Boston There’s a full moon. The Saints are 11-0 and whipped the New England Patriots like a red-headed stepchild. Now the Treasury Department has announced another new strategy for dealing with foreclosures, given that nothing else has had much of a dent on the problem: shaming.
I guess anything is possible these days, but what are the real odds?
Zero, I would venture.
Wall Street and their front men in the mortgage servicing industry are beyond shame, and Treasury should know that by now having tried summits, summoning, jawboning, and everything they were willing to play other than hardball with the industry. Mortgage relief and restructuring is a shell game because there are too many players, no transparency, no clear ownership, no clear title control, and no accountability. Securitization has created a nightmare allowing too many companies to keep moving paper behind the walls without ever showing their hands. This is the same industry that created the problem and somehow has not been held to account yet. Why should they believe that mortgage relief will be any different?
All shaming can do is create leverage on the couple of companies like Citi and Bank America, and even Goldman Sachs if they were willing, that own mortgage services and where the feds have big investments. Of course the problem there is that Treasury doesn’t necessarily want to force real relief because that could also lead to huge write downs on the balances of these quasi-federal financial institutions. Then the evil eyes come back to Treasury and their role in some of these buyouts and where does the real shaming end then?
The only way banks and mortgage holders don’t take a huge write off, given the number of loans underwater and the houses facing foreclosure is if there is really a federally ordered foreclosure moratorium. A moratorium holds existing value on the balance sheets of the mortgage levels and allows everyone to finally sort the mess out and figure out how to prop up the relief efforts with real dollars. A moratorium also would allow for some market recovery time.
At one point a moratorium might have looked like a radical solution. Banks and mortgage holders will cry like stuck pigs at the thought of freezing non-performing mortgages and there will be glib and pointless talk about “moral hazard” among institutions without morals, but at this point it is hard for me to imagine much else that might work other than a moratorium.