The Double Standards in Bankruptcies - Why Do Banks Get Special Treatment?

With the city of Detroit filing bankruptcy the spotlight is being focused on the unequal application of the bankruptcy laws to seemingly everyone else other than the big banks.  When the financial markets collapsed largely because of the utter recklessness and in some cases outright fraud of the big banks and mortgage companies, the big banks got bailed out with tax payer money and were supposed to pass along relief to beleaguered homeowners - something that from what I have seen in the real estate industry simply never happened.  The banks were quick to take the taxpayer funds but have made a practice of screwing over homeowners in loan modifications and have shown little regard for the properties they tossed off to HUD and the VA to deal with.  Yet in Detroit's case, we are seeing a whole different standard.  The New York Times looks at the troubling situation.  Here are excerpts:

Developments in the Detroit bankruptcy have exposed a double standard in federal bankruptcy law, an injustice in urgent need of congressional reform.

In Detroit, the judge has ruled that under Chapter 9 of the bankruptcy law, the city’s creditors include even municipal pensioners whose payouts are guaranteed under the Michigan Constitution. Accordingly, the pensioners have reached a tentative deal to reduce retiree benefits; along with concessions made by other creditors, the goal is to help the debtor, the city of Detroit, get a fresh start and move forward.

Contrast that with what happened in the housing bust. The creditors in that fiasco — including powerful banks — did not have to cut deals in court with bankrupt homeowners. Under Chapter 13 of the bankruptcy law, a section heavily influenced by the financial industry, lenders cannot be forced to rework most residential mortgages in bankruptcy.

That is where the legal double standard comes in. In Detroit’s bust, even pensioners have to negotiate new terms; in the housing bust, big banks did not have to negotiate, leaving many homeowners in the dust.

That special treatment for banks may have helped them recover from the financial crisis. But it made things worse for borrowers and the economy. Today, 8.6 million homeowners still owe more on their mortgages than their homes are worth, for a total of $430 billion in negative equity, according to Moody’s Analytics. Some 2.1 million of the underwater homeowners are in or near foreclosure, on top of 9.6 million who have lost their homes since 2007.

Congress could have changed the law early in the financial crisis to allow for bankruptcy court relief for homeowners. Its refusal to do so has contributed to unnecessary impoverishment and a protracted weak recovery.

Congress must change the bankruptcy law to ensure that banks have to modify mortgages in court for bankrupt borrowers. Anything less violates bankruptcy’s tough principles of shared pain for creditors and second chances for debtors.

 Yes, I hold the banking industry in low regard.  The banking system and Wall Street created the financial crisis and except in the cases of relative small banks where decision makers have been prosecuted and gone to jail, NO ONE in the big banks or on Wall Street has been similarly prosecuted.  Something is seriously wrong with this picture.

The Immense Economic Cost of the GOP's Intransigence

While I could not stomach watching Eric Cantor on Meet the Press - I feared losing my breakfast if I had to listen to his disingenuous lies - the show did start out with references to the looming economic catastrophe about to hit the Hampton Roads region thanks to the GOP controlled House of Representative's intransigence and willingness to allow sequestration budget cuts to begin in less than a month.   Tens of thousands will lose their jobs in this region alone.  What is perhaps even more disturbing is that the GOP no longer cares about average Americans.  In its quest to destroy the economy so as to harm Barack Obama - a quest driven frankly by racism in the GOP base - millions of Americans will suffer economic harm at the hands of the GOP.  And your rank and file GOP congressman (and congresswoman)?  They simply do not care.  Today's Virginian Pilot lets loss with a blast about what the economic costs may be in the region, but sadly fails to sufficiently lay the blame at the feet of the GOP.  Here are editorial highlights:

The Department of Defense euphemistically calls 2013 "a year of budgetary uncertainty."  That bureaucratese sugarcoats the number-crunching at the Pentagon, which is slashing training, maintenance, technology and temporary employees - and last week delayed deployment of the Truman carrier strike group -as it waits to see whether Congress can find a deal to reduce the deficit.
It doesn't begin to capture the panic in families across the region, staring into their own budgets for 2013 and seeing much worse than uncertainty. Or the worries of their friends and neighbors, their employers and the merchants who depend on their business.

It understates the apprehension of city leaders bracing for municipal layoffs, hiring freezes, furloughs and canceled construction projects.

Absent remarkable progress on budget negotiations in Washington, D.C., in the next two weeks, the Pentagon will cancel maintenance on its ships and planes, lay off tens of thousands of workers from shipyards and bases, furlough 800,000 civilian employees, delay the four-year overhaul of the carrier Lincoln and defer construction of another carrier.

In a region defined and supported by the military, the job losses - Old Dominion University economists predict between 28,700 and 42,300 jobs directly and indirectly lost in Hampton Roads - will translate to a regional recession or worse: a glut of houses on the market, falling property values, high unemployment and people moving away.

Military spending has kept this region's economy humming as long as people have called it home. The portion of the local economy dependent on defense now hovers near 47 percent, a fact that allowed this region to endure the recession better than much of the nation.

With the Truman's deployment to the Persian Gulf delayed, the Navy reduces its military presence in that region to one carrier group. Navy brass say the Eisenhower will be deployed there later this month, as scheduled, possibly to be replaced in the summer by the west coast-based Nimitz. The George H.W. Bush deployment is delayed; deployments of fast-attack submarines would be canceled. Flying hours would be cut in half. Operations in the Caribbean and around South America would be eliminated.

Hampton Roads would lose $271 million in ship repair business. Sailors would lose tuition assistance. All training operations except for sailors about to be deployed would cease. Every civilian would be furloughed for up to 22 days without pay. Air shows featuring the Blue Angels would be canceled.

The drastic reductions, Rear Adm. John Kirby told Federal News Radio, make it "harder in 2014 to preserve readiness." The ships that were supposed to be repaired and refurbished won't be able to deploy on schedule. Cancellation of training means sailors aren't as prepared as they should be. The cuts in technology mean military equipment will grow outdated.

On a parallel track, localities are looking at cuts to their construction budgets. They, too, are considering furloughs.  And, once again, leaders are wondering how to diversify the region's economy to limit the impact of sequestration.

That means improving the transportation system, he [Virginia Beach mayor Will Sessoms] said. It means luring alternative energy development and technology research to complement NASA's and ODU's modeling and simulation work. It means expanding medical centers to include research and rehabilitation facilities. It means making the city and the region inviting for entrepreneurs.

The ripple of lost military spending, especially on the scale of the sequester, means foreclosures, empty storefronts, empty houses. It's hard to think about growing and thriving when the immediate future is nothing but uncertain.  That is Congress' fault.

