Blame game won't help distressed homeowners

There’s a big pile-on, calling for President Obama to fire the housing bureaucrat who’s blocking the latest administration housing initiative to reduce principal for underwater homeowners.

Ed DeMarco, who heads the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, is a Republican holdover appointed by President Bush.

Though DeMarco is supposed to be only acting head of the agency, President Obama has never replaced him.

Now DeMarco is refusing to allow Fannie and Freddie to implement a recent initiative that would offer principal reduction to homeowners who owe more or their mortgages than their homes are worth since the housing bubble burst.

DeMarco’s position is full of holes: he’s worried that if the government doles out principal reductions to some homeowners, homeowners who don’t qualify will lower their incomes and get behind on the their mortgages just to get in line for a principal reductions.  And DeMarco claims that principal reduction would be bad for taxpayers, even though his own agency’s research proves him wrong.

Lots of smart folks, including the New York Times’ Paul Krugman, are calling on the president to fire DeMarco. For Krugman and the Democrats, it’s just the latest example of Republicans blocking the President and the Democrats at every step from fixing the economy.

It’s certainly true that Republicans have done nothing themselves to get the economy going and focused solely on demonizing the president and the Democrats.

But do you remember that fiery speech the president gave blasting the presumed Republican presidential candidate, Mitt Romney, for his do-nothing approach to the foreclosure crisis?

Do you remember the president’s strong speeches blasting Republicans’ efforts to blame the foreclosure crisis on borrowers rather than the big banks?

Neither do I.

Is it the Republicans’ fault that the president and his administration have pursued one failed strategy after another that propped up too big to fail banks while not substantially helping homeowners?

Is it Republicans’ fault that the president abandoned one of his campaign promises and failed to push for what could have been one of the most effective strategies to force intransigent banks to renegotiate with strapped borrowers – so-called judicial cram-downs of mortgage debt in bankruptcy court.

That would have allowed bankruptcy judges to reduced mortgage debt as they can other kinds of debt. But it would have accomplished the larger purpose of encouraging bankers to renegotiate with borrowers before they ever got to bankruptcy court.

Only now, after more than three years, when there is a real, live Republican to blame, has Treasury Secretary Timothy Geithner come out swinging – not with aggressive new policies, but against DeMarco.

Two astute observers of government response to the foreclosure crisis, David Dayen at Firedoglake and Yves Smith of Naked Capitalism have pointed out that the Obama administration has been slow to embrace principal reduction in the first place or to convince the public that it’s needed.

In addition, the administration needs to do more to overcome another huge hurdle: under the tax law, the amount of principal reduction will be taxable when a temporary exemption expires at the end of the year.

By all means, the president should fire DeMarco. He should embrace a fight with Republicans when they try to block a permanent appointment to the post. But that should only be the beginning. He should also fire Tim Geithner, who has directly overseen so many of the administration’s previous attempts to deal with housing, which range from the merely feeble to incompetent and downright disastrous. As Neil Barofsky points out, it’s Geithner himself who has stood in the way of principal reductions previously.

If the president and the Democrats are just interested in politics, using DeMarco as a scapegoat will probably help them score some points. But if they’re serious about using principal reductions, the president needs to tackle the opposition directly and convince the public that principal reduction can be a useful tool. And President Obama needs to confront the arguments against them forcefully, whether those arguments come from foot-dragging bankers and investors or dug-in Republicans.

 

Foreclosures / Martin Column - 08/06/2012

With friends like these...

Who would squawk about giving California homeowners a little more protection against bankers, who have paid billions to settle charges of outright fraud in the foreclosure process?

Well, bankers of course.

You expect bankers to fight back when state officials take steps to rein in their illegal and improper practices.

That’s not a surprise.

Even though we bailed out the banks to help them survive, we have grown accustomed to their absolute devotion to their own interests at the expense of everybody else.

But why would an Obama administration federal regulator step in to interfere in a state’s business – on the banks’ behalf?

That’s what’s happened in California, where a proposal for a “homeowners’ bill of rights” by the state’s attorney general, Kamala Harris, has faced tough opposition from the bankers.

