Tag: Housing

Obama Corruption: Cover Up of Banking Fraud

Recent attempts by the Obama administration to persuade New York State Attorney General Eric

Schneiderman to sign off on the 50 state agreement that was being brokered by Iowa AG has resulted in Schneiderman being removed from the panel last week. In the on going power play to get Schneiderman to play ball with an agreement that would allow the banks to get away with a piteous fine and protection from any litigation regarding fraudulent foreclosures, Matt Stoller, formerly of Open Left and former Senior Policy Advisor to Rep. Alan Grayson, writes a revealing article at Naked Capitalism that examines President Obama and AG Tom Miller dishonesty in the negotiations and their need to squash Schneiderman’s investigations. Stoller argues that all the parties are doing what they think is right not because any of them must but because it is their choice. While it can be said that is somewhat true, there is the matter of law that they have all sworn to uphold. Scheiderman seems to be the one of the few, along with Delaware AG Beau Biden and Massachusetts Attorney General Martha Coakley, who is doing just that:

The banking system is really at the heart of our politics, which is why it’s such a great test of one’s political theory of change. I’ve been following the foreclosure fraud story for a few years now, because it’s the tail end of a massive economy-wide fraud scheme that started as early as 2003. The securitization chain failure can’t be put back in the bottle, the housing system it collapsed is simply too big to bail. So elites keep trying to patch this up the way they have everything else. It isn’t working. And their scheme has been obvious and obviously dishonest. Along with Obama (who I criticized as empty as early as 2004, ratcheting this up to dishonest and authoritarian by 2006-2007), I pointed out that Iowa Attorney General Tom Miller was engaged in serious bad faith only a few months after the negotiations started.

I’m no genius, I just listened to what these people actually said and did. Obama mocks the idea that he is an honest politician, overtly, lying about NAFTA and FISA very early on in power. Miller lied to activists about being willing to put bankers in jail, and then said he was negotiating with banks in secret. It was overt. For Miller, as with Obama, few people really picked up on the lies until recently. Iowa activists who heckled Miller got it, as did Naked Capitalism readers. Now it’s becoming more and more obvious. That’s just how it is, I suppose, people in the establishment are paid to not notice corruption until the harsh glare is too bright.

The crazy thing is that robosigning is apparently still going on. Right now, the “settlement” talks are the equivalent of law enforcement negotiating with a serial killer over whether he’ll get a parking ticket, even as he continually sprays bullets into the neighborhood. Even having these “settlement” talks when the actual crimes haven’t been investigated or a complaint hasn’t been registered should be example enough that this process is rigged as badly as Dodd-Frank. It should not be a surprise that the administration is putting pressure on Eric Schneiderman, that Tom Miller is kicking him out of the club house. That’s who these people are. It’s what they believe in. Just as it should not be a surprise, though it is laudable, that Schneiderman isn’t knuckling under to the administration. I suspect he probably is laughing at the idiocy of Miller’s pressure tactic. I mean, this is a guy going up some of the most powerful entities in the United States: Bank of New York Mellon, Bank of America, the New York Fed, etc. And the Iowa Attorney General isn’t going let him on conference calls? Mmmkay.

Stoller doesn’t end there with his indictment of the corruption and sell out to the banks. He call out the failure of Obama’s policy agenda in the wake of the 2010 defeats as a wake up call to Democrats and the party:

From 2006-2008, the Bush administration’s failures crashed down upon conservatives, and they in many ways could not cope. But their intellectual collapse was bailed out by Obama. Faux liberals are seeing their grand experiment in tatters, though right now they can only admit to feeling disappointed because the recognition that they have been swindled is far too painful. And the recognition for many of the professionals is even more difficult, because they must recognize that they have helped swindle many others and acknowledge the debt they have incurred to their victims. The signs of coming betrayal were there, but in the end it all comes down to judging people based on what they do and who they choose as opponents. And this Democratic partisans did not do, choosing instead a comfortable delusional fantasy-land where foreclosures don’t matter and theft enabled by Obama (and Clinton before him) doesn’t matter.

