A Market in Ruins

A Bottom in Housing? No Way!

by MIKE WHITNEY

 

According to a recent report by Clear Capital, “The nation’s home prices rebounded with quarterly and yearly gains of 1.7%.” The Home Data Index (HDI) report, which was released on July 10, shows that “Regional performance improved across the board”, and that “Home price forecast through 2012 shows continued growth for the nation…”

Hooray! Housing prices have hit bottom and the market is slowly recovering, right?

A growing number of experts appear to agree with this view, such as  the Wall Street Journal’s economics editor, David Wessel. Here’s what Wessel had to say in an article on Wednesday:

“The housing market has turned—at last…The U.S. finally has moved beyond attention-grabbing predictions from housing “experts” that housing is bottoming. The numbers are now convincing.”

And this is from The Economist: 

“In unsurprising but good news, Case-Shiller reported new home price data this week that showed a definitive upward move in markets across the country. From March to April, Case-Shiller’s 10- and 20-city indexes rose 0.7%, seasonally adjusted. All but three of the tracked markets saw month-on-month increases. Half of tracked cities notched year-on-year price increases in April…. America seems to have achieved bottoms for both sales and prices.”

And here’s a clip from the nation’s number one economic’s blog, Calculated Risk, in a post titled, “The Housing Bottom is Here”:

“There are several reasons I think that house prices are close to a bottom. First prices are close to normal looking at the price-to-rent ratio and real prices…. Second the large decline in listed inventory means less downward pressure on house prices, and third, I think that several policy initiatives will lessen the pressure from distressed sales.”

Naturally, people who’re thinking about buying a house (or who are interested in the overall condition of the economy) will want to know whether they can trust the sudden uptick in prices. Is this the real deal or is something else going on that’s making the numbers look better than they really are? That’s the question.  After all, no one wants to plunk down $300,000 or $400,000 only to find out that prices are headed right back into the toilet as soon as the ink on his mortgage dries.

So, here’s what we know: The sale of distressed properties (foreclosures, short sales, etc) dramatically pushes down aggregate prices. Why? Because bank owned properties are usually discounted by 30 or 40 percent which drags down the average. For example, let’s say  you have 5 houses in the Seattle area all going for $1,000 each. So, the average price is $1,000. Now imagine that 2 of those homes are foreclosures discounted by 40%. ($600 each)  That would pull the average price down to $840.

While this analysis may sound absurdly simple, in fact, it helps to explain what’s actually going on in the housing market. Prices are not going up as much as distressed properties are being removed from the MLS (listing).  By removing (or withholding) bank-owned properties from the market, prices look better than they really are. So, what we are seeing is another example of gross manipulation and collusion by the banks, who are presently under fire for their collusion and manipulation in rigging interest rates. (LIBOR) It’s the same here; more cheating by the world’s biggest cheaters.

Now, let’s look at the facts. This is from Foreclosure Radar (posted at Calculated Risk) under the title: “Foreclosure Inventory Continues To Decline”:

“June 2012 Foreclosure Sales were significantly down in the three largest foreclosure states in our coverage area. California Foreclosure Sales were down 13.4 percent over last month, and down 48.8 percent vs. June 2011. Arizona Foreclosure Sales were down 18.5 percent over last month, and down 42.1 percent vs. June 2011. Nevada Foreclosure Sales were down 14.6 percent over last month, and down 72.1 percent vs. June 2011 driven by the new regulation that took effect in October 2011. In addition, Foreclosure Filings are flat to down in all states in our coverage area, both on a month over month basis and vs. previous year. Arizona Notice of Sales were down 27.7 percent over last month, Nevada Notice of Defaults were down 22.7 percent over last month, and California Notice of Defaults were basically flat, being down 0.9 percent over last month.”

Ask yourself this: Why are foreclosure sales down nearly 50% year-over-year in California, 42% in Arizona, and 72% in Nevada? Have buyers stopped looking for good deals or have the banks stopped processing foreclosures in order to artificially prop up prices and avoid greater losses for themselves?

Or maybe there’s another reason altogether. Maybe the banks have whittled down delinquencies to the point where there are actually fewer foreclosures in the pipeline? Is that it?
No, that’s not it at all.  In fact the number of distressed homes in the pipleline is still humongous.

Here’s a conservative estimate from LPS’s Mortgage Monitor report for May:

* 1,967,000 loans less than 90 days delinquent.
* 1,575,000 loans 90+ days delinquent.
*  2,027,000 loans in foreclosure process

That’s a total of 5,569,000 loans that are delinquent or in foreclosure as of May 2012. Keep in mind, that some experts predict that we are just barely halfway through this foreclosure deluge and that –according to The Big Picture’s Barry Ritholtz, “We may end up with a total of 8-10 million foreclosures before we are finished.”  How do you think that’s going to effect prices?

Now take a look at this from Dr. Housing Bubble who explains what’s going on:

“The decrease in nationwide inventory is an ongoing trend.  Keeping supply constricted has clearly helped with pushing prices higher as demand is now competing for a smaller number of homes. … The recent moves in the housing market are spurred on by record low interest rates and constrained inventory.  Yet this should not be mistaken with an improving economy that is pushing prices higher which would be healthier.

Inventory is back to levels last seen in 2005.  The strategy of leaking out inventory in a controlled fashion while leveraging low mortgage rates seems to be the ongoing plan….the market is like a Hollywood set and is fake.

Right on. Dr. Bubble is talking about existing inventory here (which is down nearly 22 percent year-over-year), but the same rule applies to distressed inventory which pushes prices down.

Some of the reduction has to do with the fact that 24 percent of all mortgage holders are currently underwater, so they’re waiting for prices to rise before they list their home to avoid taking a loss on the sale. But the number of distressed homes on the market has also sharply declined mainly because the banks have slowed the foreclosure process to a crawl. According to analyst Keith Jurow, the number of homes in the shadow inventory is vastly larger than previously thought. Jurow has done extensive research on serious delinquencies in the New York City metro area. By checking   the “pre-foreclosure notices”  that are sent to all delinquent owner occupants, he has pieced-together a picture of a housing market that is essentially in ruins. Here’s some of Jurow’s findings that were posted on Business Insider:

“Through the end of March 2012, a total of 192,000+ pre-foreclosure notices had been sent to delinquent owners in NYC. This does not include delinquent investor-owned properties because the law did not require servicers to send notices to them. There are lots of 2-3 family homes in the four outer boroughs of  NYC. I estimate that there are roughly 75,000+ delinquent investor-owners.

This means there are roughly 265,000 seriously delinquent homeowners in NYC who have not yet been foreclosed. Why so many? The banks do not foreclose in NYC. As of May 24, foreclosure.com reported a total of 301 foreclosed properties on the active MLS and 103 in Brooklyn. Together, these two boroughs have a total of 4.7 million residents. That is more people than live in Maricopa County where Phoenix is situated.

Hard as it may be to believe, the situation is even worse on Long Island. With fewer than 3 million occupants, Nassau and Suffolk Counties showed a total of 175,000 pre-foreclosure notices sent out as of the end of March.

If  you think the reduction in foreclosing is limited to the NYC metro markets, you’re mistaken. Take a good look at this revealing chart for Phoenix from foreclosureradar.com. Bank repossessions in Maricopa County plunged from 3,159 in April 2011 to a mere 767 a year later. Clearly, the banks are gambling that this will help to stem the decline of home prices.

Or let’s take a look at Miami — a market that suffered one of the largest price collapses since the bubble popped. In 2010, the banks repossessed 23,000 properties just in Miami-Dade County. They foreclosed on 54,000 properties in the 3 south Florida counties of Dade, Broward, and Palm Beach. Although they sharply curtailed repossessions in 2011, that number still totaled roughly 35,000.

I spoke with the head of data for the Miami Association of Realtors on May 18 and was amazed to learn that there were only 282 repossessed properties on the active MLS.

A similar tactic has been occurring in Phoenix. During the height of the credit crisis in early 2009, 2/3 of all homes sold in Maricopa County were repossessed properties. That percentage was down to 40 percent a year ago.” (“KEITH JUROW: Prepare For The Coming Housing Collapse”, Business Insider)

Okay, so let’s break this down a bit: Of the “265,000 seriously delinquent homeowners” in NYC area, a mere 404 are listed for sale? (301 foreclosed properties on the active MLS and 103 in Brooklyn)  How can that be? That means the banks are sitting on roughly 264,000 distressed homes that don’t even appear in the shadow inventory figures.

