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

Underwater secrets

Local governments'  have often stirred controversy with their use of eminent domain. While it's supposed to be used for the public good, too often it has been used to profit developers, while the public just feels ripped off.

Still, the idea of local governments using eminent domain as a tool to stabilize home prices in some of Southern California’s hardest hit communities is an intriguing one.

It’s the kind of bold action that’s been missing in the government’s limp response to the foreclosure crisis.

But the scheme that’s unfolding in Southern California’s Inland Empire, rated as the one of the most underwater in the nation, is a step in the wrong direction.

It smacks of politically-connected high-finance types, boasting of their access to politicians as their “secret formula,” wheeling and dealing in secret.

A san Francisco venture capital firm is cooking up a scheme in San Bernardino to use the government’s eminent domain power to seize some underwater mortgages from investors who own them and have been unwilling to offer borrowers principal reduction that would allow them to stay in their homes.

The firm’s idea, apparently, is to for San Bernardino County and other local government’s form a joint powers authority that would allow those government to act together to use eminent domain to seize mortgage loans, not the property, of underwater homeowners who were not behind on their payments at “market value.”

Then, according to the scheme, the firm would find investors to issue new mortgages to the homeowners at that lower, more affordable “market value.”]

The plan was hatched by San Francisco-based Mortgage Resolution Partners. That’s the firm originally headed by Phil Angelides, former state treasurer, real estate developer and venture capitalist best known recently for leading a congressionally-appointed investigation into the financial crisis.

After issuing a report highly critical of the banks, Angelides didn’t stump the country to put pressure on authorities to follow up on his report with prosecutions.

He went into the mortgage business himself, swaddling his efforts to make profits from distressed mortgages in good intentions of finding solutions to the foreclosure crisis.

It was Angelides who boasted in a letter to potential investors that his firms’ secret formula was its connections to public officials. Reuters reported that Angelides told potential investors they could generate 20 percent profits.

After Angelides’ involvement in the firm was publicized earlier this year, he stepped aside. Replacing him was Steven Gluckstern, a hedge fund veteran who was one of President Obama’s major bundlers in the 2008 election.

According to published reports, Mortgage Partners would make its profit charging a fee on every mortgage seized. How much will it be paid and how? That hasn’t been disclosed. But according to Naked Capitalism, its sources say that the firm expects to make a 5.5 percent fee on each mortgage ­– paid for by having the government seize the mortgages at a discount and sell them back to the homeowner for a profit.

The most serious general flaw in the scheme is that has unfolded behind the cloak of confidentiality agreements between government officials and Mortgage Resolution Partners, with no public disclosure or debate on the concept or details, giving the whole deal the stink of a sweetheart deal, not a solution.

When the Riverside Press-Enterprise sought written records of communication between county officials and the mortgage firm, they were told there were none.

The use of eminent domain is highly controversial because it has often been justified as benefiting the public when it ends up benefiting real estate developers. In this case, investors who own the mortgage loans have already weighed in opposing the plan. Though the plan’s backers say eminent domain has been used to seize intangible goods, they acknowledge it hasn’t been used to seize mortgage loans before. So investors are likely to challenge the process in court.

But I wouldn’t shed too many tears for the investors, who have stood in the way of principal reductions or any other means of helping homeowners.

Another question raised by the current plan: why is only Mortgage Resolutions Partners being considered as a partner for the joint powers authority? The idea should be put out for an open bid. Maybe other firms would have even better plans and offer a better deal.

And there are plenty of other issues surrounding the plan. Walter Hackett is a former banker who is now lead attorney in the Legal Aid Riverside’s branch near San Bernardino. While he likes the idea of using eminent domain as a tool to stabilize home prices,

he questions why eminent domain would be used to seize mortgage loans – which are more difficult to set a price on – rather than property itself. Seizing the property and paying the investor for the fair market value of the property, rather than the mortgage, would extinguish the old mortgage and the new investors could then issue a new one to the borrower at the market value.

Hackett also questions why eminent domain would be used only on mortgages deemed current, so-called performing loans, rather than including properties that have already fallen into foreclosure that are still owned by investors. “Former owners, or others might be able to afford reduced payments once the properties are priced at market value, rather than at the price of the underwater mortgage,” Hackett said.