I'm sorry, but it is the GOP controlled House of Representatives' fault.  Let's place blame where it belongs.  As for helping the region to diversify, one of the first steps is to revolt against the Virginia GOP's 19th century social agenda which tells countless individuals and businesses that bigotry and discrimination are still the name of the game in Virginia and that progressive entrepreneurs need to look elsewhere to thrive and build their businesses.  That gay employees of the Commonwealth of Virginia can still be fired for their sexual orientation and that the Virginia GOP is actively disenfranchising minority voters send this message loud and clear to anyone observant.

Break Up the Big Banks

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It is rare nowadays that I agree with George Will on much of anything.  The man has become almost as nutty as today's Republican Party for which he typically acts as an apologist.  But in a column today in the Washington Post he talks about an issue where in my view he is directly on point:  it is time to break up the big banks who have been given a "too big to fail" status and all kinds of special privileges but have not been held to any increased accountability or responsibility.  Dealing with some of these banks on behalf of clients regularly the picture that emerges is one of arrogance, incompetence, and an utter unwillingness to work with even meritorious customers - despite receiving huge bailout sums themselves that were intended to flow down to borrowers and customers.  Here are highlights from Will's column:

If in four weeks a president-elect Mitt Romney is seeking a Treasury secretary, he should look here, to Richard Fisher, president of the Federal Reserve Bank of Dallas. Candidate Romney can enhance his chance of having this choice to make by embracing a simple proposition from Fisher: Systemically important financial institutions (SIFIs), meaning too-big-to-fail (TBTF) banks, are “too dangerous to permit.”

The problems posed by “supersized and hypercomplex banks” may, Fisher says, require anti-obesity policies equivalent to “irreversible lap-band or gastric bypass surgery.” The land of TBTFs is “a perverse financial Lake Wobegon” where all crises are “exceptional,” justifying “unique” solutions that are the same — meaning bailouts. This incurs “the wrath of ordinary citizens and smaller entities that resent this favorable treatment, and we plant the seeds of social unrest.” 

Endorsing the axiom (attributed to Napoleon) that one should “never ascribe to malice that which is adequately explained by incompetence,” Fisher says that TBTF banks “are sprawling and complex — so vast that their own management teams may not fully understand their own risk exposures, providing fertile ground for unintended ‘incompetence.’ ” 

Fisher’s rejoinder to those who impute “economies of scale” to such banks is that there also are “diseconomies of scale.” Fisher, among many others, believes the component parts of the biggest banks would be “worth more broken up than as a whole.”

“For all its bluster, Dodd-Frank leaves TBTF entrenched. . . . In fact, the financial crisis increased concentration because some TBTF institutions acquired the assets of other troubled TBTF institutions. The TBTF survivors of the financial crisis look a lot like they did in 2008. They maintain corporate cultures based on the short-term incentives of fees and bonuses derived from increased oligopoly power.”

Capitalism — which is, as Milton Friedman tirelessly insisted, a profit and loss system — is subverted by TBTF, which socializes losses while leaving profits private. And which enhances the profits of those whose losses it socializes. TBTF is a double moral disaster: It creates moral hazard by encouraging risky behavior, and it delegitimizes capitalism by validating public cynicism about its risk-reward ratios.

It is inexplicable politics and regrettable policy that Romney has, so far, flinched from a forthright endorsement of breaking up the biggest banks.

Why Occupy Wall Street is So Angry with Big Banks and Wall Street

I have voiced my frustration and anger with the big banks and their mortgage lending arms many times on this blog. Rather than work out loan restructures to keep homeowners in their homes - and prevent the continued depression of home prices - the banks dither around and ultimately push properties into foreclosure knowing that they will ultimately be bailed out by Fannie Mae, Freddie Mac, HUD, VA, etc. The bill ultimately gets stuck on tax payers who pay for the bailout of these mortgage loans. Meanwhile, the banks flout the law and grant unconscionable bonus to employees who more or less committed securities fraud in selling bundled mortgages as securities. But the transgressions of the big banks do not stop there. A piece on The Daily Beast looks at some of the other fraudulent and arguably illegal gambits of the big banks. What's truly upsetting is that few of the big fish have been held accountable or suffered serious consequences. Instead, prosecutions focus on petty ante loan fraud cases while the wrong doers who committed massive misdeeds and put the economy in the toilet continue to live the good life. Here are some column highlights:

Here’s a taste of the deadliest sins committed by the banks, followed by a full account of all the gory details at each bank. Warning: It isn’t pretty

Seven Deadliest Sins of the Big Banks

1. JPMorgan Chase kicks 54 military families out of their homes—despite a law against doing so.

2. Wells Fargo gives bonuses to loan officers to put minority borrowers into high-priced subprime mortgages—internally dubbed “ghetto loans.”

3. Citigroup, Bank of America, and Goldman Sachs all pay huge fines to settle charges they duped their own clients.

4. Goldman Sachs assists in Europe’s economic collapse by helping Greece mask the truth about its finances.

5. JPMorgan turns a blind eye to Bernie Madoff’s deceptions.

6. Bank of America pays $137 million to settle government claims it rigged the municipal-bond market.

7. Despite these and other unpardonable sins, banks showers tens of millions of dollars in bonus money on top executives.

Where to start? JP MORGAN CHASE

There’s the $211 million fine JPMorgan paid in July to settle charges that it defrauded local governments in 31 states—along with the $130 million it returned to municipalities it was accused of duping.

There’s the $722 million in fines and restitution payments it made after JPMorgan confederates were caught paying off officials in Jefferson County, Alabama (home to Birmingham), to secure a municipal finance deal that nearly bankrupted the county.

There’s the fact the bank was in so great a rush to evict people from their homes that it admits that some of its people might have forged foreclosure documents—a problem so widespread that it felt compelled to suspend 56,000 foreclosures while it investigated its own behavior.

WELLS FARGO Wells might seem small, at least when compared to giants like JPMorgan or Bank of America, and therefore not as worthy of revulsion as the other big boy banks, but then looks are deceiving. Wells is the country’s second largest bank in terms of deposits and its stock is valued at more than that of JPMorgan Chase, Citi, Bank of America, or Goldman Sachs. It’s also the bank with the most shameful record on race.

CITIGROUP The sins of Citi start with Sandy Weill—the perfect poster boy for the subprime era. It was in 1986 that Weill, then a 53-year-old Wall Street castoff looking for his next act, bought a mangy, third-rate lender called Commercial Credit. You’re buying a loan shark, his otherwise loyal personal assistant said of this chain of storefront lenders in the business of gouging working-class customers looking for financing on small purchases like refrigerators and bedroom sets. But Weill saw its potential, aggressively moving Commercial Credit into subprime mortgages and then using the profits to go on a buying spree. A dozen years later, he merged his company with Citibank and took over as co-CEO.