And it looks like the same shenanigans are going on in Florida and Arizona, too. And, maybe across the entire US, which is what this article from DSNews appears to suggest:

“45 percent of YouWalkAway.com clients are in pre-foreclosure status, and on average, they are 17 months past due and still have not received their first formal foreclosure notice. In California, 59 percent of the agency’s clients are in pre-foreclosure status, and on average, they are 15 months behind and still haven’t received a foreclosure notice.

“Eighty-five percent of the homeowners we’re working with are in pre-foreclosure and have not made a mortgage payment for an average of 14 months,” said YouWalkAway.com CEO Jon.”

Sure, these are just the people that have consulted with YouWalkAway.com (presumably) to decide whether they should stop paying their mortgages or not, but–all the same–the numbers are shocking.  It suggests that the banks have collectively settled on a strategy that will keep the market in the doldrums for years to come without providing any real relief (principle reduction) to the people who need it the most.

This whole matter needs to be taken out of the banks’ hands so the gigantic backlog of distressed homes can be liquidated in an orderly manner and so the people who need help can get it. Enough is enough!

Bankers and Forgiveness

The Gentle Law for the One Percent

by ANN ROBERTSON and BILL LEUMER

 

When homeowners have fallen behind in their mortgage payments, whether because of a job loss or because the interest rates just shot up, the bankers have responded coldly. Led by their economic interests, they set their robo-signers working overtime on foreclosures, forcing millions of people out of their homes. Back during the height of this current economic crisis, when Congress considered passing legislation that would have allowed judges to lower home loans in order to prevent these foreclosures, the banks lobbied furiously and killed the legislation.

But when the bankers themselves commit their own transgressions — not innocent and unavoidable transgressions like not paying back a loan because you lost your job thanks to the bankers’ recession — but actually breaking the law, the government not only forgives them, it virtually becomes an accomplice in their crimes.

Robo-signing, for example, is a crime. It occurred when bank employees signed thousands of documents, claiming they were accurate, without bothering to verify their claim. Yet no one went to jail.

In a recent New York Times article, Jesse Eisinger pointed out that the JPMorgan scandal has raised an array of questions:

 “What did Jamie Dimon, JPMorgan’s chief executive, and Doug Braunstein, the chief financial officer, know, and when did they know it? Were the bank’s first-quarter earnings accurate? Were top JPMorgan officials misleading when they discussed the chief investment office’s investments? … The first question on everyone’s mind should be whether any existing laws were broken.” (May 17, 2012).

However, Eisinger was quick to point out in relation to the last question: “That it hasn’t been asked shows how little true accountability there has been since the financial crisis. No top-tier banker has gone to prison for the many bank failures, the deceptive sales practices or the misrepresentations of the books.”

The laws for the 1 percent are treated by the government as if they were humble requests — nothing to be seriously enforced if the 1 percent decline to accept. The laws for the 99 percent are brutally enforced, not to mention the prevalent police brutality that occurs without any legal justification.

Back in 2011, Gretchen Morgenson and Louise Story, in another New York Times article (July 7, 2011), reported federal prosecutors adopted a gentler code for bankers:

“Federal prosecutors officially adopted new guidelines about charging corporations with crimes — a softer approach that, longtime white-collar lawyers and former federal prosecutors say, helps explain the dearth of criminal cases despite a raft of inquiries into the financial crisis. … The guidelines left open a possibility other than guilty or not guilty, giving leniency often if companies investigated and reported their own wrongdoing. In return, the government could enter into agreements to delay or cancel the prosecution if the companies promised to change their behavior.”

More recently, Gretchen Morgenson has reported that a prominent Wall Street analyst and others suspect that “insider trading can and does occur regularly at many Wall Street firms. In their view it has become institutionalized…. Those in the know can get rich before the rest of us know what happened.” (The New York Times, May 20, 2012).

And this failure of the Securities and Exchange Commission (S.E.C.) to prosecute these cases comes on the heels of its spectacular failure to indict Bernard Madoff, even after being presented with overwhelming evidence of his guilt.

Although the financial industry is the recipient of the bulk of the government mercy, perhaps because it is responsible for the bulk of the crimes, the corporate world in general is a lucrative beneficiary. In the wake of the recent Wal-Mart Mexican bribery scandal, The New York Times (April 27, 2012), reported that, even though bribery of foreign officials is a crime, if past practice is any indication, no one will be prosecuted.

The prominent example of past practice mentioned in the article was Tyson Foods. After listing a series of crimes committed by Tyson executives, the article concluded:

“It’s axiomatic that people, not corporations, commit crimes. So what happened to the Tyson executives involved? Not only did the Justice Department and the Securities and Exchange Commission take no action against them, but the executives involved weren’t even named.” (The New York Times, April 27, 2012).

Why is the government so intent on pursuing a double standard when it comes to enforcing the law on the 1 percent and on the rest of us? In part this mundane corruption is due to the cozy relation that has been cultivated between the politicians and the corporate world. If a politician or regulator plays the game and pleases the corporations, they can look forward to a financially rewarding career in the private sector after they leave office. Politicians, for example, routinely become lobbyists.

The corruption is also due to this fact: “At least two-thirds of the U.S. senators drafting new financial regulations hold stock in banks or other companies affected by the legislation, such as Citigroup Inc. and Wells Fargo & Co., disclosure statements show.” (Bloomberg, June 16, 2010).

But the final explanation is that politicians have acquired the automatic habit of prostrating themselves before those with vast sums of money. And this is one more of the many toxic byproducts of the growing inequality in wealth: a sense of community is increasingly destroyed, along with the moral values that hold it together. We are left with two opposing classes that inhabit two opposing worlds, and their clash is inevitable.

Eminent Domain/Repossessed Properties as Collateral for China's Investments in the US

Rebuttal To Snopes
By A. True Ott, PhD, ND

re: SNOPES - China Eminent Domain Collateral False


A REBUTTAL TO DAVID AND BARBARA MIKKELSON (Snopes.com) BASED ON TRUTH AND LOGIC

The website Snopes.com is run by David and Barbara Mikkelson, a couple with a gift for debunking false stories and dis-information circulating around cyber-space. For the most part, they perform a valuable service and have earned a reputation as being an authoritative and conclusive final verdict on controversial subjects. Like all writers, however, they are only human. They can, and do, make mistakes. (* see below--jef)

With all due respect, David and Barbara, you have missed wide left of the target on this particular subject.

I do not know or listen to Mr. Hal Turner. It may well be that he has taken liberties and stretched otherwise true stories to their breaking points in the past. For your information, however, in this particular instance, Turner's recent story corroborates my own sources. While the specific term "eminent domain" may be perhaps a bit of a stretch -- the basic story-line is absolutely true.

In your research as posted in the link above, you obviously came across the Bloomberg article that stated "Chinese officials have expressed concern" that China's massive investments in America are "safe, as a pre-requisite for additional purchases of U.S. Securities." Clearly, you believe the Bloomberg story to be accurate, but then skewer Mr. Turner for basically saying the same thing. I submit this is not logical and smacks more of a witch hunt than ethical hoax-busting and truth searching.

According to authors Bill Geitz (The China Threat) and Peter Navarro (The Coming China Wars), the Chinese PLA have been investing large sums of money into America in the form of political donations (the Clintons received millions), private and public mortgage companies, and U.S. Government debentures for decades. The floodgate of Chinese profits from goods produced largely by their massive prison-labor work-force have been strategically re-invested into the debt-based economy of America. Now, according to Navarro, et.al. the entire U.S. Economy hinges on the whims and will of the Chinese military leadership.

China has basically bought America with cheap trinkets, just as the British purchased Manhattan from the local Indians centuries ago with baubles, bangles and beads.