You would think that the Obama administration, if it were going to take a side, would want to be on the side of the state’s homeowners, not to mention Harris, who has been a co-chair of the president’s campaign and one of his strongest allies.

After all, President Obama, in his populist campaign mode, has paid strong lip service to homeowners and holding banks accountable. But that’s not what happened.

Instead, the general counsel of the Federal Home Financing Administration, Alfred Pollard, weighed in with a condescending letter to Democratic legislators fighting for the homeowners measure, warning that the legislation would “restrict mortgage credit and hamper necessary home seizures.”

Harris’s proposal sounds dramatic enough, a collection of six bills calling itself a “bill of rights.” But it’s actually a modest set of common-sense protections: for example, establishing civil penalties if banks continue their illegal practice of robo-signing in the foreclosure process, giving homeowners the right to challenge a foreclosure in court if banks don’t follow proper procedure, and prohibiting so-called “double-tracking,” in which banks foreclose while they’re negotiating a loan modification with the homeowner.

Banks have already promised to stop having their employees forge other people’s signatures on documents or verify that documents are accurate when in fact they haven’t even read them. The banks got off with barely a wrist slap for robo-signing and other foreclosure fraud in the recent “settlement” with state attorneys general and the feds. The settlement only costs the big banks $5 billion out of pocket while they negotiated another $20 billion in credits for taking a variety of remedial actions, some of which the banks were doing anyway – even without getting credit.

You might think that Pollard and his FHFA colleagues, who are responsible for overseeing Fannie Mae and Freddie Mac, might be more circumspect in lecturing others about screwing up the housing market.

During the housing bubble, Fannie and Freddie, which were originally set up by the government to support the housing market but went private in 1968, adopted all the bad behavior of the big banks, cooking its books, taking too much risk, throwing around their political muscle through lobbying and political contributions to stave off questions about their business shenanigans.

Then the government placed them in conservatorship, under the supervision of FHFA. Since the financial collapse, the agencies have not exactly put much muscle into helping homeowners facing foreclosure. The head of FHFA, a Bush Administration holdover named Ed DeMarco, has been particularly insistent that helping homeowners avoid foreclosure through principal reduction would be bad for taxpayers. But it turns out that in 2010, according to internal documents, Fannie Mae was about to launch a principal reduction program that its research showed said would save not only homes, as well as taxpayers hundreds of millions of dollars, before it was abruptly cancelled.

The principal reduction program was based on a model of “shared equity,” in which if the value of the home later rose, a homeowner would share any gains with the bank.

While the recent foreclosure fraud settlement with the big banks commits them to do some principal reduction, that agreement specifically excludes Fannie Mae and Freddie Mac.

A couple of Democratic congressman, Elijah Cummings of Maryland and John Tierney of Massachusetts, have written to DeMarco demanding an explanation.

“Based on the documents we have obtained, it appears that the shared equity principal reduction pilot program should have been implemented years ago, and the failure to do so may have resulted in unnecessary losses to U.S. taxpayers,” Cummings and Tierney wrote. “This was not merely a missed opportunity, but a conscious choice that appears to have been based on ideology rather than Fannie Mae's own data and analyses.”

Even for an administration that has been kowtowing to the banks from day one, FHFA’s failures, and its lame venture into California’s legislative process, represent a new low.

For a start, California legislators should ignore Pollard and his FHFA’s cronies lame advice. Even better, the president should pitch him and FHFA’s entire leadership out of the administration and replace them with people who know how to support the housing market, not just bankers.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreclosures / Martin Column / President Barack Obama - 05/24/2012

Betrayals and Bailouts

In the latest betrayal from Freddie Mac, the same clever devils who helped bring us the financial collapse three years ago, there is unfortunately no surprise.

The high rollers who run the company, whose mission is supposed to be to support homeowners, apparently still think it’s a good idea to use our homes as a casino.

That’s the conclusion reached in an investigative report by NPR/Pro Publica, which found that Freddie Mac had placed billion-dollar investment bets that paid off when borrowers couldn’t refinance from high-interest mortgages into more affordable loans.

