism

“This is a problem of mammoth proportions,” Goodman said. “You can’t throw 12 million people out of their homes, so you need a successful modification program. My fear is that this isn’t it, but I’m highly confident that the administration will continue to iterate until they succeed.”

The Treasury proposal would require all borrowers who are 60 or more days delinquent on their mortgage to be sought out for participation in HAMP. Mortgage companies would need to try to contact the borrower at least four times by phone and twice by certified mail over 30 or more days before going to foreclosure.

Under current Treasury policy, foreclosure proceedings are only halted when a borrower receives a permanent modification plan.

House Republicans criticized HAMP as a failure today, saying in a report that it is prolonging the economic crisis and harming homeowners.

“By every empirical measure, HAMP has failed,” according to the 18-page report released by Republicans on the House Oversight and Government Reform Committee. “In its current form, HAMP both hurts homeowners who might otherwise spend their trial-period mortgage payments on rent and also distorts the housing market, delaying any recovery.”