Geithners Foreclosure Folly

ACORN Financial Justice Foreclosure

geithnerPlaya Coco I’m beginning to think that no one much cares about the issue of foreclosures for American homeowners.  This seems to be a game of “button, button, who’s got the button,” where no one, certainly not the bankers, and likely not the government really wants a program to deal with homeowners fighting to keep their homes.  The issue is too complicated perhaps for the press to follow, even when, god love ’em, they’re trying, maybe as was the case greeting the New Year in a piece from the Times called “Mortgage Modifications are Seen as Adding to Housing Woes.”

To start with the headline is absurd and just right wing, free market, robber baron capitalism at its worse, arguing simply that in the law of the jungle, let’s have the suckers go over, bleed out, get it over, and as wild as this sounds, start building again.  This part of the article was pure “blame the victim,” and tried to infer that they never should have gotten the loan anyway.  But, if you read to the end, the facts started slipping out again, largely because it’s hard to hide them.

First, let’s say hello to our old friend, Jack Schakett, who is pulled into the story again to admit that, “oh, yeah, gee, fellas, this sounds bonehead, but this is the way we roll:”

In a telephone conference with reporters, Jack Schakett, Bank of America’s credit loss mitigation executive, confirmed that even borrowers who were current before agreeing to loan modifications and who then made timely payments were reported to credit rating agencies as making only partial payments.

Jack’s a good ol’ boy from Houston and was a key negotiator when I dealt with him in his position with Countrywide where he was Executive Managing Director and Chief Operations Officer for Countrywide (before it was a farm property of Bank of America) so he knows a little bit about how all of this mess came about!  He’s a semi-straight shooter in negotiations but only if you keep leaning on him with a boot on his neck.  This quote is a classic example.  Jack and B of A know they are wrong to report timely payments as partial payments and damage their credit rating.  I know he knows better and has done better, because part of the ACORN-Countrywide agreement, which Bank of America accepted in full at the merger in 2008 picked up all of the terms.  But, like, I say, if you don’t keep on them, they will slip up.  And, this seems to be the point that Treasury Secretary Geithner is totally missing.  Or not?

The biggest source of concern remains the growing numbers of underwater borrowers — now about one-third of all American homeowners with mortgages, according to The Obama administration clearly grasped the threat as it created its program, yet opted not to focus on writing down loan balances.

And, I hate to break the quote, but just to remind you, the story started out trying to get us to swallow that the real problem in foreclosures was that people never could afford the mortgages.  Now, we see the real problem is hardly that when 1/3 of the houses now are valued at less than what is owed.  So right wing friends, why blame the victim, when these good people are still trying to save their darned houses rather than simply walking away and mailing the keys like we saw in earlier decades with the savings and loan mess.

But, here’s still the kicker:

“This is a conscious choice we made, not to start with principal reduction,” Mr. Geithner told the Congressional Oversight Panel. “We thought it would be dramatically more expensive for the American taxpayer, harder to justify, create much greater risk of unfairness.”

Mr. Geithner’s explanation did not satisfy the panel’s chairwoman, Elizabeth Warren.

“Are we creating a program in which we’re talking about potentially spending $75 billion to try to modify people into mortgages that will reduce the number of foreclosures in the short term, but just kick the can down the road?” she asked, raising the prospect “that we’ll be looking at an economy with elevated mortgage foreclosures not just for a year or two, but for many years. How do you deal with that problem, Mr. Secretary?”

A good question, Mr. Geithner conceded.

“What to do about it,” he said. “That’s a hard thing.”

Geithner keeps drawing the picture if anyone wants to take a look.  Since Treasury was not willing to write down principal and them make the value and the mortgage finally realistic, these billions of dollars in subsidies are not for mortgage holders but for the banks and their balance sheets.  Geithner is still whitewashing his own walls from the mess made on his watch with the Bush bailout when he was with the New York Federal Reserve and running the giveaway train.  To write down principal forces a restatement on the balance sheets of Citicorp, Bank of America, Wells Fargo, Chase and a lot of other institutions and exposes the fact that they then have to raise more money from investors or the government to stabilize their balance sheets, and we’re in the same mess.

It’s been clear for a long, long time, certainly even before the meltdown, and as chief negotiator for ACORN with Countrywide, our team raised the issue then before the meltdown many, many times that principal had to be rationalized with the market and the loans.

Eventually, the pretending is going to have to stop, and the government is going to have to force the real solution and make banks stop playing funny money with their balance sheets and payrolls and face up to the facts of the market today and what the loans are worth and the owners can pay.

Mr. Treasury Secretary, that’s your job now!

And, yes, “that’s a hard thing.”