Ouch.

Of course there is always the possibility that a “minor player” such as Schneiderman can be easily taken down with an overblown personal scandal, as was former NY AG and governor, Eliot Spitzer. Schneiderman seems unfazed and unmoved by the threats and accusations that he undermining a bogus settlement with the banks that would help thousands of homeowners. And after the failures of other programs, such as HAMP, who is really going to believe that this is the cure?

The latest development in this on going battle for a realistic Main St rescue came when John O’Brien, Registry of Deeds for Southern Essex County in Massachusetts is requested that Iowa AG Tom Miller step down:

Schneidernan getting kicked off the committee should come as no surprise to anyone following the foreclosure negotiations and is sickeningly similar to Pam Bondi, Florida’s Attorney General firing Theresa Edwards and June Clarkson, who were heading up investigations on a series of mortgage related crimes for over a year.

While Bondi insists that the firings were a result of poor job performance, Miller points more towards attitude and that Schneiderman is somehow not a team player.

snip

This is like Pam Bondi firing the two assistant AGs in Florida,” O’Brien said. “Miller claims that Schneiderman was undermining the negotiations. Why wouldn’t he since the negotiations are far from being in the best interest of homeowners and the general public? This settlement clearly favors the banks and I’m one hundred percent behind Eric Schneiderman. This is an outrage and they are beginning the process of selling the American people down the drain I say Miller should step down and all AGs should be appalled at what has happened.”

Schneiderman’s removal will likely make it easier for state and federal officials to reach an accord with the five banks. However, the potential amount of money they’ll be able to extract will likely decrease.

American Banker posted the 27 term sheet of the negotiations presented to the banks with major servicing operations by the AGs and Federal Banking Regulators.

The deal completely handcuffs state attorneys general whose constituents are suffering serious economic damage as a result of the foreclosure fiasco and fraud by the banks and servicers.

When the investigation into robo-signing and fraud, Tom Miller had a brief moment of righteous advocacy until he received $261,445 in campaign contributions from out-of-state law firms and donors from the finance, insurance, and real estate sector shortly after he announced he was seeking criminal charges and retribution from the banks for mortgage fraud — that’s 88 times what he has received in the past decade.

Nice pay off, Tom. Now, I wonder what Barack’s campaign is getting?

Another Shot In The Dark: Mass Mortgage Refi Plan

The Obama administration has proposed a plan to refinance millions of mortgages that are held by Freddie Mac and Fannie Mae and would not require congressional action. The plan being to boost the housing market by helping “a broad swath of homeowners, stimulate the economy and cost next to nothing”:

One proposal would allow millions of homeowners with government-backed mortgages to refinance them at today’s lower interest rates, about 4 percent, according to two people briefed on the administration’s discussions who asked not to be identified because they were not allowed to talk about the information.

A wave of refinancing could be a strong stimulus to the economy, because it would lower consumers’ mortgage bills right away and allow them to spend elsewhere. But such a sweeping change could face opposition from the regulator who oversees Fannie Mae and Freddie Mac, and from investors in government-backed mortgage bonds.

Administration officials said on Wednesday that they were weighing a range of proposals, including changes to its previous refinancing programs to increase the number of homeowners taking part. They are also working on a home rental program that would try to shore up housing prices by preventing hundreds of thousands of foreclosed homes from flooding the market. That program is further along – the administration requested ideas for execution from the private sector earlier this month.

But refinancing could have far greater breadth, saving homeowners, by one estimate, $85 billion a year. Despite record low interest rates, many homeowners have been unable to refinance their loans either because they owe more than their houses are now worth or because their credit is tarnished.

There are some questions and stumbling blacks to implement the program. One major question is how this would apply to homeowners who are delinquent on their mortgage payments or in foreclosure.

But before there is even an answer for that, the real obstacle is getting the program approved by acting director of the Federal Housing and Finance Authority, Ed DeMarco, who oversees Freddie and Fannie. DeMarco is a holdover from the Bush administration and as Ezra Klein of the Washington Post points out may not be inclined to approve such an audacious program:

   The Housing and Economic Recovery Act of 2008 put Fannie Mae and Freddie Mac under the control of the newly created Federal Housing and Finance Authority.