The cruel, hard facts are that following the conclusion of the Beijing Olympics, China stopped purchasing U.S.-dollar based securities. They quit buying oil and gas futures, causing the price of gasoline to tumble. They quit purchasing Treasury Bills and Bonds -- and quit funding Fannie and Freddie mortgages. This sudden constriction of liquidity was the prime factor behind the market panic last fall, and resulted in Bush's "emergency stimulus" package then, and President Obama's "stimulus" package now.

The cruel, hard fact is that the only way that the Obama administration can stop the current economic bloodbath is to coax China into again investing their Home Depot and Walmart profits back into America's debt machine, (which are then leveraged at 10 times their face value in "The Feds" fractional reserve, debt-driven system). Just as the Bloomberg article correctly exposes, China is not willing to do this, unless and until WRITTEN GUARANTEES THAT THEIR INVESTMENTS ARE SECURE ARE SIGNED AND DULY EXECUTED.

David and Barbara, please tell us: What do you think these "guarantees" involve, and what makes you so blindly confident that Hillary did not grant them??

What the Bloomberg article fails to mention is that the Chinese PLA military leaders filed a lawsuit in the World Court at the Hague, Netherlands last summer. The suit petitioned the World Court to grant the PLA the right to USE CHINESE MILITARY POLICE (i.e. Chinese troops) ON U.S. SOIL in order to "repossess real estate assets secured by PLA's mortgage funding" in the United States upon default of the contracts. The Chinese leadership did not, and do not, trust local sheriff departments to perform the task and preserve their trillions of invested dollars/yen. The World Court opined that only the U.S. government could legally grant such a request.

Given her past acceptances of PLA influence peddling, there is no doubt whatsoever in my mind, that Hillary Clinton not only gave the PLA military leaders just such a signed document, but sealed it with a kiss as well.

Whether it is called "eminent domain" or "mortgage repo authorization" -- the desired effect is the same. Foreign troops have now been given the legal authority to operate as constables on American soil. Treason by any other name, is still an odorous offense.

David and Barbara, aka SNOPES --- just because CNN or Reuters doesn't report the story, it doesn't mean it isn't vitally important information for all Americans to understand and act upon.

Respectfully,

A. True Ott, PhD, ND

(Now, I don't know how accurate the above information is. If even a fraction of it is true, it's pretty scary. I found an inaccuracy with Snopes last year regarding their assertion that the unemployment rate used by the media (the U3, currently 8.1%) was statistically accurate and included everyone who was unemployed. The U3 is a telephone survey administered to the same number of people around the country (1000) as all telephone surveys you see in magazines and newspapers. The U6, incomplete but still far more accurate and compelling than the U3, I argued, was the more accurate rate. And of course, I'm correct because the data is right there on the Bureau of Labor and Standards website. So, my point is that Snopes is not always correct because no one is infallible; and that makes the above story kind of scary.--jef)

Bank CEOs Gain as Millions Lose Dreams, Retirement to Foreclosure

Wednesday, April 25, 2012 by The Newark Star-Ledgerby John Cavanagh and Scott Klinger


Inside and outside of Wells Fargo’s annual meeting in San Francisco yesterday, thousands of angry protesters decried the bank’s leading role in the loss of millions of American homes to foreclosure.

If you want to know why the protesters are so angry, consider this double standard. For most Americans, retirement security lies in the value of their homes. Millions of these people have been losing that security as the nation’s largest banks have foreclosed on them. Yet the CEOs of these banks are reaping giant pay packages and padding their own retirement security with profits squeezed from ordinary people.

For many American families, a paid-off home is part of the dream of a secure retirement. The roof over their heads has long comprised the largest element of most families’ net worth. The housing crisis brought to us by the country’s biggest bankers has stolen the dreams of the nearly 4 million families who have lost their homes to foreclosure since the housing crisis began in 2007.

Of those who continue to live in their homes, more than a quarter have lost so much equity that they now owe more on their mortgage than their residence is worth. Even those who have never missed a payment on these underwater mortgages have found it all but impossible to refinance their loans to take advantage of record low rates that would cut hundreds of dollars from their monthly payments.

As American families struggle with their shrinking equity, Wells Fargo is enjoying record profits. Its earnings clocked in at more than $4 billion during the first quarter of 2012.

Wells Fargo and Bank of America are the country’s two largest mortgage servicers. Over the past three years, the number of homes foreclosed upon by the two giant banks has steadily grown. At the end of 2011, they reported to federal banking regulators that they held $22.5 billion and $19 billion worth of foreclosed houses, respectively.

While foreclosures have devastated the financial security of millions of American families, the CEOs of Wells Fargo and Bank of America have seen their retirement packages balloon.

The pension assets of Wells Fargo CEO John Stumpf stand at $16 million, according to the company’s proxy statement. The vast majority of these assets came from a special plan available only to the company’s top executives. As high as Stumpf’s retirement assets have soared, they’re exceeded by those of another Wells Fargo executive. Mark Oman oversees the company’s consumer lending division, where most of its ill-fated subprime loans were made and where many customers have lost their homes to foreclosure. His retirement assets top $17 million.

Bank of America CEO Brian Moynihan’s pension assets now total $6.8 million. His nest egg came mainly from a special "supplemental" pension plan.

It’s long past time that banking regulators stopped these dream-stealers from laughing their way to their gold-plated retirements. Protesters are insisting that the corporate funds diverted to prop up the lavish lifestyles of those responsible for upending the lives of the millions of American families who have lost their homes be redirected toward principal relief for homeowners devastated by these banks’ actions.

The Wells Fargo action was just the start. Don’t be surprised when thousands more protesters show up when Bank of America shareholders gather on May 9 in Charlotte, N.C.

The Bottomless Pit

The Housing Doldrums
by MIKE WHITNEY

“There are many good reasons to believe that the 5.5 million foreclosures we have seen are barely halfway through their full course. The United States may end up with a total of 8-10 million foreclosures before we are finished.”– Barry Ritholtz, The Big Picture

It all gets down to supply and demand. The banks have been keeping millions of homes off the market until a settlement was reached in the $25 billion robosigning scandal. Now that the 49-state deal has been finalized, the banks are preparing to put more of their of distressed homes up for sale. That will lead to lower prices and the next leg down in the 6-year long housing crisis.

According to Reuters, new foreclosures “begun by Deutsche Bank were up 47 percent from 2011. Those of Wells Fargo’s rose 68 percent and Bank of America’s, including BAC Home Loans Servicing, jumped nearly seven-fold — 251 starts versus 37 in the same period in 2011.”

So BofA, which unwisely purchased Countryside following the Crash of ’08, is scrambling to get its house in order by removing the deadwood from its balance sheet. Good luck with that.

In order to avoid a sudden plunge in prices–which would be devastating for bank balance sheets–the banks will continue to control the number of homes that are released onto the market. In 2011, existing home inventory shrunk by 20 percent year over year while the shadow backlog of distressed homes continued to grow in leaps and bounds. This shows that the banks are managing inventory to minimize their losses.

But even though “visible” inventory has shrunk by as much as 30 percent in some markets, housing prices have continued their downward trek, dropping roughly 4 percent in 2011. This reflects the truly dismal condition of the underlying economy that is wracked by high unemployment, flat wages, and soaring personal debt. Absent another round of fiscal stimulus, there’s little chance that housing sales will rebound in 2012 despite historic low rates and myriad government loan modification programs.

The biggest problem facing housing now is that ordinary working people can’t make their monthly payments. An article in Reuters summed it up like this: “The subprime stuff is long gone,” said Michael Redman, founder of 4closurefraud.org. “Now the folks being affected are hardworking, everyday Americans struggling because of the economy.”

So what we’re seeing now is the knock-on effects from high unemployment, tight credit, shitty wages and deep protracted economic stagnation. This is a policy issue, but policymakers refuse to address it, so housing will bump along the bottom for years to come. Now take a look at this article in the Wall Street Journal:

“Delinquent mortgage borrowers, take note: Banks still aren’t moving very fast to kick you out of your homes. February’s foreclosure settlement between big U.S. banks and state attorneys general should have been bad news for mortgage deadbeats — and for house prices. Having resolved charges that they had filed bogus documents to speed up repossessions, the banks should have felt free to move ahead with millions of foreclosures. They should also have started selling more repossessed houses, an influx of cheap supply that would weigh on the market. 

