Banks Not Victims Get Yet Another Foreclosure Bailout

New Orleans    We were all clear when the Obama Administration announced changes last year to the HARP (Home Affordable Refinance Program) that seemed to favor refinancing that these changes were not going to provide relief to homeowners desperately trying to hold on and resist foreclosure.   I thought that was the real issue with the latest lame, weak kneed attempt of the Administration to finally deal with the housing crisis rather than being pimped out by the big bankers.  I was wrong.  It now turns out not only has it been an ineffective tool for foreclosure victims, but is what now seems like yet another bailout and windfall for big banks that own mortgage servicers.

The new tune on HARP was basically a market driven incentive program to allow that set of homeowners who were holding on to mortgages that were underwater, yet were still making the monthly payments no matter how crazy or sentimental the lack of economic self-interest, to refinance the houses in order to make the monthly payments lower and ostensibly more manageable.  Since the program was designed to impact on the re-fi fees and the other things that banks lard onto closings, I had thought the banks were only going to benefit because they were holding people into mortgages without having to reduce the value or balances.  This was certainly not going to be relief for anyone facing foreclosure since by definition those millions of homeowners were already behind on their notes.  Nor were these changes going to help folks who were underwater (owing more than the current value of the property).  It was all about assisting some folks to continue to tread water with some minor adjustments in the rules.

How the banks have (once again!) made out like bandits is clearer to me now, since I had been focused on the victims and not the middleman at the banks who were of course getting subsidized by HARP on their usual exorbitant fee structure to effect the refinancing.  According to Christian Berthelsen and Alan Zibel in the Wall Street Journal, banks like Wells Fargo and J.P. Morgan Chase are expecting a huge revenue boost from HARP that could hit $12 billion this year on the fees.  Borrowers who are refinancing might save between $2.5 and $5 billion according to the WSJ analysis of data released on all of this by Nomura Holdings.

Isn’t this exactly the way everything about the Administration’s ineffective response to the critical foreclosure crisis has developed:  a dime for the victim and a dollar for the banks!

Even the Administration seems unhappy that the take-up rate on the re-fi’s are lining the bank pockets.  Suddenly, HUD Secretary Shaun Donovan, has come to the late-in-the-game recognition that there is “essentially a monopoly on refinancing” among the largest banks.  There also is a lot of finger pointing about whether or not the banks in fact pushed up their closing fees in order to harvest a bonanza on the refinancing.  Donovan is saying that they are “seeing very high fees,” which in some ways is nothing new.  The banks, as is their wont, deny everything as they sit on their pile of ill gotten gains.  There is an argument between government agencies about whether the predatory rates are half-a-percentage point (as an independent analyst argues) or a 10th of a percentage, but everyone is clear there’s some fleecing of the poor sheep once again.

HUD’s solution?  None, really.  They are talking about legislation or a regulation that might encourage refinancing through smaller outfits now that they have finally realized that less than a half-dozen of the biggest banks in the country control 60% of the market.

Once again, where have they been?  Many days late and now dollars short which are ending up going from folks hardly holding to the big boys on Wall Street!


Little Hope for Reform in Foreclosure Settlement Negotiations

New OrlFannie and Freddieeans The industry spins the numbers differently each month.  Foreclosures are rising, but somehow housing markets are being revived by refinancing.  Little of it makes sense and often the information is contradictory, but the bottom line is that housing is still in dire straits across the country.  The home mortgage modification program has been a huge and unmitigated failure noted by almost no one but the millions of homeowners who have hoped and then frustratingly lost their homes or are still hanging out in limbo.

A small glimmer of hope had been offered by the lawsuit filed against banks and mortgage servicers by a small army of state attorneys general.  Today’s Wall Street Journal reported on the progress of the discussions including the government’s proposal for a $20 billion dollar hit.

Under the administration’s proposed settlement, banks would have to bear the cost of all writedowns rather than passing them on to other investors. The settlement proposal focuses on pushing servicers who mishandled foreclosure procedures to eat losses, by writing down loans that they service on behalf of clients. Those clients include mortgage-finance giants Fannie Mae and Freddie Mac, as well as investors in loans that were securitized by Wall Street firms.

Bank executives say principal cuts don’t necessarily improve payment patterns, and have told other parties involved in the talks that principal reductions could raise new complications. First, it will be difficult to determine who gets reductions and who doesn’t. And even if banks agree to a $20 billion penalty, the number of mortgages that can be cured with that number is limited, one of these people said.

If a single settlement can’t be reached, different federal agencies could seek smaller penalties through regular enforcement channels, and banks could face the prospect of separate civil actions from state attorneys general.”

$20 Billion is a nice number for a penalty, but reading the bankers’ whines between the lines, we can already tell that this will be a very sloooowww and drug out process, not the least of which will involve coming up with the assessment on home value and writedown amounts.  There is no way to read the various arguments that bankers are making without seeing them as trial balloons they are letting go to see if any work.  Furthermore the notion of multiple settlements with different federal agencies meting out different penalties sounds like pure and simple chaos, and certainly nothing that will help homeowners.

Hope springs eternal, as the saying goes, so keep fingers crossed, but this early preview indicates that any hope for a happy ending here seems unlikely in another horror show feature.