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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Bank of America’s Countrywide Ghoul Strikes Again

Nebank of americaw Orleans Reports from Bloomberg News and the Los Angeles Times are raising the specter of Bank of America filing for bankruptcy for its Countrywide mortgage unit detonating the “nuclear” option to save the parent company and run from the toxic mortgage load bought in 2008.  I wonder if this doesn’t finally give another explanation to Bank of America’s continued resistance to rational modification of mortgages to allow mortgage holders to stay in their homes.

According to these reports, Bank of America, its lawyers and strategists have spent time and money making sure that they contained the Countrywide operation as a separate entity.  The Bloomberg report notes:

“Countrywide has $11 billion in assets that could be depleted through demands to repurchase defective mortgages,” Jonathan Glionna of Barclays Plc said in an Aug. 31 note. After that, Bank of America may not have any obligation to pay claims from Countrywide’s creditors, he said.

Typically, a corporation that acquires another firm’s assets isn’t liable for the seller’s debts, unless the transaction is considered a de facto merger or there was fraud in the takeover, Robert M. Daines, a Stanford Law School professor, wrote in a legal opinion prepared for BNY Mellon, trustee for the Countrywide mortgage bonds. Daines analyzed whether Bank of America would have to pay bond investors if Countrywide couldn’t.

American International Group Inc. (AIG), the insurer that sued Bank of America last month to recoup more than $10 billion in losses on Countrywide mortgage bonds, argued that the bank is a legal successor to the unit. New York-based AIG cited a series of transactions by Bank of America in 2008 that “were structured in such a way as to leave Countrywide unable to satisfy its massive contingent liabilities.””

Obviously one reason all of the big whoops suing Bank of America from Freddie to Fannie are making sure in any litigation or settlement that BofA is on the hook for Countrywide is their fear that the company will finally jettison this toxic nightmare.  But for poor, working homeowners the problem in getting modifications and preventing foreclosure is that Bank of America clearly has to continue to play pretend and pump up the fake value of Countrywide mortgages that are still on the books at the loan terms rather than the underwater value.

In Phoenix where values have been halved and Arizona Advocates and Actions has been mired in the modification process with Bank of America few if any modification offers make financial sense for homeowners because the bank continues to pretend that houses now worth little more than $100,000 are still holding the $250,000 loan value of the original mortgage.  Restating the mortgage to the actual value would save millions of homeowners.  Unfortunately, injecting reality might bring the whole house of cards down, not just the Countrywide unit, but all of the nation’s largest financial institution, Bank of America.

What a mess!

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Doubtful Help for Unemployed Foreclosure Victims

imagesNew Orleans Secretary Shaun Donovan and President Obama made yet another HUD announcement of another faux “program” to help foreclosure victims, which once again will not work and plays yet more patty cake with banks and their loan servicers.  These charades have become something like a marker of seasons passing as we record yet more impotence of the federal government in dealing with the foreclosure crisis.   This time HUD announced for its mortgage holders an extension of forbearance from the sometimes three or four months offered to unemployed seeking to hold onto their houses to a period up to a year.  Wake up!  Stop yawning!  They want this to seem important.

Even though it is not important or much of anything, unfortunately, other than another press conference, it would seem.

This announcement and program cost no money.  Remember Congress in the original bailout set aside $46 billion for foreclosure modification supposedly to help 3 to 4 million homeowners facing foreclosures.  Months and years go by…tick-tock, but so far only $2 billion has been spent in this regard and only about 730,000 have won permanent modifications.

Of course a homeowner would have to be eligible, and eligibility is determined by the banks and servicers, and of course their participation in this program like all others is “voluntary,” and don’t forget that eligibility could also be impacted by other regulatory requirements or investor restrictions.  Make no doubt about it, it is much easier for a rich man to get into heaven, than for a poor working – or unemployed —  stiff to get a loan modification under HAMP.  That was true before, and it is just as true now.

This new “program” is a mandatory extension.  Mandatory though fits in the same sentence with voluntary participation and arbitrary, discretionary management of the “program” by the banks and their servicers with virtually no federal supervision or accountability.

Next month, HUD and the President are going to announce another new program.  In this one foreclosure victims will have a “pray for the files” day, where they pray that their foreclosure files will be lost yet again by the banks and servicers.  This is a prayer that statistics would establish is virtually a sure thing, and when assisted, advocates almost always find that this happened somewhere along the chain.

The month after that HUD and the President are going to announce another new program.  This one will be a raffle held on “Modification Mondays” throughout September.  Any homeowner whose name is drawn on Modification Mondays will win a review of their foreclosure case, which will guarantee a six month forbearance on their foreclosure.

Eventually, maybe they will run out of ideas for fake programs and press conferences and really create a mandatory program that is run by the government, spends the money allocated, and guarantees real relief for homeowners facing foreclosures.  Not yet obviously, but hopefully some day in our lifetimes.