So far, though, that’s not happening. …. as a result, the average number of days since the last mortgage payment had been made on homes in the foreclosure process rose to 667, up from 660 the previous month and 253 in February 2008. In other words, the average delinquent borrower could live rent-free for nearly two years without getting evicted, assuming the borrower chose to stay in the house.” (“The Foreclosure Deal Spares the Housing Market (So Far)”, Bloomberg)

Just to be clear, we do not agree with the author that the people who were victims in this vast criminal mortgage laundering scam– that destroyed the financial system and pushed the global economy into a Depression–can be fairly characterized as “mortgage deadbeats”. Even so, the point he makes is important, because it illustrates how the banks are fiddling with supply to avoid the losses on non performing loans. Screwball accounting regulations allow the banks to keep mortgages on their books at fictitious prices (artificially high) until the house is sold. Only then, are they required to write down the difference. Considering that they still have millions of distressed homes on their books, this is no small matter. An accurate accounting of bank real estate inventory would show that most of the biggest banks in the country are technically insolvent.

So what does this mean for people who are thinking about buying a house in the near future? Should they hang on to their money and wait for another year or so or jump at that $450,000 McMansion with the Gothic parapets and custom Swedish sauna that’s been marked-down to a mere $185,000?

That’s hard to say. It depends on one’s own priorities. But one thing is certain, housing prices won’t be going up for a very long time. Maybe never. Moody’s ratings agency forecasts that we’ll see ”an 8% to 10% decline in housing prices” due to a 25 percent uptick in repossessed properties from 1 million in 2011. Unfortunately, Moody’s calculations are far too optimistic. In fact, “top housing analyst Laurie Goodman estimates the amount of shadow inventory at between 8 and 10 million homes, and Michael Olenick, using a different methodology, comes in at just under 9 million homes.” (“Moody’s Foresees 10% Drop in US Housing Prices“, naked capitalism)

Even if Goodman-Olenick’s predictions are wrong by half–which is unlikely–prices have a long way to go before they hit bottom.

MBIA says new fraud evidence at BofA's Countrywide

By Jonathan Stempel - Thu Feb 16, 2012

• MBIA says did not know of fraud-tracking database
• BofA seeks to block deposition of CEO
• Shares of Bank of America rise, MBIA fall

Feb 16 (Reuters) - MBIA Inc claimed it has new evidence of "widespread mortgage-origination fraud" at Bank of America Corp's Countrywide unit, hoping to bolster its $1.4 billion lawsuit accusing that unit of fraudulently inducing it to insure risky mortgage-backed securities.

The insurer made its claim in a letter on Wednesday sent to New York State Supreme Court Justice Eileen Bransten seeking to force Countrywide to turn over a variety of documents.

Countrywide replied on Thursday that MBIA's request was part of the insurer's strategy to "pre-try" the case "based on nothing more than hyperbolic rhetoric and falsehoods."

The battle over evidence intensifies litigation in which MBIA accused Countrywide of misrepresenting the quality of underwriting for about 368,000 loans backing 15 financings it insured between 2005 and 2007.

MBIA said it would not have provided the insurance had it known how the loans were underwritten.

In the Feb. 15 letter, MBIA asked for "many" documents that "relate to recently-uncovered evidence of widespread mortgage-origination fraud at Countrywide. Countrywide appears determined to withhold this evidence from MBIA despite its clear relevance to several of MBIA's claims."

The request came after Countrywide produced what MBIA called an "incomplete" set of loan records backing MBIA-insured securities from a Countrywide fraud-tracking database, known as FACTS, that was "not previously known to exist" to the insurer.

In their response, lawyers for Countrywide said their client was "surprised" at MBIA's request and had "promptly and voluntarily produced all records contained in the FACTS database" used by its fraud risk managers concerning the loans.

Separately, Bank of America on Feb. 15 asked Bransten to block MBIA's request to depose its chief executive, Brian Moynihan.

"A chief executive officer of a major corporation may only be deposed when he has unique information that is not available through other means," Bank of America spokesman Lawrence Grayson said in an email. "The discovery process remains fully available to MBIA, including through the numerous current and former executives that MBIA will be deposing."

As to the alleged new evidence of mortgage origination fraud, Grayson referred to the letter by Countrywide lawyers. An MBIA spokesman declined to comment.

MBIA's prospects in the case brightened last month when Bransten ruled that to establish fraud, MBIA need only show Countrywide misled it about the $20 billion of securities it insured, not that such misleading caused its losses.

Bank of America is based in Charlotte, North Carolina, and is the second-largest U.S. bank by assets.

MBIA is based in Armonk, New York. Once the largest U.S. municipal bond insurer, it announced a restructuring in 2009 after receiving approval from New York insurance regulators and after having incurred large losses insuring mortgage debt.

Bank of America and some other banks are challenging that restructuring.

Bank of America shares closed up 31 cents, or 4 percent, at $8.09. MBIA shares fell 4 cents to $11.64.

The cases is MBIA Insurance Corp v. Countrywide Home Loans Inc et al, New York State Supreme Court, New York County, No. 602825/2008.

The Austerity of Hope

Paternity Over Fraternity!

by VIJAY PRASHAD


Poor Mitt Romney. He is worth “somewhere between $190 and $250 million”. Even he is not sure of his net worth. He cannot account for the gap of $60 million. CNN asked the multiple-millionaire about his economic policy. He said, “I’m in this race because I care about Americans. I’m not concerned about the very poor. We have a safety net there. If it needs repair, I’ll fix it.” He has been pilloried for his callousness not only by the Democratic Party but also by his own Republican primary rivals.

Rick Santorum, who has been a steady challenge to Romney, said that Romney’s comments about the poor “sent a chill down my spine”. Romney, who not only comes from the world of finance capital but also is its preferred candidate, has been unable to grasp the deep crisis of everyday life for millions of Americans.

The “safety net” that Romney mentioned has been frayed beyond recognition since the 1980s. One of the most grotesque problems is hunger. Last year, the United States Department of Agriculture reported that in 2010 about 17.2 million households in the U.S. did not have the resources to buy food (that is about 14.5 per cent of all households).

Additionally, about 6.4 million households reduced or disrupted their eating habits because of a lack of access to food. To seek food, the U.S. Department of Agriculture showed, people had sought refuge in emergency food pantries. During the recession’s early years, 2007 to 2009, use of these pantries increased by 44 per cent. The Agriculture Department’s September 2011 report on “Household Food Insecurity in the United States” showed that one in six Americans do not have the money to feed themselves. The problem is acute.

Charity fills in the gap left by an inadequate governmental response. But here the challenge is enormous. With anxiety about the economy, charitable giving has dropped significantly (by 11 per cent to the big charities). Donations to organisations that help the very poor have dropped even further. According to the Nonprofit Research Collaborative, the charities with less than $3 million to spend saw their donations fall the most. These charities, such as homeless shelters and food pantries, are the ones that serve the very poor. They are in dire straits.

The children’s TV show “Sesame Street” has introduced a new puppet, Lily, whose task is to speak on the problem of food insecurity once a week to the children who tune in. She does not get enough to eat. She will share her story with children who are in her predicament. At least the puppet is concerned for the very poor.

Paternity

Building on his surge in the Republican primaries, Santorum went to give a big speech in Colorado Springs, the heartland of the new American conservatism. Santorum, who went on to win the primaries in Colorado, Missouri and Minnesota, told the thousand people in the Biggs Centre that he wanted to distinguish between the French Revolution and the American Revolution. The French had a three-part slogan, two of which Santorum was happy with: Liberty and Equality. The third, Fraternity, was not appropriate because it suggested that people in community would be able to create codes to live by. Santorum preferred Paternity to Fraternity, with the Father being God. God’s law should precede human law. No one amongst the Republicans challenged this anti-democratic tendency towards theocracy.

