Apr 30

IMF Chief Calls for Mortgage Principle Forgiveness in U.S.

International Monetary Fund Chief Christine Legarde has added her voice to the growing chorus of economists not bought and and paid for by the banking sector in calling for the United States to begin to reduce the principal on underwater mortgages purchased during the fraudulent run-up in housing prices between 2002 and 2008. She recommends doing so in order to stimulate growth across the globe, but doing so would also significantly impact the economy at home.

She called upon Fannie Mae and Freddie Mac, both of which are overseen by the Federal Housing Finance Agency, to reduce the principal owed on homes, whether the homeowner is in arrears on payments or simply underwater and current in their obligations. Unfortunately, FHFA boss Edward DeMarco has steadfastly maintained that he will not support policies that allow for widespread mortgage write-downs. Mr. DeMarco was to make a decision by April 30, 2012 whether or not he would move forward on a plan under Obama’s HAMP program to allow principal reductions on properties backed by Fannie Mae and Freddie Mac where the mortgage holder is seriously delinquent. Unfortunately Mr. DeMarco recently announced that he would ignore the deadline, imposed by Congress, and continue to study the problem.

The HAMP program reductions that are under consideration by Mr. DeMarco would only affect about 10% of all underwater mortgages backed by Fannie Mae and Freddie Mac because homeowners who are underwater but continuing to make timely payments are not eligible for reductions. Mr. DeMarco has said in the past that he fears mass purposeful mortgage delinquencies if the program is permitted to move forward, a prospect that has not been supported by evidence. The likelihood of damaging ones credit rating and potentially losing a home in exchange for a principal reduction that may or may not come at all has not convinced any significant number of borrowers to stop making their mortgage payments.

The Obama administration has been reported as putting pressure on Mr. DeMarco to make a decision allowing the contemplated principal reductions to move forward, but I am dubious as to how extraordinary the insistence has truly been from the White House. The administration has offered a deluge of failed and ill-conceived fixes to the mortgage mess since 2008, none of which truly aimed at forcing the banks and Fannie Mae and Freddie Mac to allow principal write-downs of underwater properties. A wisely constructed plan by the FHFA and the administration could easily limit any reductions to those homes actually purchased during the fraudulent run-up in home prices, and those homes who value exceeds that of the original mortgage, excluding refinancing undertaken to make additional unnecessary purchases. Configuring a program to address this problem and stimulate the economy would not be a herculean task.

It is wholly objectionable that the already incommensurate principal reductions proposed by Congress and the President are being insubordinately rejected. However, it should come as no surprise to anyone given the administration’s posture concerning this problem from the very beginning. Setting aside the earlier mentioned waterfall of half-assed programs previously concocted, the furthest the President has been willing to travel down the write-down road has been to propose federally assisted and voluntary refinancing of a small number of homes under lower interest rates. Not a single legitimate attempt has been made to reduce the principal of homes currently in repayment and dramatically underwater. Offering a homeowner the ability to pay twice the value of a home under a lower interest rate is no program at all. It is an insult to each American who had their tax dollars spent drowning large banks and mortgage institutions in liquidity in order to ensure their solvency.

So, Mr. DeMarco, no one is surprised by your decision. Further, only a fool should be surprised by the administration’s lack of movement on this issue. You’re a homeowner, not a bank, and as such, you don’t matter. The most logical course of action is to walk away from any home that is seriously underwater, because help is not coming.

Christine Legarde was right to call upon the American government to offer significant principal reductions to underwater homeowners. She is right because it will boost the American economy, setting free cash to be spent consuming goods and services and alleviating business and personal uncertainty. She is right because it will boost the world economy. She is right because it represents remuneration for the fraud perpetrated upon the people. She is right, quite simply, because it is the moral thing to do.

Apr 12

No Hope for Hardest Hit Homeowners

A little known housing program ironically named The Hardest Hit Fund was initially established in 2010 in order to assist homeowners in areas hardest hit by the decline in home values and struggling with higher than average unemployment. Accoring to the government website:

In 2010, the Obama Administration launched the Hardest Hit Fund to help homeowners avoid foreclosure in the areas hardest hit by steep home price declines and unemployment. Through the program, participating housing finance agencies (HFAs) in 18 states and the District of Columbia are implementing a variety of different initiatives to help homeowners struggling with their mortgage payments. All participating HFAs are now operating programs widely and offering assistance to homeowners.

The program is administered under TARP by the Treasury Department in conjunction with agencies in the states covered by the fund. The fund initially claimed that it would offer assistance to nearly 500,000 struggling homeowners and was allocated a budget of over $7 billion. However, as of the end of 2011, the Hardest Hit Fund had helped only slightly more than 30,000 individuals and families and spent $217.4 million of its $7.6 billion budget, or 3%. The program is intended to reach homeowners who are unemployed, or living in areas with high unemployment rates or steeply falling home values, but a recent report by a Special Inspector General lambastes the program’s misadventures.

One major flaw in the program noted by an Special Inspector General Christy Romero–separate and apart from administration’s overall disinterest in offering meaningful relief to underwater and struggling homeowners–is that Fannie Mae and Freddie Mac have been slow to cooperate or provide guidance to lenders.