It wasn’t just the origination of subprime home loans that drove profits. Like JPMorgan Chase and other goliaths born with the end of Glass-Steagall, Citi played the securitization game as well. The bank wrangled more than $20 billion in mortgage-backed deals in 2006 alone. On October 19, Citi agreed to pay $285 million (without denying or admitting guilt) to settle a complaint filed by the SEC charging that the bank had defrauded its own clients by selling them shares in a rigged mortgage-backed security. It was just another slap on the wrist, really, given that two days earlier, the bank reported profits of $4 billion in the year’s third quarter.

BANK OF AMERICA Bank of America was the first major bank to get into the subprime-mortgage business when it purchased a multibillion-dollar subprime lender in 1992 (it bought a second huge player several years later). Its employees have as much explaining to do as any bank about the "robo-signing" scandal—which saw bank employees swearing they had done the necessary due diligence to prove the bank had the right to seize an individual’s home, when they had not. During a deposition, for instance, one Bank of America employee asked how she could be expected to actually look over the paperwork when she was signing 7,000 to 8,000 foreclosure documents per month.

Customers of all the big banks complain that being behind on your payments means a Kafkaesque journey through a maze where straight answers are impossible to come by and the odds are high that you’ll need to send in your paperwork several times before the right person actually receives it. Still, Bank of America distinguishes itself even among this crowd. A study by Moody’s released at the end of last year found that Bank of America took longer than any of the other major banks to resolve a delinquent loan. And data from HAMP, the program the Obama administration set up to help homeowners avoid foreclosure, shows that Bank of America has the highest number of customers eligible for a loan modification under HAMP—but the lowest rate of success: it provided loan modifications to fewer than one in three homeowners eligible for the program.

Personally, I moved my accounts from Bank of America a number of years ago during my hostile divorce and related bankruptcy. B of A's idea of "helping you" proved to be little better than consenting to being gang raped. As a consequence, I managed to have my accounts with them discharged. It is truly tragic that institutions that helped create the nation's economic collapse continue to go unpunished and get bail outs while hard working Americans who have suffered job loss, medical bill catastrophes, and other legitimate hardships continue to get shafted with no relief from the government.

No Settlement Should Be Made with Mortgage Lenders

As the economy continues in recession (if one is honest in their assessment we ARE still in recession) and the residential housing markets remains in the toilet, everyone is suffering except for those who created the mess: reckless mortgage lenders and Wall Street racketeers who knowingly packaged questionable loans in what's called "securitizing" and sold them to investors. The end result is that investors got burned big time and that no one was accountable for handling foreclosures - and it seems at times even servicing the loans.

Years into the mess, and lenders still are not being held to account and the utter mismanagement and incompetence of servicers and those allegedly in charge of loan modifications make the Three Stooges look like highly competent rocket scientists. I have clients who deserve loan modifications based on changed circumstances, etc., yet all they get is the run around and find themselves dealing with morons who lose paperwork over and over and over again. These irresponsible lenders were seeking a global settlement with the state attorney generals - which would have let them get off in an obscene way. Now, that effort seems to be unraveling as California has pulled out of the deal. Rather than letting the real villains off while prosecuting small bit players, the states need to go after the real culprits and send them to jail. The Los Angeles Times looks at California's decision not to let the lenders and Wall Street off easy. Here are some highlights:

A slew of state attorneys general banded together 11 months ago to try to extract a multibillion-dollar settlement from banks for the way they mishandled foreclosures. The prospects of a deal have been clouded, however, by dissension in the AGs' ranks. On Friday, California Atty. Gen. Kamala Harris became the latest to drop out, announcing that she would pursue her own investigation. Top prosecutors in half a dozen other states, including New York, Nevada and Massachusetts, have already pulled out of the multi-state talks, saying they were concerned that the group wasn't demanding enough from banks in exchange for settling the states' claims.

We're all for holding lenders and loan servicers accountable for the illegal shortcuts they've taken and misrepresentations they've made, and Harris' frustration with the slow pace of negotiations is understandable.

In addition to fairly compensating those who were directly harmed, the AGs' goal should be to make sure struggling borrowers are treated reasonably, rationally and efficiently — something that overwhelmed lenders have failed to do.

Even a borrower who has no chance of avoiding foreclosure has rights, and banks ignored them in their sloppy and corner-cutting responses to the skyrocketing number of defaults. There's also a good argument to be made that banks violated consumer protection laws by making promises they didn't keep about loan modifications for troubled borrowers.

That includes enabling more borrowers in hardship to write off some of their debt, making it easier for troubled borrowers to sell homes that are worth less than their mortgages, and ending the indefensible practice of lenders foreclosing on homes while the owners are negotiating with them for more affordable loans.

The truth is that the lenders don't give a damn about fair treatment of borrowers. And they don't give a damn about the ultimate cost to taxpayers who will end up paying the price as lenders are bailed out by HUD, FHA, VA and Fannie Mae and Freddie Mac. The lenders have been winning while everyone else gets screwed over. It's time for this to end.

Is the GOP's Plan to Destroy the Economy to Defeat Obama Working?

Today's blood bath on Wall Street has left me feeling physically sick - I've likely lost a big chunk of my inheritance from my late mother However, I'm even sicker knowing that the plunge in the Dow was likely part of a cynical calculation by the GOP. Yes, part of the plummet in the Dow relates to events in Europe, but a good portion relates to the bleak economic reality here in the USA. The debt ceiling deal will result in federal spending cuts that will compound on top of the severe cuts already made in the states - all of which will further depress consumer spending. Remember, John Boehner has boasted that he got "98% of what he wanted." What he wanted - not what was good for the country.

The chart above makes it clear just how depressed the economy is at this point - clearly we are in the worse economic down turn during the last 130 years save and except the Great Depression. And now, we are about to experience a reprise of FDR's mistake in 1937 which caused a second down turn. A down turn that was only over come by the vast spending associated with World War II.

It is truly disturbing that the GOP, in my opinion, is willing to sacrifice the nation's economy and the lives and finances of millions of Americans all so that they can attempt to guarantee that Barack Obama is a one term president. Politico has a long article that looks at the likelihood that Obama may not be re-elected in 2012. The thought of another far right GOP president is scary. But that's the GOP's goal and sadly Obama has played into his enemies' hands. Here are highlights (read the whole article):

The politics of the debt fight were a drag for President Barack Obama, yanking his popularity to new lows. Here’s an even bigger drag: Obama emerges from the months-long fracas weaker — and facing much deeper and more durable political obstacles — than his own advisers ever imagined.