Rather than deal with the serious problems of hunger and homelessness, the right wing has tried to shift the debate toward what are known as “social issues”. These include abortion rights, marriage rights for gays and lesbians, discussions about birth control and sexuality in schools, as well as the teaching of diversity in schools. The Right remains fixated on the body and on sexuality, with a morality that is out of touch with the everyday lives of people. No wonder that one of the problems for the Right has been the constant eruption of scandals among its leadership, with this or that spokesperson for an anachronistic morality found with sex workers or with pornography (Ted Haggard? Mark Foley? anyone?--jef). Hypocrisy is the touchstone of an obsolete morality.
As part of his health care overhaul, President Barack Obama announced a rule that all health care providers (including religious hospitals) needed to provide free contraception for their employees. They did not have to provide contraception to their customers, but their employees had to be covered by federal mandates. A 2010 study in Vital and Health Statistics showed that 99 per cent of women aged 15 to 44 in the U.S. had used at least one contraceptive method. In other words, contraception use is universal among women in the U.S. It seemed as if the Obama policy was, therefore, quite straightforward and of great use to the 62 million women of childbearing age in the U.S.
Nevertheless, the Right went ballistic, calling the Obama policy an infringement on religious freedom. This is fairly typical of the Right, which masquerades its social suffocation as freedom. Santorum’s linkages between liberty and equality with the sanctity of God’s Law is an example of this unhappy marriage.

With Obama having been painted as anti-religion, it was impossible for the White House to stand firm on its principle. Harder for Obama to navigate this issue with one in five Americans of the erroneous view that Obama is a Muslim. Instead, Obama had to compromise with the Right and allow religious health care providers to sidestep this provision. Despite Obama’s surrender to the Right, Romney tried to fan the fire of this issue, “I will reverse every single Obama regulation that attacks our religious liberty and threatens innocent life in this country.”

The Right has gone ballistic on contraception but is virtually silent on the home foreclosure crisis and on the criminal activity by banks. Millions of Americans have been turned out of their homes as a result of the collapse in the home mortgage market.

As part of the neoliberal transformation of the U.S., low-rent, government-provided homes disappeared from the 1980s, with the private sector coming in as the main provider of homes. But with wage incomes stagnant since the 1970s, and with little wealth in the hands of ordinary people, the only way for them to get the keys to a home was through no-money-down, balloon payment mortgages. Banks devised these schemes to ensnare desperate people into homes, and then moved their mortgages into the secondary and tertiary financial markets as securities to be traded. These securities were given good bond ratings from Moody’s and Standard & Poor’s, whose culpability has not been fully addressed.

When it became clear that these securities were built on unsustainable dreams, the housing market collapsed. Banks received bailouts (along the grain of the neoliberal view that the government must make sure to remove Bad Money from the financial system and replace it with Good Money). There was no bailout for the millions of Americans. They were evicted from their homes.

Popular outrage at the criminal behaviour of the banks forced an investigation of financial activity. Banks were afraid that they would face a series of lawsuits from public interest litigants and from those among the foreclosed that might be gathered together into class action lawsuits. This was the spur for the banks to begin negotiations with the government for a deal.

The Obama administration and several Attorneys General of the different States sealed a bargain with the banks in early February, where the banks promised to pay $5 billion into a fund, which would include $21 billion taxpayers’ money. This fund would be used to pay out between $1,500 and $2,000 per borrower foreclosed upon, between September 2008 and December 2011. It is a ridiculously small amount of money both from the banks and to the victims of the foreclosure epidemic. That means the government believes that the fine to banks for forging and fabricating documents is no more than $2,000. The government decided to settle with the banks (including the worst offender, Bank of America) without any serious investigation of their offences.

Foreclosures slowed down in 2011 in anticipation of this bank deal. “Foreclosures were in full delay mode in 2011,” notes Brandon Moore of RealtyTrac, which follows the housing market very closely.

“The lack of clarity regarding many of the documentation and legal issues plaguing the foreclosure industry means that we are continuing to see a highly dysfunctional foreclosure process that is inefficiently dealing with delinquent mortgages – particularly in States with a judicial foreclosure process. There were strong signs in the second half of 2011 that lenders are finally beginning to push through some of the delayed foreclosures in select local markets. We expect that trend to continue this year, boosting foreclosure activity for 2012 higher than it was in 2011, though still below the peak of 2010.”

This is a very chilling thought, that the bank deal will not stem the foreclosure crisis but intensify it.

Occupy movement
Police action against the Occupy movement has cleared out most of the encampments. The Occupy movement has now shifted its focus towards much more focussed, local political endeavours (including fights against eviction).

One year ago, in Wisconsin, a massive social upsurge promised to open up a new dynamic in America. With the labour movement as its backbone, the Wisconsin demonstrations that began in March 2011 showed what was possible when the people refused to back down before the politics of cruel austerity (the story is captured in a new book edited by Mari Jo and Paul Buhle, It Started in Wisconsin: Dispatches from the Front Lines of the New Labor Protest, Verso, 2012). One hundred and fifty thousand people, mainly those affiliated with trade unions, stood in the cold and occupied the State House against their Governor Scott Walker.

Seven months later, in New York, the Occupy movement took off and spread across the country. It was grounded in the many facets of social distress in the U.S.

The initial position of both the Wisconsin protests and the Occupy movement was to change the conversation from the defence of the banks and the question of “social issues” to the broad questions of freedom and justice in the country. When the state decided to respond to these protests with police pressure, the immediate issue before the protesters was to deal with the forces of repression. The conversation around social suffocation and economic distress had to be set aside.

The battle lines were drawn between the police and the protesters, when the real contradiction is between the people (the 99 per cent) and the powerful (the 1 per cent). As cruel austerity cuts into the social lives of Americans, it is likely that the full range of issues that debilitate the well-being of Americans will return to the table. The tragedy is that neither of the two mainstream parties is capable of holding a real debate over these issues. They have other obligations, other priorities.

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.

Mortgage Settlement 'Whitewash': US Taxpayers Will Pay for Big Bank Settlement

Friday, February 17, 2012 by Common Dreams
Mortgage Deal or Not, Abusive Foreclosures Continue

UPDATE: Reports in the Financial Times and elsewhere say that US taxpayers may be on the hook to bail out big banks -- again.

Neil Barofsky, the former special inspector-general of the TARP, said this morning that the recently approved mortgage deal between the nation's largest banks was "supposed to be a settlement for this remarkable fraud that the banks and the servicers have created across the country" is, in fact, a "political whitewash" because instead of the banks facing punitive action it "is actually going to involve money flowing from the taxpayer into the banks." And, straight to the point, he said, "We're bailing them out again!"

Barofsky, appearing on Marketplace radio this morning in an interview with Adrien Hill, said of the deal:

It's kind of crazy when you think about it. This mortgage settlement is supposed to be a settlement for this remarkable fraud that the banks and the servicers have created across the country -- lying on affidavits, forging affidavits during foreclosures, all sorts of different abuses. And the idea behind the settlement, at least this is what we were told during the press conference, is was this was going to bring accountability. It was going to punish the servicers. It was going to be punitive and make them pay for this remarkable misconduct that occurred. And now we're finding out that this so-called penalty is actually going to involve money flowing from the taxpayer into the banks. We're bailing them out again!

When asked what this revealed about the "true intent" of the mortgage settlement, Barofsky replied:

Well I think what it does is it shows that the true intent of the settlement may differ from that which we were told during all the various press conferences. And instead of really, at the heart of this, being about accountability and punishment it seems like frankly a political whitewash during an election year. So it makes the Department of Justice look good. It makes the attorneys general look good. The banks are happy because they are going to get all the credit for this settlement while receiving money from the taxpayers. Really the only big losers are the taxpayers and, of course, the homeowners.

* * *

According to CBS News:

A clause in the provisional agreement allows the banks to use the government's Home Affordable Modification Plan, or HAMP, to cover the principal reductions. Neil Barofsky, the former special inspector-general of the TARP, described the clause as "scandalous." Says Barofsky: "It turns the notion that this is about justice and accountability on its head."

A little refresher on the HAMP plan: Banks receive payments from the government when they negotiate with underwater homeowners to avoid default. The taxpayer reimbursement is used to help cover the banks' costs to write down principal balances and keep homeowners in their homes. Last month, the Treasury department announced it was tripling the incentive payments to owners of mortgages who agree to reduce loan balances. The timing of the settlement is therefore perfect.

As the FT notes, "by reducing those balances under HAMP, investors -- including the banks who agreed the settlement -- now will receive cash payments of up to 63 cents on the dollar for every dollar of loan principal forgiven. They also will receive additional funds when borrowers keep current on their restructured mortgages."