   The FHFA is not like, say, the Treasury Department. It’s an independent agency, and right now it’s under the care of acting Director Edward DeMarco, a holdover from the Bush administration. Senate Republicans blocked the Obama administration’s nominee, Joe Smith, after he expressed some support for using Fannie Mae and Freddie Mac to heal the housing market. Any plan would either need to go through him or through Congress. And both DeMarco and the Republicans in Congress seem mostly interested in limiting Fannie and Freddie’s short-term losses so they can be spun off from the government.

Since DeMarco is only an acting director, he could easily be replaced by a recess appointment by President Obama. The problem there is that Mr. Obama, being disinclined to confront congress, will most likely not use the authority of his office to do so.

But speculate, as Klein does, if this were to pass, there are other issues:

The next big issue is known as “reps and warrants.” The short way of explaining this is that when the banks hand a loan over to Fannie and Freddie, they basically swear that the loan was properly constructed. If that later proves untrue, Fannie and Freddie can force the bank to buy it back.

David Dayen st FDL says that DeMarco has been good at forcing the banks tom refinance bad mortgages.

Klein continues with another hurdle, closing costs:

When you add up loan-level adjustment costs, title insurance, reappraisal, and all the rest of it, it’s often more than an underwater homeowner can bear. You can solve this problem the same way you can solve the rents and warrants problem – either make the banks eat the costs, in which case they may not participate, or get the government to eat the costs – but you’ve got to figure it out.

Dayen quotes Adam Levitin who doesn’t think that this will do anything for the homeowner who is in foreclosure or seriously delinquent:

   So in the end, it’s really not clear who this would help. It ignores that there’s already been lots of refinancing at low rates since 2008-it’s not clear how much more refinancing some new initiative will possibly produce, much less how many foreclosures it will prevent. The refi idea seems to do nothing on either negative equity or unemployment. Any program that fails to address those just isn’t serious. I get that the administration has a MacGyver problem given that it can’t move anything in Congress, but that necessitates much more creativity, financially and legally, not rewarming old ideas. My prediction: this ends up accomplishing about as much as FHAShortRefi or Hope4Homeowners.

   We need a TARP for Main Street. This isn’t it.

Somehow this is being touted as a stimulus for the economy but it doesn’t really put any extra cash in the hands of the homeowner. Nor does it address the underlying real problem that created this mess in the first place, unregulated bundling of mortgages though credit default swaps and derivatives along with fraudulent title searched and foreclosure fraud.

The Markets: And They All Fall Down

The stock market came tumbling this morning on the bad news that started yesterday with Federal Reserve Chairman Ben Bernanke’s bleak economic outlook. With the news that there were higher than expected new unemployment claims, a drop in new housing sales and the announcement from the International Energy Agency that they would release 60 million barrels oil, sent stocks, oil and gold prices in to a downward spiral.

This isn’t necessarily all bad news. Lower the price of oil that has been driven wholly by speculators that have “no skin in the game” has been a major cause of the economic slow down. As the price of fuel drops, the price of transportation and goods fall, people have more money to spend or invest.

Global Oil Reserves Tapped in Effort to Cut Cost at Pump

The United States will lead an international effort to release 60 million barrels of petroleum reserves to world markets, replacing some of the oil production lost because of the conflict in Libya, the International Energy Agency announced in Paris on Thursday.

The action is aimed at reducing energy prices for businesses and consumers, and in early trading futures contracts for West Texas intermediate crude oil were down $4.50 a barrel to around $91.

The United States will release half of the total amount from the Strategic Petroleum Reserve, with the rest of the oil to be provided by other nations among the international agency’s 28 member states. Negotiations for the coordinated response have been going on in secret for weeks, according to a person involved in the talks. Similar unified action was taken in 1991 at the outbreak of the first Persian Gulf War.