The consensus has been that for all his problems, Obama is so skilled a politician — and the eventual GOP nominee so flawed or hapless — that he’d most likely be reelected. Don’t buy into it. This breezy certitude fails to reckon with how weak his fundamentals are a year out from the general election. Gallup pegs his approval rating at a discouraging 42 percent, with his standing among independents falling 9 points in four weeks.

His economic stats are even worse. The nation has 2.5 million fewer jobs today than the day Obama took office, a fact you’re sure to hear the Republicans repeat. Consumer confidence is scraping levels not seen since March 2009.

Where’s the bright spot? Hard to see. Obama has few, if any, domestic achievements that enjoy broad public support. No one assumes employment, growth or housing prices to pick up much, if at all — something Obama is essentially powerless to change. And the political environment and electoral map are significantly tougher than in 2008, especially in true up-for-grabs states.

The White House anticipates unemployment at 8.25 percent, and Goldman Sachs and others warn the number could be higher — close to 9 percent, which would mean no net job growth after the biggest stimulus package in the history of the world. No president has won reelection when unemployment was higher than 7.2 percent in 50 years.

Median home values have declined every month Obama has been in office, too, according to Zillow, which monitors real estate markets. The site’s chief economist now predicts home value won’t bottom out until 2012 “or later.” So, the one asset Americans relied on for wealth — and until the crash, for spending money — will be the biggest concern for many.

“The big issue for him will be whether people see light at the end of the tunnel when they ultimately vote,” Democratic Washington Gov. Christine Gregoire said in a telephone interview. “The people in my state want to hear that there is a good and bright and sound future. The average person is really concerned.”

Clearly, the debt ceiling deal and the coming cuts to come in November or by auto-pilot if an agreement cannot be reached will likely only further depress the economy and Obama's reelection chances. Will voters be smart enough to track the real fault back to the GOP? Personally, I doubt it. Most voters are poorly informed and fall victim to political ad sound bites - and the GOP has shown itself far more adept at misleading sound bites which in turn are parroted by lazy "journalists" at the main stream media outlets.

Obsession to Halt Mortgage Fraud Is Hampering a Housing Recovery

Between insanely rigid loan underwriting requirements that have knocked many would be purchasers out of the housing market, utterly ineffective homeowner assistance programs, and restrictions on loans and/or the number of properties owned by legitimate real estate investors, the government regulatory bodies have almost guaranteed that the U.S. housing market will remain in a free fall - wiping out more and more homeowners' equity in the process and setting the stage for more homeowners contemplating simply walking away from their underwater properties. For anyone in the real estate industry, the sources of the problems seem so obvious, yet no one in Washington seems to have figured it our or much less even seem to care about the ongoing financial carnage in the housing market. It drives me to distraction. An op=ed piece in the Atlanta Journal-Constitution looks at the ongoing idiocy in the area of real estate investors. Here are some highlights:
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Roughly three in 10 homes in the United States are now worth less than the mortgages on those homes. There is a continuing cycle of homeowners walking away from their mortgages, driving down home prices and causing other homeowners to abandon their mortgages.
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There are potential fixes to housing that do not require new federal stimulus measures but merely require that present programs, policies and attitudes be tweaked. The sledgehammer we have been taking to the housing market to prevent mortgage fraud needs to be replaced with a scalpel because the former approach is depressing the recovery of the housing market.
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First, in combating mortgage fraud, a bias has developed in federal loan programs against investors that must be eliminated. Under the federal Home Affordable Foreclosure Alternative, investors must hold their newly purchased homes for six months before they can be resold. Fannie Mae will not permit investors to receive additional financing once they have purchased 10 homes. Lenders and private mortgage insurers will not finance or insure buyers who want to pay more for a house than what the investor paid in the previous three to six months.
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Rather than looking at investors as vultures or potential mortgage fraudsters, an attitudinal shift needs to occur where they are embraced as the potential saviors of the housing market that they are. Until investors start making money in housing, and lots of it, there will be no recovery in the housing market. This will only occur when disincentives to invest are eliminated. Like in any other market, when fear is replaced with greed, housing inventory will decline, prices will rise and a sense of urgency to buy will be restored to the market.
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While mortgage fraud is a legitimate concern, it should be addressed through closer scrutiny of borrowers rather than by imposing a brake on the rise of home prices.
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Second, let’s make it easier for defaulting homeowners to remain in their homes as renters. Now, defaulting homeowners may not remain in their homes after they have been sold to a third party in a short sale transaction or conveyed back to the lender through a deed in lieu of foreclosure. . . . . .encouraging defaulting owners to remain in place as tenants will prevent the community destabilization that will inevitably occur if millions of former homeowners are otherwise displaced from their homes.
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Third, let’s eliminate the governmental bias against condominiums and accord them the same status as single-family homes. At present, FNMA will effectively not buy mortgages in complexes where more than 15 percent of the owners are delinquent in paying their association fees or where more than 49 percent of the units are leased. Reaching these limits is, therefore, a financial death sentence for existing condominium communities, depressing prices further in these communities.
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Fourth, loosen up on appraisal standards. Every Realtor still in the business will tell you that he or she has worked on countless bona fide real estate transactions that fell apart because an appraiser said that the sales price was too high. In markets where prices are falling and there are few or no comparable home sales, or the comparables are mostly foreclosures, good (and valuable) homes end up getting clobbered by low appraisals. However, the current appraisal system artificially depresses market prices by not allowing for the natural rise of home prices absent a comparable home sale.
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The foregoing are common sense and realistic ways of ending the housing market free fall. I see the problems described in the article virtually every day. When is some one in Washington going to open their eyes?

