Tag Archives: Treasury Department

Community Reinvestment for Non-Bank Financial Institutions

New Orleans   A conundrum becomes a contradiction when we look at regulators concerns about the size and operations of huge, non-bank financial institutions that were such a sizeable factor in triggering the Great Recession and find that they are moving to protect the financial system and ignoring citizen and consumer interests.  

The Treasury Department has announced that it is closer to designating some financial giants as “systemically important,” which is a euphemism for “too big to fail.”   These non-bank entities like AIG, the American International Group, Prudential, and General Electric Credit would at the minimum undergo regular financial review by the government, have higher capital requirements, and be nudged out of riskier investments like some kinds of speculative annuities.

Nothing is being said about housing, and this is where speculation was rampant and devastating on Main Street, regardless of Wall Street. GE Capital for example was a significant housing broker.  I certainly met with their representatives several times persuading them to modify some of their subprime requirements. They have shed much of their mortgage brokerage business, but being classified in this way would not prevent them or the others from re-entering the housing markets or, more importantly, curb their behavior.

There has been recent news that Blackstone, a huge Wall Street investment company, has bought 26,000 houses in 9 states to take advantage of price fluctuations in many markets hammered by foreclosures and the housing recession.  Another Wall Street outfit has budgeted $250 million per month to try to follow Blackstone’s lead.  The beat goes on.

One of the many problems several years ago as nonbanks flooded the housing markets was their exemption from the requirements of the Community Reinvestment Act (CRA, 1978), allowing citizens no protection against discrimination and lending abuses.  Some of the culprits turned themselves into banks in order to benefit from federal bailout funds, forcing them under CRA requirements.  There is no mention in the current Treasury department discussions of nonbank financial institution regulations of requiring CRA protections if these outfits are involved in housing, and there should be.

Blackstone is neither fish nor fowl, but it’s huge in real estate.  They describe themselves as a, “a multinational private equity, investment banking, alternative asset management and financial services corporation based in New York City. As the largest alternative investment firm in the world….”  There are no flower children at any gatherings of this “alternative…financial services corporation,” I’ll guarantee you.   But, when you control 26,000 homes in 9 states and growing, you need to measure up to the protections allowed by the Community Reinvestment Act.  Treasury needs to make sure these protections are in place for the AIG’s and GE Capitals of the world, but all of us need to make sure that any and all of these financial whizbangers that brought down the entire economy, ruined countless lives, and forced millions of families out on the street, are fully regulated and following the requirements of the Community Reinvestment Act.

CRA Audio Blog


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.