Little Change on Foreclosure Modifications but Subprime Loans are Back

mortgagedeniedNew Orleans        In the US we are seven years out from the Great Recession, depending on how you count the pain and mark the scars.  Homeowners have lost their homes through 7 million foreclosures in that period.  More than 9 million homeowners are still underwater, owing more than the value of their homes now, with the banks, like vultures, still knocking on their doors even while they pay billions in penalties for their bad, which is to say criminal, misbehavior.

Meanwhile Jacob Lew, the new Treasury Secretary, amid notices that his predecessor, the Wall Street flunky, Timothy Geithner, even admitted he wished he had done a little bit more about millions of Americans that lost their homes, announced an update on the billions approved for foreclosure modifications.   Seems that of the $38 billion set aside to help these desperate homeowners there’s still $24 billion left unspent after all of these years.  I don’t want to go all Tea Party on this, but the answer to the riddle about when was the last government funded program that was unable to spent over 60% of its money in over 5 years when millions are suffering is any program to help homeowners controlled by banks pretending to help their victims.  Oh, and what was Lew’s pronouncement.  Well, damn, he’ll extend the program another year until 2016 and make a couple of small changes, none of which include finally allowing what everyone agrees is the only solution, being principal reduction.

And, if you want to buy to buy a home now and are on the wrong side of the 1%, getting a loan has been “forget about it!”   Credit evaporated a long time ago and given the setbacks in the jobs market and the general economy we could almost count the number of people with perfect credit on one hand.  Working with families for whom the dream of unblemished credit is less likely to ever be experienced than an all-expenses paid visit to Shangri-La or the chance of winning the lottery, subprime loans opened the door to home ownership at the price of a couple of extra points of interest until you could refinance and prove out.  In fact, one of the biggest obstacles to rebuilding New Orleans after Katrina and the dawn of the recession was the disappearance of a subprime loan market that could have significantly helped repopulate whole areas of the city where people were still short $20 to $40000 and with damaged credit couldn’t fill the gap.

News that there might be a return of the subprime market is something I see as a good thing.  The fact that some of the companies making the return are headquartered in Calabasas, California, the Los Angeles suburb that was the Mecca of Countrywide Mortgage, also means that some of those hotshots might be trying to sneak back through a crack in the windows as well.  But, as I used to say in one negotiating session after another during those days, our members needed these loans, we just didn’t need the predatory abuses by the brokers and many of the companies paying bonuses for loans more fiction than fact and more about coercion than credit.  The demand is real.  According to the Times,

More than 12.5 million people who might have qualified for a home loan before the crash have been shut out of the market, Mark Zandi, the chief economist for Moody’s Analytics, estimates. Members of minority groups have especially suffered; blacks and Hispanics are rejected by mortgage lenders far more often than whites.

Has Treasury made note of any of this?  Are we doing anything to help lower income, working families, especially African-American and Hispanic borrowers to recover the huge losses of citizen wealth in the recession.  Oh, no way!

As one of the newly minted subprimers says,

 “If you’re self-employed, you’re hosed…If you just started a job, you’re hosed. If you get a bonus, you’re hosed. Just got a severance payment? Can’t count that. I don’t have to do a lot to be a lender. I just have to be normal.” Banks have forgotten that loans are collateralized by the home itself, he said.   Some employees of conventional banks might agree. Barry Boston, for example, recently left one of those banks for a job at Athas, frustrated by having to turn down so many perfectly fine borrowers and because of the endless paperwork involved in closing a loan. “I couldn’t stand it anymore,” he said. “The wind had been completely sucked out of my sails.”

When bankers are even disgusted with banks, how can even the head of the Treasury Department miss the memo that things have to change, and now!

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