Stocks and Oil Fall Sharply

The Dow Jones industrial average fell sharply and energy stocks declined more than 2 percent on Wall Street on Thursday after a report that the United States would release some oil from its Strategic Petroleum Reserve. Crude oil prices also fell.

The International Energy Agency announced in Paris on Thursday that the United States will release half of the 60 million barrels of petroleum reserves to world markets, with other nations releasing the rest, replacing some of the oil production lost due to the conflict in Libya.

Jobless Claims in U.S. Rise More Than Expected

More Americans than forecast filed first-time claims for unemployment insurance payments last week, showing companies are less confident about the expansion than they were earlier this year.

Applications for jobless benefits increased 9,000 in the week ended June 18 to 429,000, Labor Department figures showed today. The level of claims exceeded the highest estimate in a Bloomberg News survey in which the median projection called for 415,000 filings. The number of people on benefit rolls was little changed, while those getting extended payments rose.

Unemployment claims have swelled after dropping to an almost three-year low at the end of February, indicating businesses may be reluctant to hire until demand strengthens. The data underscore Federal Reserve Chairman Ben S. Bernanke’s comment yesterday that job growth is “frustratingly” slow, a reason policy makers pledged to maintain monetary stimulus.

May new home sales fall 2.1 percent

(Reuters) – Sales of new U.S. single family homes fell for the first time in three months in May, but inventories of new homes for sale reached record lows and the median sales price rose slightly, a government report showed on Thursday.

Gold Drops Most in Seven Weeks as Slow Economy, Oil Slump Ease Inflation

Gold futures plunged the most in seven weeks as a slowing U.S. economy and slumping oil prices eased the risk of inflation, while the dollar rallied on signs the Federal Reserve won’t add more stimulus measures.

The economy is recovering at a “moderate pace, though somewhat more slowly” than the central bank had expected, Fed Chairman Ben S. Bernanke said yesterday. The dollar gained as much as 1.4 percent versus six major currencies, while oil prices dropped to a four-month low after the International Energy Agency said its members would release crude from strategic reserves.

“It’s basically down on what the chairman said yesterday,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “Also, crude is sharply down, while the dollar has risen.”

Treasuries Gain as Jobless Claims Rise, Trichet Cites European Bank Risk

Treasuries rose as U.S. initial jobless claims climbed last week more than economists forecast and European Central Bank President Jean-Claude Trichet said the sovereign-debt crisis threatens to infect banks.

Yields on 10-year notes dropped toward the lowest level this year a day after the Federal Reserve said it will maintain monetary stimulus after its $600 billion program of debt buying ends this month, with policy makers lowering their forecasts for economic growth and employment.

“It’s just uncertainty,” said Dan Mulholland, a Treasury trader in New York at Royal Bank of Canada, one of 20 primary dealers that trade with the Fed. “Jobless claims provided the latest pop. Treasuries are the beneficiary.”

The MSM Notices Foreclosure Fraud

The CBS News program, “60 Minutes” aired a Mortgage paperwork mess: the next housing shock? segment on foreclosure fraud which, as most economists agree, is the biggest threat to the US economy. Scott Pelley looks for the answer and a at the possible solutions to the question of “who owns your mortgage”:

It’s bizarre but, it turns out, Wall Street cut corners when it created those mortgage-backed investments that triggered the financial collapse. Now that banks want to evict people, they’re unwinding these exotic investments to find, that often, the legal documents behind the mortgages aren’t there. Caught in a jam of their own making, some companies appear to be resorting to forgery and phony paperwork to throw people – down on their luck – out of their homes.

Sheila Bair, Chairperson of the FDIC, says she will call for a clean-up super fund

   Banks so poorly handled documentation on millions of mortgages that many today cannot prove that they own the homes they want to foreclose on. The resulting rash of lawsuits from people seeking to save their homes has one of the government’s top banking regulators worried that the torrent of litigation will delay the real estate market’s recovery.