The program was hindered from the start by Treasury’s failure to gain support from the government-controlled mortgage giants Fannie Mae and Freddie Mac, the report says. Many big, private mortgage companies initially refused to participate because they wanted guidance from Fannie and Freddie, it says. The companies, called mortgage servicers, collect people’s monthly payments and foreclose when they fall behind.
“Without large servicers, the (state programs) could not reach a large portion of struggling homeowners,” the report says.

The Treasury Department’s response to the Special Inspector General’s report has been defiance. The department argues that each of the recommendations is unworkable and blames delays at the state level for much of the failure to actually provide assistance. Treasury also notes that the program extends out to 2017 so you know, homeowners will get some help when the department damn well pleases.

Much of the funding that has been spent thus far has also gone to bail-out state unemployment programs and to assist unemployed homeowners. Very little assistance has reached underwater homeowners. Rather, the bulk of the funds have been allocated to the unemployed.

The money was supposed to give state housing officials incentives to come up with new and different ways to address the housing crisis in their states. But most states just used the money for programs that pay the mortgages, insurance and property taxes of the unemployed.

So far, the hardest hit program has kept up with mortgage payments for some 26,100 unemployed homeowners. These programs don’t hit mortgage servicers or banks’ bottom lines, Romero said.

When it comes to relieving housing woes, so far, only 436 homeowners in the program got the principal owed on their mortgage reduced. Another 170 homeowners got their second lien reduced.

A close reading of each of the news accounts shines a light on the continuing and underlying problem of the Obama administration’s homeowner relief programs: a failure to force the banks and Fannie Mae and Freddie Mac to act. A direct consequence of the administration’s failure to take a hard line with the large banks and governmental entities has hindered progress at every turn. The HARP and HAMP programs have suffered from similar ineffectiveness under stifling efforts and inaction from the banking and mortgage sector. President Obama is fond of downplaying struggles to reach perfection in legislation, often reiterating the necessity of compromise in a democracy. In this case however, the programs are administered by his own Treasury Department, and failures are not the result of compromise with Republicans, but a profound unwillingness to force the banks to offer help to homeowners–even in cases where the bank stands to profit–in return for the trillions of tax dollars given to them in the form of direct bailouts and low-interest loans.

It is simply unacceptable for the Treasury Department to push back at the Special Inspector General and offer up disingenuous excuses for inaction. While the department claims that the program sets up long-lasting foreclosure prevention capabilities, that is of little consolation to the thousands who have lost their homes while the administration fetters.

Apr 06

HARP Continues to Flounder

new report by Cora Currier over at ProPublica chronicles the massive practical shortcomings of the Democratic administration’s Home Affordable Refinance Program, or HARP, and why it continues to fail to offer underwater homeowners  any real relief. The program has also fizzled in offering meaningful rate reductions to those stuck with high percentage rates or adjustable ARM mortgages.

Large banks, although permitted to do so, are not offering those holding loans with competing banks refinancing under HARP because the banks view these outside loans as carrying more risk, which of course is only marginally accurate. This leaves the homeowner in the precarious position of being captive to whatever rate the bank currently servicing the mortgage offers. However, even with this fractional increase in risk, the administration is doing nothing to cajole the banks into offering customers more competitive rates and accepting outside business in return for saving them from the brink of disaster in 2009-2012.  Because the banks are refusing to compete with one another, customers are often left with higher long term mortgage rates than they would have otherwise qualified for under HARP or in the marketplace.

The reason for all of this, as it has always been, is that these programs fail to address the basic problems in the housing market. Unfortunately, the profound apprehension and outright fear on the part of the administration to forcefully attack the large banks continues to result in these half-assed band-aids and workarounds to address the housing market dilemma. The proof is in the pudding. The administration can not on its best day ever administer a program under which homeowners are stuck refinancing more than the home is worth. Leaving aside how awful the notion is of forcing homeowners to ultimately pay an inflated amount based squarely on the fraud of the banks and mortgage originators for a moment, the banks will not even cooperate in this scheme of forcing homeowners to lock in lower rates to pay them back money that they would not otherwise owe.

The bottom line is that this problem will persist for much longer and continue to create a drag on the overall economy until either the Republican or Democratic party, or both, stand up and force the banks to write-down millions of fraudulently inflated mortgages to fair value. To this point neither party seems willing to offer even an iota of evidence that Wall Street and the banks have not simply been given a blank check with nothing significant expected in return for their very lives.

I should also mention that I do in fact believe that President Obama understands this problem, and is well aware of the shortcomings of each of the programs offered as a remedy. I would even confess that it is extraordinarily likely that he honestly would love to force the banking sector to refinance and write-down the mortgage mess that it created. However, while the United Auto Workers and General Motors and Chrysler have had to accept onerous loan terms and drastic reductions in wages and benefits in return for the government’s assistance, the banks have suffered no similar consequences notwithstanding their far greater responsibility in the overall disaster. Why this has been the case has been fodder for much speculation. I sincerely hope that the American people do not have to wait for President’s Obama’s inevitable memoirs for an answer.