New Orleans   

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?

New Orleans

The Times post-mortem for the business readers continued with their usual theme of trying to manage protest by promoting social media (remember Egypt which they immediately had to retract with the “real” story?) as the “organizing tool” for change with the enthusiastic, over-the-top help of www.change.org, which is a great outfit, but seems to have had no boundaries in their personal congratulations on this one.

“But those customers may have found their voice, which has been amplified by social media. “People can now use tools like Change.org, Facebook and Twitter to rapidly organize and collectively act to influence the policies of even the largest companies,” said Ben Rattray, founder of Change.org, which allows consumers to start grass-roots campaigns using its online platform.

He pointed to Molly Katchpole, a 22-year-old woman from Washington who collected more than 300,000 signatures opposing the fee by using his company’s platform. And then there is the grass-roots effort that is calling for this coming Saturday to be “Bank Transfer Day,” where customers of big banks move their accounts to community banks and credit unions.

Mr. Rattray and other consumer advocates said the outcry was about much more than fees. “Bank of America’s new debit card fee was the last straw for many consumers who are tired of banks that got bailed out that are now turning around and hiking fees,” said Norma Garcia, manager of Consumer Union’s financial services program. “There was this phenomenon with banks and others confusing passivity with loyalty. And consumers are saying, ‘You can’t take us for granted anymore.’ ”

To be fair the “powers that be” want to make sure that protest continues to operate between the straight lines, so ample praise of course in the same piece by Tara Bernard (http://www.nytimes.com/2011/11/02/business/bank-of-america-drops-plan-for-debit-card-fee.html?scp=1&sq=social%20media%20and%20bank%20fees&st=cse) :

Lawmakers also openly criticized Bank of America’s planned fee. Days after the bank announced that it would charge the fee, President Obama said customers should not be “mistreated” in pursuit of profit, while Vice President Joseph R. Biden Jr. called the move “incredibly tone deaf.” And Senator Richard J. Durbin of Illinois, the No. 2 Senate Democrat, spoke out on the Senate floor, urging consumers to vote with their feet. He had sponsored the rule, known as the Durbin amendment, that limited the amount banks could charge for debit card transactions.

On Tuesday, he took to the floor again. “What we have at work here is a very fundamental principle of our economy, the free market economy, transparency,” he said. “So people know what they are being charged. So they have a choice.””

But, speaking of “tone deaf,” how is it possible not to mention the daily protests around the country and the world around banks and the admitted traction that Occupy has picked up in hitting Bank of America hard where previous large protests by community organization networks and unions had failed to gain traction?

I don’t mind being manipulated by the media anymore than the next person, but, gee, can’t they be a little more slick about it?  I know we are not supposed to believe that direct action, social movements, and mass protests make a difference as we parse the new tools that focus on a “theory of change,” but it takes people to use tools, and when the people are in motion, as they are now, let’s at least be clear about stating the obvious no matter how much credit some might want to claim or how much others might want to deny.

Atlanta

A story broke yesterday on the wire and NPR which might more clearly indicate that the big boys can actually hear the footprints coming up behind them even as they stick to stonefaced spinning.   These three banks got together on something called ClearXchange in order to try and retain some of their customers exhausted with the constant fee rip-offs and increasingly inventing other alternatives including hand-to-hand transfers through prepaid debit cards within families or utilization of the PayPal if folks are sophisticated.

Frankly, this is a Band-Aid the banks are applying when a tourniquet is called for.  They may keep a couple of their more inept and lazy customers, but folks are leaving this train station and demanding other tools that reflect modern technology, rather than ancient and pervasive greed.

The NPR report seemed to hint that Google was talking about moving into the space of money transfer utilizing phones and mobile devices.  Talking about “doing good” or something like that which used to be their motto, I could fall in love again!  I couldn’t track down the whole story on a Google search (sounds contradictory doesn’t it?) but I did find that it has been possible to move money between various Google accounts fairly seamlessly using something called Google Checkout for the last two or three years.  Obviously not widely recognized or publicized, but they could also be knocking on the right door.

In Citizen Wealth I argued that companies, even big bad boys like Wal-Mart and H&R Block could create business models with huge returns by delivering service that low-to-moderate income families need and demand.  Money transfer of remittances is precisely the service that will see the game change fundamentally in a short time.  The banks and credit unions are trying to hold on to old models that are predatory and not realizing that you can’t leave $22 billion in profits out there and not have other, easier and cheaper services eventually suck them dry.

It’s past time for remittance justice.

New Orleans

I was crushed to read this.  First, I had touted the deal, based on the few emerging details, as finally providing real relief to desperate homeowners trying to hold onto their homes in the face the continuing recession.  Secondly, I had thought the unbought and unbowed AGs were finally breaking the co-dependency cycle of Wall Street-White House – Treasury Department, which has led to so little reform, so little relief, and now soaring bank stock prices and executive paychecks and dividend awards.   Finally, it is a terrible deal based on an agreement to call black white essentially, since all of the banks have long recognized that in reality these secondary liens were already wiped out.   I can remember a meeting with HSBC, a huge 2^nd mortgage holder and financier in the suburbs of Chicago in late 2007 before the full level of the crises was front page news, and listening to them tell us they were going to have to wipe out the 2^nd and were willing to do so to protect the firsts for themselves and others.  Those were gallant comments probably long forgotten as the red ink started flowing in rivers, but it was based on the “old school” understanding that you couldn’t keep an asset that was clearly not collectable.