   Federal Deposit Insurance Corporation Chair Sheila Bair tells Scott Pelley banks should be forced to contribute billions to a clean-up fund that will help stressed homeowners stay in their homes and stave off lawsuits – there are 30,000 already – that threaten the economic rebound […]

   Like last year, banks are expected to foreclose on a million mortgages this year, a scenario that could generate more lawsuits over mismanaged paperwork. “I think that this litigation could easily get out of control,” says Bair. “…We’re already feeling like we’re falling behind it,” She thinks a large clean-up pool funded by the banks that would pay homeowners to accept a bank’s ownership claim without a lawsuit is necessary. “I would assume it would be billions [that the fund would need],” Bair tells Pelley.

But as, David Dayen points out, this “super fund” would not stop any claims in state courts on behalf of homeowners, federal regulators don’t have the authority to do that.

And the more banks resist it, the more liable they will become. In an important case this week, a judge in Alabama dismissed a foreclosure because the bank failed to comply with the pooling and servicing agreement for transferring mortgages to the trust. This would be a stunning ruling if applied broadly, though whether or not it will stand as precedent across other states remains to be seen; it’s far too early in the process to determine that. But we know that banks simply did not convey mortgages to trusts properly as a general rule. Foreclosure fraud can be seen as a coverup for that original sin. And if state courts are starting to make rulings based on that sin, banks will be stuck and unable to pursue foreclosures on tens of millions of loans.

The ruling in favor of the borrower endorses an argument we have made since last year on this blog, that the pooling and servicing agreement stipulated a specific set of transfers be undertaken to convey the borrower note (the IOU) to the securitization trust within a specified time frame. New York trust law was chosen to govern the trusts precisely because it is unforgiving; any act not specifically stipulated by the governing documents is deemed to be a “void act” and has no legal force. So if a the parties to a securitization failed to convey a note to the trust within the stipulated timetable, retroactive fixes don’t work. In this case, the note had been endorsed by the originator, Encore, but not by the later parties in the securitization chain as required in the pooling and servicing agreement.

Yves Smith at naked capitalism, has a problem with what Bair said:

One aspect that is distressing is that per her remarks in this clip, Sheila Bair does not appear to understand or worse, understands but is not willing to admit the seriousness of the chain of title issues. Often, the banks botched the transfer process in such a fundamental manner that retroactive fixes are not possible. This isn’t a matter of “if the banks spend enough time, they can prove the trust they are acting for owns the note” as Bair contends. It’s that in many cases the note didn’t get to the trust as stipulated, and the trust doesn’t have the ability under New York law, which governs virtually all of these trusts, to accept it now. A party earlier in the securitization chain is typically the owner, but no one wants that party to foreclose, since it would confirm the failure to handle the assignment of the note properly.

I’m not so sure that this Congress would be amenable to another multi-billion dollar bail out but this is a better proposal that the one that would strip homeowners of their right to due process.

(all emphasis is mine)

Getting Away With Fraud But Only If You’re A Bank

You can get away with defrauding people of possibly trillions of dollars but don’t do it if you’re a borrower or undocumented immigrant working on the banker’s estate.

The Department of Justice: Indicting Immigrants, Ignoring Wall Street Crooks

by Richard (RJ) Escow

If you’re a banker who bought your estate with the millions you made from mortgage fraud, relax. The Justice Department isn’t looking for you. But if you’re an illegal immigrant who’s working on that banker’s estate, look out. The Department of Justice is ignoring your boss and devoting most of its resources to catching you.

And the Justice Department’s “mortgage fraud” unit doesn’t prosecute bankers. It protects them.

Joe Nocera of the New York Times contrasts the legal treatment that was given to one high-flying borrower with that received by Angelo Mozilo, CEO of the fraudulent lender Countrywide. But if stories like this one are bad, the numbers are even worse.  

If you also take a qualitative look at some of the federal government’s other well-publicized mortgage fraud efforts, like its “Stop Fraud” website, the picture becomes pretty stunning — if not downright infuriating.

