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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Bad Math and Foreclosures are Twin Towers of Banking

zzbofaNew Orleans  I know you are sick about hearing about foreclosures.  I sure am!  This has all gone on so long and so painfully, and now even the so-called settlements and cleanup of the mess is extending the tragedy.

            What do we have now?   Bank of America makes an accounting error and the miscalculation adds $4 billion in assets that don’t exist, so, big whoops, there goes the stock buyback program, a whooping percentage of its stock price, and any discussion of improving the dividend.  You know how much their big brass at the top of the financial pyramid are paid?  Do this at home on your tax returns or loan applications, then plead that the rules were confusing and you didn’t get, it and you could be facing fraud charges, brothers and sisters.   I think we can agree that the strengths of big bankers may be sitting on their paychecks, but clearly it is well proven now that math is not one of their close friends.

            Now new government reports on the mess banks made in mismanaging the foreclosure modification program for their friends at the Treasury Department are once again proving what we already knew about banking math mayhem.  Remember the tragic problem where the Federal Reserve and the Office of the Comptroller found that overly burdensome and lengthy reviews by bank-hired consultants were costing hundreds of mega-millions and needlessly dragging out compensation for borrowers who had been victimized by banking errors, often forcing them into needless foreclosures, while the bank buddies ran up the bills.  Sure you do, even if you don’t want to admit it.

            Correctly figuring that this crony self-regulation was going to make the bill for finding the mistakes almost as high as the bill for correcting the mistakes, the regulators figured the preliminary error rate at 6.5% and made a deal with 15 banks for $10 billion to give some, and frankly too few, foreclosure victims a modicum of relief.   Well, now it turns out that an unnamed bank that had completed more reviews found an error rate of 24% compared to a look at borrowers’ files for 11 banks having done less.  Controversially, of the $10 billion only $3.9 billion was going to involve cash payments to 4.4 million victims, which was small potatoes for big pain anyway you look at it.

            What if real investigators had been doing the work, and getting it done quickly, rather than bank buddy consultants milking the process?  What if the rate was really closer to 24% than to 6.5%, which is to say 3.7 times higher?   Well, then, everything being equal, which we’re finding out in the US is never true anymore, the settlement should have been $37 billion and 4.4 million victims would have shared almost $14 and a half billion within the terms of the deal. 

            I know we’re not supposed to deal with math and banking in the same breath anymore, but your average foreclosure victim might have noticed the difference in one check that was $3295 dollars versus the one they got which was only $886 bucks.  None of which seems enough for losing your house, but one seems more like a rounding error than justice to me.  Either way, it’s time to stop believing any math coming from banks that has to do with foreclosures or anything other than the accuracy of their own paychecks and what they pay their buddies.

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