Essentially what this report indicates is that the “deal” would allow banks and their servicers to keep the 2^nd mortgages on their books and only reduce their value by the same proportion that they had written off on the first mortgage.  Clearly, this does NOT make the 2^nd anymore collectible, especially because part of this reduction of the loan is conforming to the level that home prices are underwater, and may stay underwater for years, if not decades.

Does it matter?  Hell, yes!  Look at the prize the banks are wresting here:

“The top four banks now have about $408 billion worth of second liens on their balance sheets, according to Portales Partners, an independent research firm specializing in financial companies. Wells Fargo, for instance, has more money in second liens than it has tangible common equity, or the most solid form of capital. If banks had to write these loans down substantially, acknowledging the true extent of their losses, they would have to raise capital — and might even teeter on the brink of insolvency.”

The only good thing about this report is that now that it’s hit the light of day, hopefully there will be enough of an uproar to send the negotiators back to the table, because this is a too big of a bank holiday giveaway.

These second mortgages are history.  Let them blow away like the dust they are worth.

New Orleans

In their “defense” the article quotes Wells Fargo, which is currently originating 25% of new mortgages nationally, saying essentially, “hey what’s the problem?” because they are currently writing 50% of their mortgages with 30% down payments.  My point exactly!  Wells Fargo clearly only wants half of these customers to really own homes.

What is really at stake is what the bill refers to as “risk retention,” which is a needed hedge against the increasingly blind securitization pools of mortgages.  Below a certain standard, 30% for Wells and less for many others, the bank would have to retain 5% of the mortgage as part of their own portfolio forcing them to stop simply passing on all risk for the loans after collecting their “$200 at go.”

For the next generation of wannabe homeowners the only way to avoid the squeeze would be a mortgage through the Federal Housing Administration (FHA) where down payments can be as low as 3.5%.  Reportedly some other banking institutions are taking the position that if Wells Fargo’s position was to prevail too many mortgages and therefore too much risk will move to the government from the private sector.

Frankly, I’m OK with that, especially since the evidence from the bailouts is that the real risk ends up with the government anyway.  If we eliminated the blanket interest rate deduction, the government could afford a much great role in housing for homeowners, renters, and others.  But, since politically my position is unlikely to succeed currently, then Wells Fargo is wrong and we need more folks writing mortgages for working families, too, not just the better to do.

We need a real housing policy in America!

New Orleans

So if US Bancorp and Wells Fargo are not to blame who is?  Sit down and focus now, because anyone might lose their feet in these dizzying explanations, and I for one don’t want to be responsible, and clearly the bank are not willing to be responsible for anything at all!

• According to the Times the spokesman for US Bancorp says it’s not them, but the servicer, American Home Mortgage Servicing, the messed up.  Why?  They were “solely a trustee concerning a mortgage owned by a securitization trust.”
• Same for Wells Fargo according to their spokeswoman, who gilds the lily by saying, “The loans…were not originated, owned, serviced, or foreclosed upon by Wells Fargo.”  They were just the trustee, so it was someone else’s fault, is their claim.

Some of this is nothing more than poppycock.  I remember well meeting with representatives of Deustche Bank in New York City and elsewhere on these issues repeatedly, when they were one of the leading trustees for many mortgage securitization pools.  They would complain about how little they made as trustees and describe their role as technical, almost like a name of the door with little real power or authority, but the gatekeeper for all of the investors in the pool and the holder of record.  The conversations in 2007 and 2008 drove us crazy because in real estate records, the trustee’s name appears routinely as the foreclosing agent and would often be on signs in the neighborhood in places like Oakland where they were prominent.  They would fuss and fume, but the bottom line was that they routinely made the offer to me that they would pull out any controversial mortgage from the pool rather than have it become an issue and when I gave them a list of properties where we had issues, they offered to identify the servicer so that we could work out a solution.

So the “trustee” might have had the short stick in this game, but contrary to the claims of their spokesfolks, they were paid to do what the court found them guilty of not doing well, and they were anything but innocent bystanders here!

The only one talking truth here seems to be one of the lawyers, Paul Collier, representing an aggrieved borrower:

“It’s been pretty clear…that the securitization industry has behaved as though it were immune from consumer protection laws, state homeowner protection laws and real estate regulations in its underwriting, securitization and foreclosure practices.  I am quite confident that this is merely the first petal off the rose with regard to predatory foreclosure practices.”

Amen, brother!

New Orleans

There were some new voices speaking plainly though.

“Laurie Goodman, a senior managing director at mortgage-bond trader Amherst Securities Group LP, estimates 7.1 million of the 7.9 million households now behind on their mortgage payments will lose their homes to foreclosure if nothing is done to change current loan-modification programs. “Principal reduction is the only answer,” she says.”