Mortgage Brokers Go Free While Mortgage Customer Goes to Jail

by David Dayen

Joe Nocera’s story over the weekend about a man thrown in jail for signing his name on a liar loan is a textbook example of the two-tiered system of justice in this country. On the one hand you have the banks, who systematically committed fraud on millions of loans, and for their trouble received hundreds of billions in bailout money and access to cheap money. On the other hand you have a customer, who gets taken to jail for his one loan transgression. Never mind that for many millions of customers, they didn’t even know they were lying on their loans; shady mortgage brokers falsified their records, forged their signatures and altered the terms and conditions repeatedly during the run-up of the housing bubble. And that’s possibly true of Charlie Engle as well, as Nocera illustrates.

As for the loans themselves, on one of them Mr. Engle claimed an income of $15,000 a month. As it turns out, his total income in 2005, according to his accountant, was $180,000, which amounts to … hmmm …$15,000 a month, though of course Mr. Engle didn’t have the kind of job that generated monthly income. (In addition to real estate speculation, Mr. Engle gave motivational speeches and earned around $50,000 a year as a producer on the hit show “Extreme Makeover: Home Edition.”)

   The monthly income listed on the second loan was $32,500, an obviously absurd amount, especially since the loan itself was for only $300,000. It was a refinance of a property Mr. Engle already owned, allowing him to pull out $80,000 of the $215,000 in equity he had in the property.

   Mr. Engle claims that he never saw that $32,500 claim and never signed the papers. Indeed, a handwriting analysis conducted by the government raised the distinct possibility that Mr. Engle’s signature and his initials in several places in the mortgage documents had been forged. As it happens, Mr. Engle’s broker for that loan, John J. Hellman, recently pleaded guilty to mortgage fraud for playing fast and loose with a number of mortgage applications. Mr. Hellman testified in court that Mr. Engle had signed the mortgage application. Early this week, Mr. Hellman received a reduced sentence of 10 months, less than half of Mr. Engle’s sentence, in no small part because of his willingness to testify against Mr. Engle.

The specifics of the case are quite disturbing – the IRS man with an axe to grind, the confused jury – but the general impression is perhaps worse. A loan is a contract between two people. When that loan is fraudulent, to the extent that the fraud is willingly entered into by both parties, they should in any reasonable world share the blame. But not only did Engle suffer disproportionately by losing all his equity when the bubble popped, he lost his personal freedom in a crime that his mortgage lender was all too happy to facilitate and may have even perpetrated.

This is the Obama administration Justice Department at work. Meanwhile the banksters are now trying to keep this all out of court:

Are Banks Scheming to Gut the Role of the Courts in Foreclosures?

by Yves Smith

I may be overreacting but given the sorry behavior of banks throughout the crisis and its aftermath, better to be vigilant than sorry.

The Wall Street Journal provided a very sketchy summary of the counterproposal that the banks will put on the table in the foreclosure fraud settlements this week:

   The 15-page bank proposal, dubbed the Draft Alternative Uniform Servicing Standards, includes time lines for processing modifications, a third-party review of foreclosures and a single point of contact for financially troubled borrowers. It also outlines a so-called “borrower portal” that would allow customers to check the status of their loan modifications online.

   But the document doesn’t include any discussion of principal reductions. Nor does it include a potential amount banks could pay for borrower relief or penalties.

This seems innocuous, right?

Think twice. It depends on what they mean by “third party review of foreclosures”. I strongly suspect that the intent is to pull as many contested foreclosures as possible out of the court process, particularly those that involve chain of title issues, since enough adverse rulings have the potential to blow up the entire mortgage industrial complex.

Yup, getting away with fraud unless you’ve already lost your shirt or you have no papers and work for a banker. You rock, Mr. Rule of Law.

The Foreclosure Mess: Bigger and Worse

On January 7, the Too-Big-To-Fail Banks got some really dreadful news in the form of a ruling from the Commonwealth of Massachusetts Supreme Court.

The state supreme court has ruled against the banks and upheld a lower court order that nullified foreclosures by US Bancorp and Wells Fargo, on the grounds that neither bank had the legal right under Massachusetts law to foreclose. Today’s ruling has far-reaching consequences for the banks and the housing market in general, as it throws into serious question the legal soundness of millions of mortgages in the US if, as expected, courts in other states come to similar conclusions as the Supreme Judicial Court of Massachusetts.