According to the NPR/Pro Publica report, Freddie Mac increased “these bets dramatically in late 2010, the same time that the company was making it harder for homeowners to get out of such high-interest mortgages.”

In effect, Freddie Mac combined high interest mortgages into packages of securities and sold some to speculators, but it kept the ones that would result in the biggest profits so long as the homeowner never refinanced. Freddie Mac stands to lose if its customers refinance and taske advantage of lower rates.

Freddie Mac was betting against homeowners even though taxpayers had bailed out it and its larger sister, Fannie Mae and the government placed the under a conservatorship after the housing bubble burst in 2008 and it faced mounting mortgage losses.

Though Freddie Mac and Fannie Mae are known as government-sponsored entities, they in fact have been private, profit-making entities for four decades.

Congress created Fannie and Freddie as private companies with a public mission ­– supporting homeownership, by insuring the mortgages issued by commercial lenders. But the companies had government officials sitting on their boards, and got breaks on taxes and recordkeeping requirements.

During the real estate bubble, the two firms adopted all the bad behavior of other big financial institutions – and worse. Authorities found that at Fannie Mae, senior executives cooked the books between 1998 and 2004, making it look like they hit profit targets in order to justify $115 million in bonuses. Three top executives eventually reached a $31.4 million settlement [with govt or private private pre-bailout] – without admitting guilt.

Executives at the Freddie Mac and Fannie Mae spent millions on campaign contributions and lobbying, courting both Democrats and Republicans (including presidential contender Newt Gingrich) in a successful campaign to ward off more stringent regulation and tighter reins on their bookkeeping, all the while taking on greater amounts of risk, establishing close ties with one of the worst offenders in spreading toxic loans, Countrywide Bank. Meanwhile executives at the two firms were paid lavishly, even after the bailout.

Republicans love to blame the GSEs for the financial collapse, labeling them do-gooder agencies who went wrong in pursuing too aggressively an agenda of providing housing to low-income people.

In his excellent autopsy of the financial collapse, “The Great American Stick-up,” Robert Scheer finds merit in much of the conservative critique. He labels the Fannie Mae and Freddie Mac “highly culpable” for causing the financial crisis – but not for the reasons Republicans say. While the GSEs used the rhetoric of helping people, their efforts to boost low-income and middle-class wasn’t their primary mission, or the reason for their downfall.

Fannie and Freddie didn’t go under because they were trying too hard to help people; it was because they were doing everything they could to super-charge their profits, just like the Wall Street firms.

Scheer quotes the testimony of a one-time regulator, Armando Falcon, who faced stiff opposition from Republicans as well as Democrats when he tried to rein in Fannie and Freddie. Falcon testified in April 2010 before the Financial Crisis Inquiry Commission, which investigated the causes of the meltdown. “The firms would not pursue any activity…unless there was a profit to be made,” Falcon said. “Fannie and Freddie invested in subprime and Alt A mortgages in order to increase profits and regain market share. Any impact on meeting affordable housing goals was a by-product of the activity.”

 

 

 

 

Executive Pay / Foreclosure / Martin Column - 02/07/2012

An Enforcer For the 99 Percent?

 California’s attorney general, Kamala Harris, has staked out the high ground in promising to hold bankers accountable and protect borrowers in the continuing foreclosure crisis.

So far she’s formed a mortgage fraud task force and walked away from the weak settlement with the banks over mortgage servicing fraud that the Obama administration and the majority of state attorney generals have been trying to foist on the public.

Then earlier this week she told the executive who oversees Fannie Mae and Freddie Mac, the federally bailed out quasi-public agencies, he should quit if he won’t consider principal reduction as a tool to help underwater homeowners.

Here’s hoping that Harris can build on the foundation she’s laid.

She has a real opportunity to set herself apart from other Democratic Party politicians, from the president to the congressional leadership and others who have opted for strong PR rather than real enforcement.

But she has her challenges ahead of her.

An ambitious politician who chaired the president’s campaign in California in 2008, Harris will have to go against the political grain if she really wants to hold bankers accountable and fight for homeowners.