* * *

Settlement or No, 'Abusive' and 'Illegal' Foreclosures Continue


A $25 billion settlement agreement between the nation's largest banks, states, and millions of homeowners who were victims of bad lending practices and fraudulent foreclosures has yet to be fully realized, but a new study from California indicates that many of the same 'illegal' foreclosure practices are still occurring at alarming rates.

Reuters reports:

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.

The report also makes the familiar point that one of the major problems throughout the foreclosure crisis has been how murky it has become to know who owns the loans on the home being foreclosed upon:

One of the major problems that has emerged in the foreclosure crisis is that it is far from clear that many lenders foreclosing on properties actually own the loans and have the right to take action against them.

In many cases during the housing bubble that burst in 2008, original mortgages were repackaged and sold to so many investors that it is now unclear who actually holds the loans. [The study] could only find the current owners of the mortgages [...] in 287 out of 473 cases.

In the San Francisco study, which studied properties subject to foreclosure sales between January 2009 to November 2011, 45 per cent were sold to entities improperly claiming to be the owner of the loan.

"It is not impossible that there are homeowners who are alleged to have defaulted on loans to which they never fully agreed to and, further, are being foreclosed upon by lenders that might not even own such loans," the report stated.

* * *

All of this might be less shocking if it wasn't right on the heals of the mortgage settlement which, as Yves Smith explains at Naked Capitalism on Thursday, is a canard when it comes to bank accountability. The whole point of the settlement -- even the threat of investigations -- has been to make sure the banks change their practices. She writes:

The whole purpose of a settlement is that a party pays damages to rid themselves of liability, and the amount they pay (and “pay” can include the cost of reforming their conduct) is less than what they expect to suffer if they were sued and lost the case (otherwise, it would make more sense for them to fight). 

But in the topsy-turvy world of cream for the banks, crumbs for the rest of us, we have, in the words of Scott Simon, head of the mortgage business at bond fund manager Pimco, in an interview with MoneyNews, lots of victims paying for banks’ misdeeds: 

“A lot of the principal reductions would have happened on their loans anyway, and they’re using other people’s money to pay for a ton of this. Pension funds, 401(k)s and mutual funds are going to pick up a lot of the load… 

“Think about this, you tell your kid, ‘You did something bad, I’m going to fine you $10, but if you can steal $22 from your mom, you can pay me with that.’”

Obama’s Refinancing Swindle

This is the kind of thing I wish diehard Obama-maniacs would pay attention to when they start up on how great he is. The fact is he's just another politician catering to his financial supporters. Otherwise, anyone: feel free to explain why this ISN'T a horrible idea.--jef

The Banks Want to Dump Millions of Risky Mortgages Onto FHA
by MIKE WHITNEY

Barack Obama’s new housing refinance plan has nothing to do with “lowering monthly mortgage payments so responsible borrowers can stay in their homes”. That’s all public relations bunkum. The truth is the banks want to offload their garbage mortgages onto Uncle Sam to avoid hundreds of billions of dollars in losses. That’s what this refi-ruse is really all about.

The administration estimates that 3.5 million people with private label mortgages will be eligible to refinance into loans backed by the Federal Housing Administration (FHA) Many of these are high risk mortgages that will eventually go into foreclosure which is why the banks want to get them off their books. Regrettably, Obama is only too happy to help them achieve that goal. Here’s a little background from the Christian Science Monitor:

“The nation now has about 30 million mortgages backed by government-sponsored enterprises (GSEs), mainly Fannie or Freddie…. About 3 million of those are “under water,” meaning the loan is now bigger than home value. Another 20 million or more have been underwritten entirely by private lenders. Some 35 percent of those, 7 million or more, are under water.” (“Obama plan to lower mortgage payments could help, but how much?”, Christian Science Monitor)

Why are so many more “private label” mortgages underwater than loans that were issued by
Fannie or Freddie?

Because the banks were lending money to every Tom, Dick and Harry who could fog a mirror. It was all a big joke. The banks didn’t really give a hoot if the borrowers were creditworthy or not because they were bundling the mortgages together into mortgage backed securities (MBS) and selling them off to investors around the world, so documentation and loan standards didn’t really matter to them. They got their pound of flesh whether the loans blew up or not. Here’s a little refresher from the Washington Post on how we got to where we are today:

“The biggest culprits in the housing fiasco came from the private sector, and more specifically from a mortgage industry that was out of control. These included lenders who originated home
loans, investment bankers who packaged them into securities, rating agencies that misjudged these securities, and global investors who bought them without much, if any, study…. 

Between 2004 and 2007, private lenders originated three quarters of all subprime and alt-A mortgage loans. These were loans to financially fragile homeowners with credit scores under 660, well below the U.S. average, which is closer to 700. But only a fourth of such loans were originated by government agencies, including Fannie, Freddie and the Federal Housing Administration. 

The dollar amount of subprime and alt-A loans made during this period by the private sector was jaw-dropping, reaching nearly $600 billion at the height of the lending frenzy in 2006. …. By contrast, government lenders made just over $100 billion in subprime and alt-A loans in 2006. Even in 2007, when the housing market was beginning its free fall, private lenders still handed out more than $300 billion via these very shaky mortgage loans…(“Fannie and Freddie don’t deserve blame for bubble,” Mark Zandi, Washington Post)

The vast amount of bad mortgages were generated by privately-owned banks, not government-sponsored entities. Keep that in mind the next time your loudmouth brother-in-law starts spouting off about how the GSE’s or the Community Reinvestment Act (CRA) caused the financial meltdown. The banks were 100 percent responsible. And now they’re back for a double-dip because they still have tons of these wilting loans in their vaults and they need to get rid of them pronto. And that’s where Obama comes in. The banks are counting on the dissembler in chief to make it look like this refi-claptrap is really an effort to “provide a bit of relief for an ailing economy” or “to help working folks make their mortgage payment”. It’s all hogwash.

The reason the banks have waited this long (for another bailout) is because the 50-state robosigning case has dragged on longer than they’d anticipated. They figured the 50 state Attorneys General would roll over and play dead like the other politicians they deal with. But that hasn’t happened. The legal fight continues with no end in sight. What the banks are hoping for is a ruling “that prevents states from effectively challenging future foreclosure actions that are based on faulty prior assignments.” In other words, they want to be able to boot you out of your home whether they have proper documentation or not.

Meanwhile, the backlog of homes (that’s in some stage of foreclosure) continues to grow to record levels. When the sluice-gates finally open, an ocean of distressed homes will surge onto the market sending prices plunging and leaving bank balance sheets deep in the red. Here’s more from CNBC’s Diana Olick:

“To give you an idea of just how much the “robo” scandal is toying with the numbers, LPS compared states that require foreclosures to go through the courts versus states that don’t (judicial versus non-judicial) and found the following: 

- 50 percent of loans in foreclosure in judicial states have not made a payment in two years, as opposed to 28 percent in non-judicial states. 

Foreclosure sale rates in non-judicial states are about four times those in judicial states.” (“Robo-Reality: Final Foreclosures Fall as Pipeline Swells” Realty Check, CNBC)

The backlog of distressed homes is much greater than the data would indicate. Neither the official nor the shadow inventory accurately accounts for the bulging number of homes (10 million) currently in the pipeline.

That’s why the administration is looking for creative ways to whittle down the supply. One idea is to sell foreclosures in bulk to deep-pocket investors with the proviso that they convert them into rentals. But why give Wall Street fatcats the privilege of buying foreclosures at a discount when mom and pop investors are already scarfing them up like hotcakes? How fair is that?

The driving force behind the foreclosures-to-rental scam is that the banks want to remove the GSE’s stock of distressed homes from the competition so they can fetch a better price when their REO’s hit the market. Once again, the policy is being tailored to meet the needs of the banks not the people. Here’s more from Olick about the risks this poses to FHA:

“Critics will also argue that the FHA, which now has an inordinately, historically large share of the mortgage market, is in no position to take on any more risk. The FHA could be considered “underwater” itself, guaranteeing about $1 trillion in mortgages but sitting on just a $1.2 billion dollar cushion to cover losses. 