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Reckoning Coming for Home Modification Failures

New Orleans Home WreckageThe good news is that more people are recognizing that the Administration’s HAMP program designed to achieve home mortgage modifications and prevent foreclosures has been a dismal failure.   The bad news is that the Republicans are arguing that rather than fix it and actually prevent foreclosures, the program should be killed to save money.  This in spite of the fact that of $75 Billion set aside for home mods, this Treasury Department approved and bank administered program has only triggered an expenditure of $1 Billion.  Banks really don’t want to modify the toxic mortgages, so they haven’t.  The Republicans rather than calling for reform seem to want to prove again that they are the banks’ running dogs.

The Wall Street Journal reported that of 2.7 million applications less than 700,000 homeowners have anything to show for it.  By “anything,” I mean these lucky few got some relief, some reduction, some forbearance, because unfortunately the statistics indicating the number that actually received permanent modifications on their mortgages would have been smaller still.

Luckily this was not a big problem.  As the Journal reports:  “Almost 6.7 million U.S. homes were lost to foreclosure, short sales or turned back to lenders between 2000 and 2010, according to Moody’s Analytics. Another 3.6 million could meet the same fate through 2013.”   Ok, you’re right.  It’s not quite fair to lump 10,000,000 foreclosures over a decade on the shoulders of a 2 year old program, but it is right to say that this is a huge issue for an amazing number of families, homeowners, and voters, so it’s a surprise it has been handled so cavalierly by friend and foe.

Journal reporters, Alan Zibel and Louise Radnofsky go on to bell the cow without hearing the peal:

The White House launched the HAMP program in 2009 as a broad attempt to reverse the rising number of home foreclosures by reducing families’ mortgage payments, typically by lowering the interest rate and extending the term of a loan. But the administration’s strict eligibility criteria resulted in far lower participation than expected.

This translated into a smaller cost to taxpayers. Two years ago, the Obama administration said as much as $75 billion would be needed for HAMP. About $1 billion has been spent so far.

The program has faced sharp criticism. Neil Barofsky, the departing special inspector general overseeing the program, has faulted the administration for launching it with inadequate analysis and only partially developed guidelines. This led to delays and confusion, and the program “continues to fall short of any meaningful standard of success,” he said a report released in January.

House Republicans have called the program a waste of money and are considering a bill this week to end the program. “In an era of record-breaking deficits, it’s time to pull the plug on these programs that are actually doing more harm than good for struggling homeowners,” Rep. Spencer Bachus (R., Ala.) said last week.”

“More harm than good….”  What could Congressman Bachus be thinking?  That no program is better or even more importantly that fixing this program and finally getting it to work wouldn’t do a lot of good?  He can only be thinking of the disappointment that many homeowners have felt as they allowed themselves to hope, and then lost their home while waiting for a promised modification from a bank.

The Republicans are looking at the wrong electoral and political math.  They want to be heroes, they need to step up and make HAMP work rather than playing pretend about the devastation of the housing crises as the Treasury Department banker enablers have been doing.

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Wikileaks, Japan, Sea Shepherd, Australia, and Bank of America

Paul Watson takes a bullet

Paul Watson takes a bullet

New Orleans On the other side of the line there’s still a whining wall about Wikileaks and the end of the world as we know it (and, yes, you atavistic Neanderthals, I do “love Wikileaks” for what they are contributing these days!), but the New Year’s Day release of cables from Wikileaks connecting the links between Japan, Australia, and Sea Shepherd were invaluable. (Remember, as well, my critic friends that all of these releases are being vetted by the top news organizations in the world and we’ve only experienced tastes of about 2000 of the 250000 that are in the pile, so none of this is irresponsible.)

Sea Shepherd is the controversial conservation outfit that gets ships and tails Japanese whaling boats. I was flipping channels at one point and stumbled onto a Discovery Channel show or something where a Japanese boat rammed them near Antarctica. Scared the daylights out of me! This was wild and crazy stuff: a petition at the point of a prow, if you will.

Thanks to Wikileaks we now know that Sea Shepherd is driving them crazy and the fact that the Japanese were using Australian airports to send planes to monitor Sea Shepherd and the whalers has driven Australian public opinion over the edge and led to the Green Party introducing legislation to stop aiding and abetting the whalers. Having hammered at companies in one campaign after another for years sometimes without really knowing if we were delivering real pain or just being pests, this has got to be a huge break for Sea Shepherd and others that oppose the damage of “factory” whalers.

For the same reason the reports coming from the evil empire of Bank of America about their team of folks trying to do pre-event damage control on the possibility that Wikileaks is going to release a hard drive they received from inside the shop is comforting in the same way. Now no one has admitted that the bank is Bank of America for sure, but on the rumor Wall Street dropped the value by 3% on the off load trading, so it’s not just me that’s interested. Given the mess with mortgages and Countrywide and the easy road that Bank of America has gotten on modifications and about everything else, I can hardly wait to read whatever they have and hope that the Treasury Department, Federal Reserve, OCC, and SEC are already to read it as well, so that some accountability finally comes to banks in this mess.

For all of the whiners about how this is going to change the way these diplomats and companies operate, my response is: thank goodness! This is not about whether or not they will figure out a way to still be sneaky, but the hope that they will actually have to change the way they do business based on the understanding that eventually, just maybe, everything might come to light, so smart governments and businesses will start understanding that the rules of engagement need to change, not just the problems of confidentiality.

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