Prosecuting bankers is never easy. Her agency, the state attorney general’s office, has had a woeful record on consumer protection. It’s been a long time since John Van de Kamp, when he was attorney general, launched his aggressive antitrust campaign.

As we know, bankers have been lubricating the political system to protect themselves against the consequences of the excesses. They spare no expense in hiring legal talent and defend themselves with a self-righteous fury. The legal system has had an unfortunate tendency to show great deference when the lords of the universe show up.

But as William Black, the former bank regulator turned law professor, has pointed out, it can be done. Bankers can be held accountable. It was done after the savings and loan debacle in the 1980s.

If prosecutors have the tenacity, the resources and the chops, they can go after bankers like they do gang members. First you go after the less powerful, more vulnerable players, squeezing them to gain information, and find documents to gradually build cases against the higher-ups.

Harris will be at a disadvantage without federal help – when prosecutors decide to take out a gang, they form a multiagency task forces, using all the agencies of federal, state and local officials.

We’ve seen just how disinterested the feds are in going after bankers. Local prosecutors around the country haven’t shown much stomach for the job either.

But if she is pursues her task in a determined and savvy way she will find wide and enthusiastic support among a crucial group that have become disenchanted with other politicians – the 99 percent.

If you’re in the Los Angeles and you want to hear more about this from William Black himself, he’s scheduled to participate in a stellar panel at Occupy LA at City Hall moderated by Truthdig’s Robert Scheer. Black, a law professor at University of Missouri-Kansas City, will be joined by Michael Hudson, Joel Rogers, a professor of law, political science and economics at the University of Wisconsin, and via live stream, Michael Hudson, a financial analyst who also teaches economics at UM-KC.

 

California Attorney General Kamala Harris / Martin Column / Occupy - 11/05/2011

Mortgage Frauds, Official Shenanigans

Just how did the biggest bank fraud in the nation’s history go on with the full knowledge of authorities for 7 years?

Apparently, without much trouble.

Earlier this week, a judge sentenced Brian Farkas to 30 years in prison. He was the head of one of the country’s largest non-depository mortgage companies, convicted of a multibillion-dollar fraud that has been labeled the largest in the country’s history. The case was brought to prosecutors by the bailout’s former special inspector general – after a bank associated with the mortgage company tried to rip off the Troubled Asset Relief Program for $550 million.

Prosecutors said they sought the tough sentence as a deterrent, though bankers might not get the message.

Writing in the New York Times, white-collar criminal law expert Peter Henning said more respectable executives at bigger companies “perceive themselves as different from – and often better than – those who have been caught and punished, even if they are not.”

But one of the most outrageous aspects of the case has nothing to do with Farkas’ behavior: It has to do with how a government-sponsored  agency, Fannie Mae, found evidence of his wrongdoing  in 2000 and didn’t report it. According to court testimony as reported by Bloomberg News and the New York Times, when Fannie Mae found out that the bank was selling loans that had no value, the agency merely cut its ties with the bank.

Another government-sponsored agency picked up the business a week later, Bloomberg reported.

William Black, a former bank regulator who has been a sharp critic of the current administration’s lack of aggressiveness in investigating fraud in the wake of the 2008 financial collapse, told Bloomberg: “If there had been a criminal referral, Farkas would have gone to jail in 2002.”

Farkas’ firm, Taylor Bean remained in business for another 7 years before it collapsed in August 2009.

The confidential agreement to disentangle Freddie Mac from Taylor Bean was overseen by Freddie Mac’s general counsel, Thomas Donilon, who now serves as national security adviser to President Obama.

It’s not the first time Donilon’s actions have been called into question: while he was a lawyer in private practice, he led lobbying efforts to undermine the credibility of an investigation into Fannie Mae’s shaky finances in 2004.

It’s worth cheering that prosecutors finally successfully prosecuted a major case stemming from mortgage crowd. But it’s also worth noting that the perp does not come from the ranks of the nation’s too big to fail banks.

It’s also worth noting that Donilon’s conduct in the financial collapse didn’t get him cast out as a pariah, it won him one of the most important jobs in this administration.

 

 

 

 

 

 

 


Around the Web / Financial Crisis / Martin Column / President Barack Obama - 07/01/2011