Housing is Killing the Recovery

At the risk of beating a dead horse, it's time again to look at the engine that drove the Great Recession and which is now killing any real recovery: the housing market. Both the Los Angeles Times and FrumForum have pieces that look at the continuing debacle and the abject failure of Congress and the White House to do anything meaningful to address the problem. Dealing with distressed homeowners every day, I can testify that the so-called Home Affordable Modification Program is little more than a joke. And a sick joke at that. Lenders have no accountability and frankly, most personnel one deals with are utterly incompetent and have about as much reasoning skill as a trained circus dog - no offense intended towards dogs. For almost FOUR years now I have been railing about this issue and nothing meaningful has been done other than a huge bailout to lenders who have done nothing to assist homeowners with legitimate hardships. First, here are highlights from the LA Times:

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Almost anywhere you look, assessments of the state of the economic recovery are muddled — job growth is positive but fading, consumer spending ebbs and flows, corporate profits are surging but corporate spending is not. The exception is housing, on which everyone agrees. The housing market stinks.
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The latest national Case-Shiller index of home prices fell again in April from a year earlier. It was up modestly from March, but since that month marked a new recession low, pushing average prices back to levels not seen since 2002, at best we're bumping along the bottom. About 4.5% of all mortgages are still in foreclosure, more than four times the historical average . . .
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Yet housing is the area in which the government's remedial efforts have been consistently the weakest. The gap between the government's effort to bail out bankers and its effort to bail out homeowners is a national scandal. Under the Troubled Asset Relief Program, the government's bank bailout, some $50 billion was earmarked for mortgage relief; by late last year, according to the Congressional Budget Office, only $8 billion had been committed and much less had been spent.
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HAMP hasn't been a total flop. The redefault rate of less than 20% on its mortgages is about half that of other mortgage relief programs. But it's enough of a disappointment that Treasury officials recently took a step almost unique in their regulatory record: They penalized three big banks for their shortcomings in managing HAMP. The banks are Wells Fargo, Bank of America and JP Morgan Chase.
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The shame of HAMP is that federal mortgage relief didn't have to be so halfhearted. HAMP's drafters had a successful model to work from. That was the New Deal-era Home Owners' Loan Corp., or HOLC, a program that saved 1 million homes from loss in the depths of the Great Depression and completely remade the country's mortgage market in the process.
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What really enabled HOLC to succeed was that its incentives were all aimed at keeping borrowers in their homes. That's not the case with today's mortgage market, where the incentives are canted toward foreclosures. HAMP has done very little to correct that.
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The key to keeping a financially strapped borrower in a home is to modify the mortgage to cut the monthly payment, whether by cutting the interest rate or loan balance or by stretching out the repayment term. What makes this difficult is that often the loan servicer — the bank or office that bills the homeowner and tracks his or her payment history — doesn't own the loan, which has been packaged and sold to investors.
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In fact, servicers have powerful incentives to do the wrong thing — wrong for borrowers, wrong for investors, wrong for the economy. They make more money, and have better guarantees of payment, if they delay modifications, even if they force homeowners into foreclosure.
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[A] bigger flaw is that the government's housing policy doesn't acknowledge that a genuine, lasting solution to the housing crisis means reducing the loan balances of financially stressed homeowners to levels that make sense in terms of today's sharply reduced home values.
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No stimulus program would be as effective today as fixing the residential market. Yet, typically, the momentum in Congress is in the other direction, with House Republicans plotting to repeal HAMP. It's not that they have any better idea; it's that when it comes to helping the economy, they abhor anything but a vacuum.
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The FrumForum column repeats much of the same territory and flat out says that the continued housing disaster is killing the economy. Here are some highlights:
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For those who may think that the housing market has bottomed out and there is a light at the end of the tunnel, think again. That isn’t a light at the end and it’s not a train coming either. It might just be a blistering ray of solar radiation that could evaporate everything it is path, a wave of housing supply that will quickly overwhelm any hope for home price stabilization, much less an actual recovery. There is a shield, however, if politicians, policy makers and regulators can find the fortitude to redefine the American Dream.
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Over the last 6 months, the nation’s housing supply has been artificially (and temporarily) held at bay by moratoriums imposed on the big servicers over foreclosure practices while buyer demand has remained relatively constant. Econ 101 would instruct us that, under this scenario, home prices should rise. Instead, during the same period home prices continued their decline, falling an additional 4-5% on an adjusted basis. According to an increasingly number of economists, including Robert Schiller, we should expect to see this trend continue another 20-25% over the next several years. Why? Because the supply of homes expected to hit the market is more than double all of the homes sold in 2010 and YTD 2011 combined. Large banks, private investors and the GSE’s know this and are racing to the bottom to unload their existing homes before the tsunami hits.
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Recent CNNMoney headlines are telling. “Walk Away from your Mortgage: Time to Get Ruthless” (June 7) highlights the driving force behind all of this supply: underwater homeowners. The number of “strategic” defaulters is accelerating as more people make a basic economic decision to walk away.
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In a recent Fannie Mae survey, 27% of homeowners would consider walking away from their mortgage if home prices keep falling, nearly double from a year ago, and more than 50% no longer believe owning a house is a good investment.
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The number of people who fit into these buckets is staggering: More than 4 million mortgage borrowers are either in foreclosure or are seriously delinquent. Most of their houses will end up on the market as short sales or foreclosure sales. Private estimates put the figure, often referred to as “shadow inventory” at more than 6 million.
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Supply will increase and demand will decrease, driving home prices down, which in turn will create a self-perpetuating cycle. So how do we stabilize home prices if there is limited homeowner demand? The answer, of course, is to reduce the supply through other means.
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What are required are bold governmental initiatives to promote renting as a means to stabilize home prices. Start by accelerating the sale of entire GSE and FHA REO positions, which are worth on the order of $40-$50 billion, to private investors who could form large scale leasing portfolios. Divert what remain of federal and state funds from loan modification programs to rental-assistance programs. Rather than pay mortgage servicers to modify deeply delinquent borrowers who, after modification of the payment, are still underwater on their homes, reward servicers to convert them into tenants at reduced housing payments. Keeping people in homes and kids in schools while avoiding foreclosure signs on front lawns is almost always a good thing. Modifying borrowers to buy time without addressing negative equity is rarely an optimal outcome. And maybe, just maybe, adjust tax incentives to take into account all forms of housing payments, not just mortgage interest.
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I don't necessarily agree with the proposed solution, but at least it would be doing SOMETHING as opposed to nothing which is what is the current reality.

Housing Crisis Is Now Worse Than Great Depression

I know that I sound like a broken record, but when is somebody - indeed ANYBODY - in Washington going to wake up and try to stem the continued free fall of the housing market? I don't care if its a Democrat, Republican, Libertarian or member of some other group that wakes up to the ongoing disaster so long as somebody wakes up and puts in place policy and regulatory reforms that stop the constant downward spiral. Why am I so exercised? Because a new report discloses that nationwide the crash and burning of the housing market is now worse than what happened during the Great Depression. Yet Congress and the White House continue to do nothing of any substance. Here are highlights from CNBC:
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It's official: The housing crisis that began in 2006 and has recently entered a double dip is now worse than the Great Depression. Prices have fallen some 33 percent since the market began its collapse, greater than the 31 percent fall that began in the late 1920s and culminated in the early 1930s, according to Case-Shiller data.
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"The sharp fall in house prices in the first quarter provided further confirmation that this housing crash has been larger and faster than the one during the Great Depression," Paul Dales, senior economist at Capital Economics in Toronto, wrote in research for clients.
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More than four in every five mortgages now require a down payment of 20 percent, and credit history standards have tightened. At the same time, foreclosures continue at a brisk pace, pushing more supply onto the market and pressuring prices downward. Then there is the issue of underwater homeowners—those who owe more than their house is worth—representing another 23 percent of homeowners who cannot leave or are in danger of mortgage default.
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Indeed, the foreclosure problem is unlikely to get any better with 4.5 million households either three payments late or in foreclosure proceedings. The historical average is 1 million, according to Dales' research.