To that end, officials say they could create a separate fund for these loans, not the regular mutual mortgage insurance fund (MMI). This would be a special risk fund, designed to handle high losses.” (“Obama’s Mortgage Refi Plan to Go Through FHA”, CNBC)

How do you like that? The FHA is already leveraged at 100-to-1 and the banks want to add even more debt. And they want to do it in the most deceptive way possible, by creating an off-balance sheet investment vehicle where the red ink can be hidden from public view.

To be eligible for Obama’s refi-program, borrowers will need a credit score (FICO) above 580,(which is extremely low), they’ll have to be employed, and they’ll have to be current on their mortgage payments. (for the last 6 months) In other words, lending standards are being eased so the banks can dump as many high-risk mortgages on the FHA as possible. Obama breezily refers to these abysmal lending standards as “cutting through the red tape.”

Applicants will also be able to refinance under the Obama’s program with loan balances up to (get this) 140 percent of the value of their home. So, even if you owe $560,000 on a home that is currently worth $400,000–and you don’t have a dime’s worth of equity in the house–have no fear–you can still get money from Uncle Sugar. This isn’t a good way to keep people in their homes. It just turns them into debt slaves.

One last thing, all the talk about a “bank tax” is pure blather. The banks will be more than happy to cough-up $5 billion or so if it means they’ll be able to jettison the hundreds of billions in crappy loans on their books. As far as they’re concerned, that’s money “well spent”.

60 Minutes: Another Good Reason to Occupy Foreclosed Homes?

vidlink

By Diane Sweet - Crooks & Liars
December 19, 2011

Yet another good reason to occupy homes: Foreclosure thieves have gone high tech. They know when evictions are occurring because they're posted online. And they will follow the sheriff. They're usually there that afternoon or that evening.

Across America, recession-fueled foreclosures and plummeting home values have left countless properties abandoned and vulnerable to looting. As Scott Pelley reports in the above video, the problem has gotten so bad in Cleveland, Ohio, that county officials have demolished more than 1,000 homes this year - and plan to demolish 20,000 more - rather than let the blight spread and render nearby homes worthless.

Jim Rokakis, a former county treasurer, explains why to 60 Minutes:

Jim Rokakis: We're looking at a neighborhood that has almost as many vacant houses awaiting demolition as there are houses with people living in them. We have one here. One here. One here. One there.

Rokakis is leading the effort to tear down thousands of abandoned homes because they're rotting their neighborhoods from the inside out. It often starts, he told us, when a vacant house becomes an open house to thieves.

Scott Pelley: It's a nice house from the roof to about here. And then down here it's been ripped to pieces. What's goin' on?

Rokakis: Well this is typical because this is as high as they could reach without using ladders. They ripped off the aluminum siding, which you'll see on most of these houses. The aluminum and the vinyl siding comes off. It's getting' about a buck a pound.

Pelley: Essentially foreclosure scavengers have been through here?

Rokakis: The thieves have gone high tech. They know when evictions are occurring 'cause they're posted online. And they will follow the sheriff. They're usually there that afternoon or that evening.

CBS reports that 11 million homeowners are said to be "underwater," or owing more than their house is worth. It's believed that even more neighborhoods would fall into ruin if it weren't for the people who refuse to walk away from their homes, even it might be best for them financially.

Pelley speaks with Linda Bizzelle of Cleveland, who has refused to give up on her home:

Her house is worth 50,000, she owes a hundred. A financial planner might tell her to put something away for retirement rather than pay a mortgage that will never recover. Especially, since she lost her job in nursing last April.

Pelley: What have you been cutting back on?

Bizzelle: Sometimes food. I would go to the food bank in order to make up the difference, so that I wouldn't be completely hungry. Sometimes I wouldn't get my medications renewed and I would have difficulty with that because I really need my medications. I take medication for high blood pressure. And my doctor could always tell when I didn't take 'em and I said, "Oh no, you can't do that. No No."

Pelley: You're living on unemployment right now?

Bizzelle: Yes.

Pelley: What about the next mortgage payment?

Bizzelle: I'm gonna pray. That's the best I can do. I'm gonna pray that I find a job.

More homeowners like Linda Bizelle in the program, and you can view the entire transcript online here.

Dante’s Divine Comedy: Banksters Edition

Friday, December 16, 2011 by New Economic Perspectives

by William K. Black

 

Sixty Minutes’ December 11, 2011 interview of President Obama included a claim by Obama that, unfortunately, did not lead the interviewer to ask the obvious, essential follow-up questions.

“I can tell you, just from 40,000 feet, that some of the most damaging behavior on Wall Street, in some cases, some of the least ethical behavior on Wall Street, wasn't illegal.”

Obama did not explain what Wall Street behavior he found least ethical or what unethical Wall Street actions he believed was not illegal. It would have done the world (and Obama) a great service had he been asked these questions. He would not have given a coherent answer because his thinking on these issues has never been coherent. If he had to explain his position he, and the public, would recognize it was indefensible. I offer the following scale of unethical banker behavior related to fraudulent mortgages and mortgage paper (principally collateralized debt obligations (CDOs) ) that is illegal and deserved punishment. I write to prompt the rigorous analytical discussion that is essential to expose and end Obama and Bush’s “Presidential Amnesty for Contributors” (PAC) doctrine. The financial industry is the leading campaign contributor to both parties and those contributions come overwhelmingly from the wealthiest officers – the one-tenth of one percent that thrives by being parasites on the 99 percent.

I have explained at length in my blogs and articles why:

• Only fraudulent home lenders made liar’s loans 
• Liar’s loans were endemically fraudulent 
• Lenders and their agents put the lies in liar’s loans 
• Appraisal fraud was endemic and led by lenders and their agents 
• Liar’s loans could only be sold through fraudulent reps and warranties 
• CDOs “backed” by liar’s loans were inherently fraudulent 
• CDOs backed by liar’s loans could only be sold through fraudulent reps and warranties 
• Liar’s loans hyper-inflated the bubble 
• Liar’s loans became roughly one-third of mortgage originations by 2006

Each of these frauds is a conventional fraud that could be prosecuted under existing laws. Hundreds of lenders and over a hundred thousand loan brokers were “accounting control frauds” specializing largely in making fraudulent liar’s loans. My prior work explains control fraud, why accounting is the “weapon on choice” for fraudulent financial firms, and why liar’s loans were superior “ammunition” for committing massive accounting fraud. These accounting control frauds caused greater direct financial losses than any other crime epidemic in history. They also drove the financial crisis that produced the Great Recession and cost millions of Americans their jobs.

In considering my scale of unethical conduct it is important to keep in mind that it is highly likely that anyone that causes very large numbers of people to lose their homes will cause multiple suicides and indirect deaths that arise from the greater vulnerability of the homeless and the blue collar crime effects of destroying neighborhoods inherent to widespread foreclosures. I ignore for this purpose the fact that the fraudulent loans caused the bubble to hyper-inflate and drove the financial crisis that caused millions of people to lose their jobs. The financial accounting control frauds are the weapons of mass destruction of wealth, employment, and happiness. I also ignore the fact that the frauds described here made the perpetrators wealthy. My scale, therefore, systematically and dramatically understates the perpetrators’ moral turpitude. I have also excluded the massive foreclosure frauds from my scale because they did not cause the underlying crisis. When Obama reveals the bankers actions he claims to be legal but highly unethical readers should keep my conscious understatement of the moral depravity of the illegal acts by bankers that drove this crisis in mind when they compare the relative ethical failings.

As a criminologist, I do not favor sentencing criminals to the fates they richly deserve. I would never torture prisoners or place them at risk of assault, rape, or psychological trauma. I do not believe that extremely longer terms of imprisonment are desirable except in rare circumstances. As a lawyer and a criminologist I emphasize that any sentence should come only after a conviction in a trial providing due process protections or a guilty plea. My scale provides a label for the comparative moral depravity of the perpetrator, the deserved punishment (which when vicious is not the far more humane one I would actually impose), and a brief description of the specific frauds that are characteristic of this level of immorality and the number of perpetrators falling in each category. My inspiration was Dante’s circles of hell as described in his Divine Comedy.