Hackett’s unusual background, having been a banker and represented homeowners in foreclosure, would be invaluable in redesigning such a proposal. It should not be left only to the venture capitalists and the county politicians.

I’m not suggesting that local governments shouldn’t find a way to use eminent domain or find other creative solutions to help struggling homeowners. But we also need to stop assuming that when the financiers and politicians go into the back room, they come out with something that’s in our interest – even if they say it is.

We learned from the bailout and the government’s subsequent coddling of the financial industry how the secrecy and lack of transparency undermine trust in both our financial system and our government.

However inconvenient to the bankers and hedge fund honchos, such proposals must be hammered out with full public participation and debate. We don’t need any more secret formulas” brewed with corporate cash and political connections in back rooms with you and me kept out.

 

 

Foreclosures / Martin Column - 07/12/2012

9 For the 99 – Restoring the Real Economy

Remember how aggressively our leaders have talked about tackling unemployment and the housing crisis?

Remember all the strong action to make good on their promises?

Me neither.

Remember how all our leaders criticized each other for taking money from Wall Street and other powerful corporate interests?

Remember all the potent steps they took to rid our democracy of corporate money?

Me neither.

You’ve probably heard of Herman Cain’s 9-9-9-tax plan, the scheme he says will get the economy going. Do you think it will work?

Here’s our proposal to restore the real economy. Unlike the solutions proposed by our leaders, these proposals focus on the problems faced every day by most people, not bankers.

We’ll be offering it at OccupyLA in the next couple of days to complement their work.

  1. Support 28A, constitutional amendment overturning U.S. Supreme Court “Citizens United” ruling to stop the flood of toxic corporate cash poisoning our democracy
  2. Prosecute Wall Street crime, not Wall Street protestors
  3. Give citizens same right to borrow taxpayer money from the Fed at the same low interest rates that Wall Street got in the bailout
  4. Cap bank fees and interest rates
  5. Offer real foreclosure relief:  Require banks to provide principal reduction for underwater mortgages, including allowing judges to reduce home mortgage principal in bankruptcy court to encourage mortgage modifications
  6. Repeal unnecessary tax loopholes and other corporate subsidies (overseas tax breaks, local & state tax bribes for moving jobs from one community to another, make corporations pay taxes) and transfer savings to taxpayers and small businesses in the form of tax cuts.
  7. Repeal corporate-backed NAFTA-style trade deals, which export U.S. jobs overseas, reduce wages of American workers to that of laborers in foreign countries and weaken environmental regulation.
  8. Restore traditional separations between federally guaranteed consumer banking from other, riskier, financial business.
  9. Reform student debt, stop predatory practices.

 

 

For more information, check out http://www.wheresourmoney.org

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Support 28A http://www.wheresourmoney.org/campaign-2011/

 

 

 

 

 

Action / Citizens United / Congress / Foreclosure / Martin Column / Supreme Court - 10/20/2011

Letting Go Of Principals

After more than a year of ineffective attempts to stem the foreclosure crisis, the Obama administration this week may be edging toward acknowledging reality.

This sick housing market isn’t going to heal itself, and won’t get better with the band-aids they’ve applied so far. The stakes are high not just for the homeowners: without some stability in housing, the rest of the economy can’t heal either.

The administration announced today that it would begin to encourage banks to write down the principal when modifying borrower’s underwater mortgages. Bank of America also said this week it would tiptoe into principal reduction.

Time, and follow-through will tell whether the administration intends the principal write-downs as another band-aid or something more substantial. Time will also tell whether the administration will fight for write-downs or wilt in the face of the inevitable backlash. It’s also important to note that all of the administration’s foreclosure initiatives rely on the voluntary cooperation of lenders, with modest incentives paid by the government.

There is every reason for healthy skepticism of the administration and the banks’ ability to tackle the problem. As John Taylor, president of the National Reinvestment Coalition testified before a congressional panel this week: “We rush to give banks tax breaks, but we dawdle to help homeowners who through no fault of their own lost their jobs because of the economic crisis or bought defective loans that caused the economic crisis.”

Foreclosures / Martin Column - 03/26/2010