80,150 Hampton Roads Homeowners "Underwater" on Mortgages

The residential real estate market continues its death spiral as members of Congress and the White House dither and do nothing to halt one of the biggest forces dragging the economy downward. The financial industry received billions of dollars in bailout funds and little or nothing has trickled down to distressed homeowners. The result has been plunging home values and more and more people faced with simply walking away from properties no worth far less than what is owed on them It's a national problem and even Hampton Roads which is somewhat cushioned by the large military presence in the region is not exempt from the pain. The Virginian Pilot has a story that looks at the local mess where an estimated 24% of homes are "upside down" and now worth less than the mortgages balances outstanding against them. Here are some highlights:
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Nearly one in four homes with a mortgage in Hampton Roads - 24 percent - is worth less than what is owed on the loan, according to a report released Tuesday. The number of local home-owners who were "underwater" on their loans rose slightly to 80,150 at the end of March, according to CoreLogic, a Santa Ana, Calif.-based company that tracks mortgages nationwide.
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The firm's quarterly report said 22,967 more mortgages in the region will be underwater if home prices decline 5 percent from current levels.
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Economists and real estate experts say that owing more on a home than it is worth is one of the most common precursors to foreclosure. For homeowners who aren't in jeopardy of falling behind on payments, being underwater means they are tied to their homes - unable to sell without paying their lender the difference or negotiating a short sale. That also impacts the local home sales market, said Vinod Agarwal, an economist at Old Dominion University.
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The proportion of homeowners in Virginia who owe more than their homes are worth was 23.1 percent in March, CoreLogic reported.
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Across the country, the number fell slightly to 10.9 million, down from 11.1 million at the end of 2010, the firm reported. That represents about 22.7 percent of all residential properties with a mortgage nationwide. The highest concentration of underwater loans was in Nevada at 63 percent.

John Boehner and GOP Fight Foreclosure Relief

For almost four years now, I have said over and over again that unless and until the residential housing market is stabilized, there will be no overall recovery of the U.S. economy. The collapse of the housing market has resulted in billions of lost equity on the part of consumers, countless families losing their homes, and countless lost jobs in housing related industries. One would think that fixing the foreclosure disaster would be priority number 1 with both houses of Congress. But such is not the case. Banks and lenders were bailed out to the tune of billions of dollars yet they have not passed any benefit on to home owners. Nor has Congress demanded any real accountability. In the case of the GOP, one would even think that the Congressional Republicans want the housing market to continue to spiral downward -probably hoping for political advantage. Never mind the families and lives being destroyed and damaged. Huffington Post has a piece that looks at John Boehner's efforts in particular to fight meaningful foreclosure relief measures. Like most in the GOP, Boehner wears his religiosity on his sleeve but acts in a most un-Christian manner. Here are some highlights:
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Regina Moore has lived in her Hamilton, Ohio, home, in the heart of House Speaker John Boehner's district, for 50 years. Her husband passed away in 2005, and in 2008 she took out a new $72,000 mortgage so she could afford to pay her medical bills. She had a steady job, having worked at the Champion Printing Company in Cincinnati for more than two decades. Her monthly payments on her $86,000 home amounted to about $450.
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It was a simple mortgage for a simple home -- no exploding payments or swimming pools. But last year, at the age of 70, Regina lost her job, and her $1100 a month Social Security payment wasn't enough to make ends meet.
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While Jeff, a local housing group and a lender ultimately helped Regina modify her mortgage so she could stay in her home, many of her fellow Ohioans haven't been so fortunate. Hamilton, about 45 minutes outside of Cincinnati, has one of the highest foreclosure rates in Butler County. And Butler County has been a foreclosure hotspot for years. Along with the Cleveland and Columbus areas, Cincinnati and its surroundings have seen the predatory subprime binge come and go and now watch as the crumbling job market pushes more and more homeowners into financial ruin.
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"In the beginning, we really saw more loans that we thought had predatory features," said Sister Barbara Busch, a Catholic social justice worker who serves as Executive Director of a Cincinnati-based homeowner advocacy group called Working In Neighborhoods . . . n 2010 we saw a large number of unemployed, where the loans themselves weren't so bad, but people had just lost their jobs."
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Others who work with struggling homeowners say the same thing: The initial wave of mortgage problems was due to people unable to manage exotic or high-risk mortgages, but the current problem simply involves people losing jobs in a weak economy who can't pay their bills.
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These are homeowners who have done everything right in the sense that they were careful about the kind of mortgage they got, they didn't buy a property they couldn't afford, but now they're facing long-term unemployment."
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Over the past three years, lawmakers across Ohio have pressed for foreclosure relief, often crossing party lines to do so. But Boehner has never joined the effort. When Rep. Steve Chabot, a fellow Republican whose district borders Boehner's and shares many of its economic hardships, backed a 2008 bill to grant relief to homeowners in bankruptcy courts, Boehner refused to sign on.
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the House Speaker made the case for his opposition to foreclosure aid in a recent appearance on CBS News' Face The Nation. "Over the last couple years, Congress has really set up four programs to help with those mortgage problems," Boehner told CBS' Harry Smith. "And unfortunately, none of those have worked. And all they've really done is dragged out the length of time for the market to clear the problems."
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"If people are trapped in houses where they can't pay their mortgage but can pay something, you can prevent areas from becoming desolated by foreclosed and abandoned homes, which drive down prices for everyone," said economist Dean Baker, co-director of the Center for Economic and Policy Research, a left-leaning research group.
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And Boehner consistently votes with Wall Street on major policy issues. He voted in favor of the bank bailout in 2008, and opposed financial reform legislation in 2009 and 2010, even as he socialized with such major financiers as JPMorgan Chase CEO Jamie Dimon in an effort to raise campaign cash.
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[U]nlike other TARP programs, including Obama's HAMP initiative, the Ohio government actually requires banks to sign a legally binding contract with the state, creating clearly defined obligations: the bank gets money, but the mortgage must be modified. But the program has serious flaws. Jeff said he couldn't understand why it took seven months for his mother's paperwork to be approved. It wasn't terribly complicated, he said; either the numbers worked, or they didn't.
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Big banks, by contrast, are frequently combative throughout the entire foreclosure process. The Legal Aid Society of Southwest Ohio (LASSWO) is currently suing Bank of America on behalf of 12 families, including at least one in Boehner's district, for filching on loan modification agreements that it made during an October 2009 in-person "borrower outreach" program in Cincinnati. The Treasury Department sponsored the event as part of its HAMP program.
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Boehner rebuffed efforts to divert some of that federal funding to help borrowers in foreclosure litigation. As the vote approached, Boehner's spokesman, Michael Steel, launched a broadside against the entire effort.
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The article continues, but you get the drift. As for Bank of America, from what I have seen of the way it treats legitimately distressed homeowners, I would personally never do business with the ban again. I encourage others to likewise avoid it like the plague. Lies, incompetence and unreasonable conduct are the norm in my opinion.