The Scale of Ethical Depravity by the Frauds that Drove the Ongoing Crisis

Level 10: Septic tank scum
Eternal Hell: these banksters deserve a physical hell of infinite torment and duration
 Officers that directed control frauds that involved making predatory loans to more than 10,000 homeowners who lost their homes as the result of the frauds. Predatory loans in this context mean deliberately seeking out the elderly or minorities for such loans because they were easier to con into taking loans they could not repay – at a premium yield (interest rate). Dozens of CEOs fall in this category.

Level 9: Pond scum
Time in Hell:  These banksters deserve a term in hell
Officers that directed control frauds that led to more than 10,000 homeowners losing their homes.  Hundreds of CEOs fall in this category.

Level 8:  Generic scum
Gitmo:  Hell’s starkest suburb
Officers that directed control frauds that led to more than 1,000 homeowners losing their homes.  Thousands of CEOs fall in this category.

Level 7:  Dante’s deserved denizens
Supermax:   No view, and no way out
The professionals that aided and abetted the overall control frauds by inflating appraisals, giving “clean” audit opinions to fraudulent financial statements, “AAA” ratings to toxic waste, and accommodating legal opinions to the frauds.  Thousands of professionals fall in this category.

Level 6:  Aspiring to great wealth through fraud
Alcatraz:  Great view, but no way out
The senior lieutenants of the control frauds who committed the frauds that caused more than 10,000 homeowners to lose their homes.  Thousands of senior officers fall in this category.

Level 5:  A large cog in a smaller fraud
Generic Hardcore Prison:  A life of boredom and the almost total loss of freedom
The senior lieutenants of the control frauds who committed the frauds that caused more than 1,000 homeowners to lose their homes.   Thousands of senior officers fall in this category.

Level 4:  The banksters who cost us our money instead of our homes – Goldman Sachs & friends
Generic Prison:  A life of boredom and a severe loss of freedom
The officers that led the control frauds who targeted their customers for the purchase of more than $10 million in fraudulent product.  Dozens of officers fall in this category.

Level 3:  The banksters’ senior lieutenants who cost us our money instead of our homes
Prisons designed for serious, but less physically dangerous felons
The senior officers of the control frauds who targeted their customers for the purchase of more than $10 million in fraudulent product.  Scores of senior officers fall in this category.

Level 2:  Banksters who defrauded other bankers (who were willing to be defrauded)
Privatized prisons:  Let them enjoy the consequences of their odes to privatization
The largest control frauds sold tens of billions of dollars of fraudulent loans to each other through fraudulent “reps and warranties.”  The kicker here, as Charles Calomiris has emphasized, is that the control frauds on both sides of the transactions knew that they were engaged in a mutual fraud.  Hundreds of senior officers fall in this category.

Level 1:  Small fraudulent fry
Catch and release:  Convict them and put them on probation if they cooperate with the investigations
The small fry are the loan officers, loan broker employees, and borrowers who knowingly participated in making fraudulent mortgage loans.  Over 100,000 individuals fall in this category.

We Need to End the PAC Doctrine

 

To date, Bush and Obama have prosecuted none of the mortgage frauds in the top nine levels. I urge reporters to ask him to explain three things about his statements to 60 Minutes.

• Why are there no prosecutions of the felons that drove the crisis and occupy the nine worst rungs of unethical and destructive acts?
• Explain the five unethical acts by elite financial institutions that you consider the most destructive and least ethical – but which you believe to be legal. How do you rank the degree of unethical conduct and destruction in those acts?
• What specific statutory provisions did you propose to make those five unethical acts illegal? As enacted, which provisions of the Dodd-Frank Act made those five unethical acts illegal? Who has been prosecuted for those formerly legal but seriously unethical and destructive acts that were made illegal by the Dodd-Frank Act?

Reporters will have to be persistent in coordinating their follow-up questions to get Obama to provide direct answers to these questions.

I request that private citizens write President Obama to ask him to provide specific, written answers to these three questions. I will be proposing a series of questions that I will urge citizens to demand answers to because it is clear that the regular media will rarely ask demanding questions of elite politicians or bankers. It is up to us to hold them accountable and end the doctrine of Presidential Amnesty for Contributors.

New Obama Foreclosure Plan Helps Banks At Taxpayers' Expense

Monday, October 24, 2011 by Huffington Post

by Zach Carter 

 

WASHINGTON -- The Obama administration is introducing a new program on Monday designed to lower monthly mortgage payments for more troubled homeowners.

Under the modified plan, "put back" liability at banks will be erased for any underwater mortgage that is refinanced through HARP, eliminating Fannie and Freddie's ability to sack lenders with losses in the event that the mortgage does not pan out. This, in effect, leaves the US taxpayer holding the toxic debt created by a private, profit-hungry bank.  But a key new condition in the plan would shift the financial liability for refinanced loans from Wall Street banks to the American taxpayer. And by focusing on lower payments, the program does not confront what housing experts view as the core problem in the foreclosure crisis -- borrower debt that exceeds the value of one's home.

Faced with the weak response to the Home Affordable Refinance Program, the Obama administration is planning to open up the program to all borrowers who owe more on their mortgage than their homes' worth, commonly dubbed being underwater, and have not missed a mortgage payment. HARP had been limited to borrowers who owed up to 25 percent more than their home is worth. More than 22 percent of all home mortgages -- or 10.9 million homes -- are currently underwater, according to CoreLogic data. Fewer than 900,000 borrowers have elected to go through HARP to date.

The revised program also eliminates several fees associated with refinancing that can make the decision to refinance uneconomical for borrowers. But the potential benefit of the eliminated fees could be relatively small: If a few thousand dollars worth of fees made refinancing a bad deal for underwater borrowers, the ultimate benefits that refinancing can pose would remain limited.

On a conference call with reporters, White House National Economic Council Director Gene Sperling referred to the HARP expansion as "a win-win policy" that will result in "less defaults" and "fewer foreclosures." But one of the program's new terms will benefit private-sector Wall Street banks, potentially at the expense of taxpayers.

The newly expanded program would expunge legal liabilities associated with mortgages refinanced through the program for the original lenders of the mortgages. Each time a bank sent a loan to Fannie and Freddie, it certified that the loan met Fannie and Freddie's safe lending criteria. But many loans sent to the mortgage giants did not, in fact, meet those criteria. Currently, when borrowers default on those ineligible loans, the mortgage giants can "put back" the resulting losses onto the banks that pushed the loans.

Under the modified plan, "put back" liability at banks will be erased for any underwater mortgage that is refinanced through HARP, eliminating Fannie and Freddie's ability to sack lenders with losses in the event that the mortgage does not pan out.

If borrowers go through HARP, but decide after several months that the modest monthly savings do not outweigh owing tens of thousands of dollars more than their home is worth, taxpayer-owned Fannie and Freddie will have to take the full loss. Even if the original loan was sent to Fannie and Freddie with false or fraudulent guarantees from the bank -- promises that may directly be tied to the borrower's current financial problems -- banks will be immune from liability. Fannie and Freddie plan to charge banks "a modest fee" to extinguish this liability, but the administration has yet to determine what that fee will be.

While the revised program seeks to lower mortgage payments for underwater homeowners, the program does nothing to address the core problem -- owing more than the home is worth. Though borrowers may save hundreds of dollars a month in lower payments by refinancing, they routinely owe tens of thousands of dollars more than their homes are worth, even after receiving aid.

"In most cases people would probably be better off walking," said economist Dean Baker, co-director of the Center for Economic Policy and Research.

During a conference call with reporters, Department of Housing and Urban Development Secretary Shaun Donovan acknowledged that negative equity is a problem, and said the administration hopes to address the issue on other fronts. Donovan cited settlement negotiations with big banks over widespread allegations of foreclosure fraud and initiatives under the Home Affordable Modification Program, a separate Obama foreclosure-relief plan administered by banks, as key initiatives.

New York Attorney General Eric Schneiderman and Delaware Attorney General Beau Biden have both objected to the foreclosure fraud settlement talks on the grounds that they give away too much to banks without investigating the scope of fraud problems in the system.

The Home Affordable Modification Program has been a hotbed for the kind of borrower abuses that the administration is pressuring lenders to settle over.