Promises Broken and Settlements Sidetracked for Homeowners Facing Foreclosures

Fannie-Mae-and-Freddie-MacLittle Rock           I’m sorry. Here we go again spinning like a broken record on the amazing and devastating ineptness of the US government and its various agencies and branches to seriously solve the problem of bank intransience and offer real relief to borrowers needing loan modifications to escape foreclosure and right size their loans.

The government announced another multi-billion dollar settlement for fraud in packaging mortgages. This time it was Citi agreeing to pay $7 billion with $4 billion going to the  government in fines and whatever and $3 billion going supposedly to help homeowners with principal reductions or refinancing. Of course that means $3 billion they get to essentially backwash and return to their own accounts. Using a fraud settlement for a modification means that if they reduce principal by $100000 for a homeowner in Phoenix, they count that $100000 on the ledger allowed by the fine print on this big settlement. If the average modification or adjustment per homeowner averaged $100,000, then on the high side this might help 30,000 borrowers of the millions caught in the mess. Experience says it will be a whole lot fewer, since that has been the case with everything announced over the last 5 years that was supposedly going to impact millions of homeowners.

We also have a pattern established on these settlements now. Outfits like Bank of America, whose time is still coming, may pay their Wall Street lawyers millions to delay, shuffle, and stall on future settlements but pretty much any of us now could pull up a chart on what percentage of the mortgage business and bundling a bank had in 2007, and calculate the amount they are going to have to pay to make this go away in 2014. B of A will pay a truckload because of its own activity and its Countrywide purchase, but the number of people helped will also be a small piece of the load.

And, at the same time that we could read the report on the Citi settlement, we were also able to read about another government agency that promised much in terms of homeowner relief and delivered almost nothing. This time it’s the FHA or Federal Housing Administration and their highly touted program to help homeowners that were underwater, owing more than the value of their homes.

“…only about 4,600 F.H.A. loans have been originated under the program, a far cry from the 500,000 to 1.5 million borrowers the Department of Housing and Urban Development estimated could be helped when it announced the program in 2010.”

Yes, four years of trying and less than 5000 borrowers helped. What’s the math there? Something like 1 out of 1000 projected to be assisted actually benefited.

Why?

Well, the right hand of the government didn’t care what the left hand might have been trying to do to help homeowners.

“Fannie Mae and Freddie Mac, the government-sponsored enterprises that hold a majority of the country’s mortgages, decided early on not to participate, because the program requires lenders to reduce the borrower’s principal balance. This strategy is not condoned by the Federal Housing Finance Agency for loans backed by Fannie and Freddie.”

But, what goes around comes around. I’m not just saying this was the feds dropping the ball. They also made participation by our friends, the bankers and lenders, voluntary, which means they didn’t have to do anything, and there’s little doubt that in fact they did anything then, nor are the planning – or being forced by these settlements – to do much of anything still.

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No-Mo’s: Stealing Homes through Foreclosure No Modification Programs in AZ and USA

New Orleans    Finally the fog is lifting around state and federal foreclosure modification programs and the real program is clear.  In the way of acronyms and abbreviations that abound in such programs like Fannie Mae and Freddie Mac, the largest of the mortgage guarantor agencies, the real program is called “No-Mo,” which stands for No Modifications Program.

It turns out according to letters released in Congress that the guardian of Fannie and Freddie, Edward DeMarco, missing yet another deadline for revealing any other program than No-Mo, had also presided over killing programs that would have accelerated foreclosure modification programs that had been approved by the agencies and were in testing trial runs with both Citibank and Wells Fargo.  DeMarco substituted the No-Mo program for these efforts to actually keep families in their homes.

In responding to two Congressmen, he gave as his rationale the following answer:  “These pilot programs…ended due to complex operational issues, involving system changes, accounting considerations and the interest level of Fannie Mae’s partners.”  Let me translate that into English.   “Accounting considerations” means that the banks did not want to restate their balance sheets to correctly reveal the current market value of their real estate portfolios which would have exposed them to be the “ghost” banks they are.  “Interest level of Fannie Mae’s partners” is a euphemism for saying that the banks did not want to modify the loans and Fannie was unwilling to push them to do so, despite that being the stated Obama Administration policy.   So, as many of us have known, the real policy has become No-Mo, no modifications.

Arizona Advocates and Action brought a good example to me the other day of how extreme the No-Mo program is being implemented in Arizona where foreclosures have risen to epidemic levels.  There the state government, which has pretty much been a bellwether of what NOT to do on most every program these days has even come up with the absurd proposal that $55 million of the money negotiated by the various state attorneys general for foreclosure modifications and principal reductions should in fact be used for prison construction.

Can you believe it?!?  Only in Arizona could the government have figured out a way to create No-Mo on steroids.

Possibly there is an even darker side emerging in the shadow of the subprime scandals that triggered so many of these foreclosures.  A message from the British Columbia headquarters of ACORN Canada came to me last night on a newly enrolled member in Kamloops who was facing foreclosure.  The mortgage, if you call it that, came from a company called Interior Equities, which is surely misnamed, and even in these days of 3 and 4% interest rates was carrying a 12% rate!  Reading their website it also became clear that signing up for one of these mortgages meant taking on a much discredited adjustable rate mortgage (ARM) and giving Interior In-equities the right to alter the interest rate every month.  This is a modern example of the old Wild West practice of claim jumping, where you simply steal someone’s property.

One there is No-Mo at the federal level it encourages states to steal relief monies and companies like Interior In-equities to steal property.  When can homeowners get a break?

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