As Housing Goes, So Goes the Economy

I have been saying since the summer of 2007 that unless and until something is done to stop the decline of the residential housing market, do not expect any significant improvement in the nation's economy. So what have we seen take place since then? Banks and mortgage companies bailed out yet no corresponding actions by the bailed out lenders to pass along anything to distressed homeowners. Instead, we've seen an unwillingness to modify loans to stem foreclosures and wave after wave of foreclosures that are driving home values ever lower and creating more homeowners who are upside down on their loans and headed towards foreclosure or bankruptcy. I truly do not understand why of political leaders cannot come up with something to stop the continued debacle. The New York Times today echos what Ive been saying. Here are some editorial highlights:
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The Great Recession began with the bursting of the housing bubble. Today, nearly two years after the recession officially ended, the housing market is still in trouble.
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[O]ver all, sales and construction have been flat for two years, while prices, driven down by foreclosures, are plumbing new depths. Even a recent drop in foreclosure filings isn’t a reason for optimism. . . . . the decline appears to be largely the result of banks slowing the foreclosure process in order to keep properties off the market until prices recover. The catch is that prices are unlikely to recover as long as millions of foreclosures are imminent.
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This isn’t just bad news for homeowners. Selling and building of houses are one of the economy’s most powerful engines. Until the market recovers, the entire recovery is imperiled. Falling home equity dents consumer confidence, making things even worse.
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Since the problems in housing are not self-curing, a government fix is in order. But the Obama administration’s main antiforeclosure effort has fallen far short of its goal to modify three million to four million troubled loans.
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Its basic flaw is that participation by the banks is voluntary. Most have joined the program but face no real pressure to meet its goals. Another big problem is that banks often do not own the troubled loans; rather, they service the loans for investors who own them. . . . Not surprisingly, defaults proceed and modifications lag. Banks win. Homeowners and investors lose. The economy suffers.
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That does not have to be the end of the story. In a recent hearing in a Senate banking subcommittee, witnesses proposed new laws and regulations to change loan-servicing standards in ways that would prevent banks from putting their interests above those of everyone else.
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For starters, various government guidelines on loan servicing would be replaced with tough national standards. Among the new rules, homeowners would be evaluated for loan modifications before any foreclosure — or foreclosure-related fee — is initiated. The bank analysis used to approve or reject modifications would be standardized and public, and failure by the bank to offer a modification when the analysis indicates one is warranted would be grounds for blocking any attempt to foreclose.
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In the Senate, Democrats Jack Reed and Sheldon Whitehouse of Rhode Island and Sherrod Brown of Ohio have introduced bills to establish standards. The new Consumer Financial Protection Bureau can also impose servicing rules. The Obama administration should champion national standards, and Congress and regulators should act — soon.

Nutcase Linda Harvey: Gays Caused the Mortgage Crisis

Some days you have to wonder what drugs the wingnuts are ingesting and/or what kind of head trauma they've suffered because their attacks on LGBT Americans are just down right insane. A case in point is Linda Harvey who set up her own cottage industry called Mission America. I crossed paths with Ms. Harvey some years back and frankly asked her about her academic credentials and whether she had any legitimate expertise that would qualify her as an expert of social and/or cultural matters and so forth. In a snippy e-mail she disclosed her credentials: she holds a B.A/ in English and has worked in advertising. And, of course, Harvey has been active on the Christo-fascist speaker circuit. Nothing that would seem to make her an expert on homosexuality - a topic that is an obsession with her so-called ministry. Now, Ms. Harvey has posted a rant on her "ministry's" website that blames LGBT citizens and our determination to be equal under the civil laws for the economic recession and the mortgage/real estate meltdown. Here is a sampling of her verbal diarrhea:
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As some conservatives and even Christians rush to embrace the notion that two men or two women can be married, it’s important to remember one basic rule of construction. A weak foundation means a vulnerable, fragile structure.
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Families constructed around sexual deviance stand in defiance of God’s eternally –revealed truth. No matter how “conservatively” and faithfully two men or two women operate as they consider themselves a marital union, the structure is still in defiance of God’s created order of male and female as the framework for marriage. Men and women already have the right to marry, because they are free to marry someone of the opposite sex, so the goal is a new structure.
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So from the get-go, the same sex union is structurally unsound. Functionally, the intentions can be the best, but the homosexual humanists who have created their own law will live and die by it, because God has made His standard clear.
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No new life can ever come from a homosexual relationship. Those few who do desire children (a minority) always have to involve at least a third and possibly a fourth party. The options are adoption, artificial insemination, or inclusion of children from a previous marriage: yes, a heterosexual, fruitful one, back before the discovery of “inborn” homosexuality.
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Much discussion of public policy today advocates so-called “rights” for these sin-based families. They dream of marriage re-structured for everyone, including all our young, who will be taught to ignore basic instincts affirming workable structure and who must embrace the new man-made, sand-made design.
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Substance abuse and self-destruction accompany sexual deviance. And some of this means poor decisions about finances.
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The mortgage crisis was the sin of temptation being offered by those who relaxed legitimate standards, offered to those without the personal standards to resist. This easy-pay physical structure was too good to be true, and appealed to an increasingly covetous segment of our culture. Sexual and material covetousness are usually sin siblings. It would be interesting to study the families who have defaulted on mortgages for the correlations between structural and/or functional weaknesses like infidelity, divorce, gambling or porn addictions, job instability, credit card default, domestic abuse, sexual deviance, and criminality. There is also a high likelihood that poor or no church attendance would show up as a factor as well.
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Personally, I think Ms. Harvey needs serious mental health intervention. She obviously is detached from legitimate medical and mental health knowledge based on her totally repudiated views on gays and sexual orientation.