But for many the chairs in the church haven’t changed.  Bruce Marks of NACA and John Taylor of the National Community Reinvestment Coalition have been long allies, and not surprisingly their position mirrors mine:  there have to be write downs.  Jack Schakett, formerly of Countrywide and now in about the same job with Bank of America concedes, as he always has, that there is a place for write downs, and believes they should be extended.  Wells Fargo, as always, continues to keep its head in the mud and believe that someone else will solve the problem they helped create.

Nonetheless, if a headline in the WSJ is going my way, that’s a breakthrough in itself.

There is also finally an admission about the real problem the banks have which is their disastrous balance sheets.  I was arguing about this just last week with an ex-mortgage broker, so I’ll be pleased when he hears this from some other source than me.  Hagerty lays it on the line:

“It is more complicated for financial institutions. U.S. banks, thrifts and credit unions held about $952 billion of home equity and other junior-lien mortgages as of Sept. 30, according to Federal Reserve data. If the principal owed on first mortgages is reduced, the institutions probably would have to write down or write off many of the second-lien loans, potentially sapping their capital.”

Bingo!

One solution offered for the banks was interesting and would involve regulators allowing banks a longer timeframe to write down the mortgages on their balance sheets so that they didn’t go under due to their own capital shortages.   Of course that’s what my CPA father used to call “creative accounting.”  Depositors, investors, and regulators would have to write on their palms to remember that banks are zombie institutions, but since the bailout, most observers have known that without having to make a note.

The only gallows humor in the article was the ridiculously self-serving and anti-political proposition put forward by Black Rock, a major mortgage investor, which in their dreams wants a fairy tale solution where bankruptcy judges would act as their magical godmother and wipe out credit card debts and 2^nd lien mortgages for struggling borrowers before getting to their goodies in the prime mortgage.  Yeah, right!  Not in this world.

But, in this world, 7+ million underwater borrowers are crying for a solution, and writing down principle owed still seems like the only horse to ride.

New Orleans

Though they do not mention the obvious 600 pound gorilla in the room, the specter of “ghost banks” becomes even more real since many are still hiding behind presumed, and non-existent values on their books for many of these mortgages.  Real relief and write downs for homeowners would reduce the asset ledgers dramatically.  Sooner, rather than later, President Obama is even going to see these facts emerge and realize that he’s out selling something that begins to seem like a scam.  Less modifications being made, fewer write downs of principals amounts on the loans in order to protect fragile, papier-mâché balance sheets, and homeowners bounced out on the street in the name of this farce, while new buyers scoop the homes up at 2/3 or more discounts once they are in a foreclosure sale.

We need a real program now!

Here are the guts of the indictment from Morgenson’s column:

“The loans were written in 2005 through 2007; data on their performance is provided to the trusts’ investors. Mortgages handled by five of the nation’s largest loan servicing companies — Bank of America, Chase Home Finance and Litton Loan Servicing among them — are contained in the Wells Fargo data.

Mr. White found that mortgage modifications peaked in February and have declined in all but one month since. While servicers modified 23,749 loans in these trusts in February, they changed only 19,041 in May and 18,179 in June. This is exactly when servicers were supposed to be responding to the government’s loan modification urgings.

Foreclosures, meanwhile, keep rising. In June, 281,560 were in process, slightly above the 277,847 in May. Last January, there were about 242,000 foreclosures in the pipeline among the Wells Fargo trusts.

“I was hoping we would see some impact in June of the government’s program,” Mr. White said. “Is ‘Home Affordable’ working? My short answer is no.”

To be sure, the government’s data differs from that which Mr. White analyzed, and its loan modification figures for the second quarter may look better as a result. The O.C.C. includes prime loans as well as subprime, for example, while the Wells Fargo data contains no prime loans.

Nevertheless, Mr. White has collected the figures since November 2008, and he said that in the months since, the performance of the 3.5 million mortgages that he analyzes tracked the O.C.C. data pretty closely.

But the most fascinating, and frightening, figures in the data detail how much money is lost when foreclosed homes are sold. In June, the data show almost 32,000 liquidation sales; the average loss on those was 64.7 percent of the original loan balance.

Here are the numbers: the average loan balance began at almost $223,000. But in the liquidation sale, the property sold for $144,000 less, on average. Perhaps no other single figure shows how wildly the mortgage mania pumped up home prices. It also bodes poorly for the quality of the mortgage-related assets lurking in banks’ books.

Loss severities, like foreclosures, are rising. In November, losses averaged 56.1 percent of the original loan balance; in February, 63.3 percent.

Given losses like these, Mr. White said he was perplexed that lenders and their representatives were resisting reducing principal when they modify loans. His data shows how rare it is for lenders to reduce principal. In June, for example, 3,135 loans — just 17.2 percent of the total modified — involved write-downs of principal, interest or fees. The total loss from these write-downs was just $45 million in June.

And yet, the losses incurred in foreclosure sales involving loans in the securitization trusts were a staggering $4.59 billion in June. “There is 100 times as much money lost in foreclosure sales as there was in writing down balances in modifications,” Mr. White said. “That is not rational economic behavior.”