Are the Federal Government and Lenders Out to Destroy Housing?

The Virginian Pilot is reporting that in March 43% of home sales were foreclosures. This reality has several negative side effects: (1) neighborhood values are driven lower thus causing more homeowners to be "underwater" on the mortgages and (2) the bailout tab to the taxpayers increases. Yet these effects would seem to be the agenda of the federal government and the lenders as a whole. Why do I say this? Because lenders continue to refuse to enter into loan modifications to assist owners faced with plummeting prices and/or financial catastrophes that have impacted their ability to pay on loans. This refusal ultimately leads to a foreclosures sale where huge numbers of homes are taken back by lenders because no one buys the home at foreclosure. The next step is to have the foreclosed homes under the management of incompetent "management companies" where they languish until the home is transferred to HUD, Fannie Mae or Freddie Mac. Once the homes become the property of these government or semi-governmental agencies, they typically sell for 40-50% of their former value. One doesn't need to be a math genius to realize how devastating this is to neighborhood values. The best solution for troubled homeowners and the taxpayer would be for loan modifications to be widely utilized. The fact that they are not shows just how f*cked up the system has become. Here are some story highlights:
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Sales of foreclosed and distressed properties continued to fuel the housing market in South Hampton Roads in March, according to a report released Monday. Real Estate Information Network Inc. reported that 1,090 homes sold last month in the area, up 56.4 percent from February and 13.2 percent from a year ago. Three of every seven homes sold - or 43 percent - were bank-owned or were sold for less than the seller owed on the mortgage.
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That is the highest volume of foreclosures sales on record, up from 42 percent in February.

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As such sales increase, housing prices continue to fall. Last month, the median price of homes sold dipped to $175,000, down 5.4 percent from February and 15 percent from a year ago, the Virginia Beach-based multiple listing service reported.

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Vinod Agarwal, an economist at Old Dominion University, said that although foreclosures make up a small percentage of the housing market, they are selling fast because of the perceived value. "If you think you're getting a steal, you go for it," Agarwal said.

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Despite foreclosure sales, the market as a whole is still swollen with properties. Last month, 14,360 were for sale in Hampton Roads, up 1.3 percent from February and down 3.4 percent from a year ago. That represents about 10 months of inventory. Six months of inventory is considered normal.

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It's also taking longer to sell a home, on average. The average number of days a home stays on the market rose slightly in March to 107 days. That is the lengthiest average market time in more than four years.

More Bad News For Housing

Although many continue to hope that the economy is beginning to turn around, the news on the residential housing front suggests otherwise. Sales are at a 9 year low and foreclosures continue to drive prices downward and encourage the timid to wait out the market to see how low it will go. Savvy investors are picking up incredible deals as the banks holding bank owned property prove to be as incompetent in post foreclosure matters as they were in making loans to the unqualified in the bubble days of the market. Until housing recovers, there will be no real economic recovery. Sadly, as is the case with the long term unemployed, neither the White House or Congress seems to care. Here are highlights from Financial Feed:
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February sales and prices of formerly owned U.S. homes plunged 9.6% monthly with 4.88 million units at an annual rate, the lowest in 9 years, said the National Association of Realtors. The decline was the largest since July and an indication that recovery for the housing market is still unlikely. IHS Global Insight senior economist Chris Christopher said it is still a very depressed housing market.
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Additionally, tight credit conditions and home appraisals that did not meet agreed selling prices affected sales said NAR. Excess homes and too many foreclosures hamper recovery in the housing industry which helped bring the U.S. economy towards the worst slump since the 1930’s.
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The below-market value foreclosure and short sales represent 39% of February dealings from last month’s 37%. Cash purchases on the other hand made up a record 33% of February sales. NAR said new home prices are 45% more expensive that existing home prices.

A Last Chance to Stabilize the Housing Market?

Back in the summer of 2007 I began writing about the coming recession/depression that was being triggered by the collapse of the residential housing market. Alas, no one in Washington, D.C., seems to have paid any attention to the looming fiasco. The rest is history and the housing market - and the larger economy - have never recovered from the missed opportunity to create a real solution to the still unfolding problem. For anyone trying to assist distressed homeowners, the process is beyond maddening and despite alleged programs for methods to assist homeowners who have lost jobs or find themselves upside down on their mortgages because of collapsed home prices, typically NOTHING is done and the homes end up in foreclosure. Which only serves to drive prices lower still and add to the number of homes facing foreclosure. Here in the Hampton Roads area, 24% of mortgages are said to be upside down. Now, as Ezra Klein at the Washington Post is reporting there may be a last chance for a meaningful fix to the problem. Personally, I am not holding my breath. Here are highlights (the referenced draft settlement can be found here):
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My colleagues Brady Dennis and Dina El Boghdady got their hands on an early version of the settlement that the country's attorney generals and a few federal agencies are hammering out with the big banks. This is the endgame to the mortgage servicing mess that dominated the news some months ago: the banks, having repeatedly broken the law while handling mortgage paperwork and conducting foreclosures, need to strike some sort of deal with regulatory authorities so they're not nipped to death by thousands and thousands of lawsuits. That means the state AGs and regulators have some leverage: the banks need relief from them, and so the question is how much relief they can get for homeowners in turn.
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The hope is that they can get something capable of stabilizing the housing market. For all that the economy is improving, housing remains a huge drag, with legitimate estimates suggesting we've still got as many as 11 million foreclosures in the pipeline. "The number one reason for nervousness about the economy in the next six to nine months is the foreclosure crisis," Moody's economist Mark Zandi told me last week.
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With Congress no longer interested in acting to ease the foreclosure crisis -- or, it seems, the jobs crisis -- this settlement is perhaps our last shot at stabilizing the housing market. The big thing that advocates are looking for is "principal modification": a process in which borrowers who are underwater on their homes would see the amount they owe to the bank reduced.
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The proposals attempt to address wide-ranging complaints about the servicing process. One would require the servicers to provide a single point of contact for borrowers looking to modify their loans. Another would require them to develop a portal that would allow borrowers to submit and track documents electronically in real time.The document also spells out the conditions under which servicers should consider principal reductions for certain borrowers.
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Currently, if one contacts a lender, expect to be transferred countless times, be told to call other telephone numbers, and after hours of effort to have achieved absolutely nothing. It is a disaster and economically, we are all paying the price. Well, most of us - obviously, not the top income brackets which are getting richer while the rest of us stagnate or lose income.