This is not new and, as ek hornbeck explained in his diary, not easily appealed. This has set the banks scrambling for solutions because they may now be liable for trillions of dollars and, very possibly, insolvency.

One proposal is from a Wall St./Bank think tank, The Third Way, which has some very close ties to the White House. President Obama’s new Chief of Staff, Bill Daley, as on its board of directors. Can you see where this is going? Right, another bank bailout at the expense of the tax payer and, as proposed by The Third Way, undermining fundamental property law that our entire economic system is based on:

This proposal guts state control of their own real estate law when the Supreme Court has repeatedly found that “dirt law” is not a Federal matter. It strips homeowners of their right to their day in court to preserve their contractual rights, namely, that only the proven mortgagee, and not a gangster, or in this case, bankster, can take possession of their home.

This sort of protection is fundamental to the operation of capitalism, so it’s astonishing to see neoliberals so willing to throw it under the bus to preserve the balance sheets of the TBTF banks. Readers may recall how we came to have this sort of legal protection in the first place. England learned the hard way in the 17th century what happens with low documentation requirements: abuse of court procedures, perjury and corruption become the norm. Parliament enacted the 1677 Statute of Frauds to establish higher standards for contracts, such as witnessing by a third party, to stop the widespread theft of property that was underway.

The memo completely ignores the harm to investors from the bank mistakes and lacks any provisions for damage to investors to be remedied. Moreover, denying borrower rights removes their leverage to obtain deep principal mortgage modifications, which for viable borrowers produces lower losses than costly foreclosures and sales of distressed property. Thus this shredding of contractual protections in mortgages not only hurts borrowers but also harms investors.

So to save the banks from their own, colossal abuses of contracts that they devised, the Third Way document advocates Congressional intervention into well established, well functioning state law. This is a case where these matters can and should be left to the courts and ultimately state AGs to coordinate the template of a more broadbased solution.

Mike Lux at Open Left points out two simple solutions:

To once again bail out the bankers, this time by changing real estate law in a way that hasn’t been done since the 1670s, would be a far bigger deal than even the trillions in bailout dollars the TARP and Fed gave these banks in 2008/9. But the bankers and their allies like Third Way will try to present this as a simple fix to some minor paperwork problems. Look, if these paperwork problems were so minor, we wouldn’t need the fix they are proposing: the banks would get nicked a little in a few cases where they screwed up a little bit of paperwork, and everyone would go on their way. But they have made a Texas-sized mess of the entire mortgage title system in their haste to make money, and it is time to pay the piper.

What’s the solution? We should start with a foreclosure freeze while the government sorts through the mess and the state attorney generals finish their negotiations with the big banks. Clearly, a massive amount of mortgage write-downs to underwater homeowners to reflect current housing prices makes a ton of sense, and would dramatically cut the need for foreclosures, taking some of the pressure off the system. Once those two steps are taken, hopefully the AGs can cut a good deal for the American people to make things work better going forward.

The problem with sensible pro-middle class solutions like this is the incredible political power of these big banks. Here’s the deal, though: politicians hate the idea of having to bail these guys out again. If progressives can make clear that any legal changes the bankers are trying to push through on mortgage and title law are just one more big bailout of the big banks, we can win this fight. Let’s hope we do, because the stakes are pretty damn high.

Some of that “incredible political power” now has the very close daily attention of President Obama. As Han Solo would say, I’ve got a bad feeing about this.

Housing Prices in Free Fall

Remember that housing/mortgage/fraud crisis?  Well, it’s still here and now getting worse.

Home Prices Falling Fast, Eroding American Wealth And Threatening Recovery

Plunging home prices hammered household finances in the third quarter, eroding homeowners’ wealth and making them more vulnerable to foreclosure. As prices are expected to continue falling, the economic recovery could face a major stall.

Millions of homeowners saw their most valuable asset decay between July and September, according to recently released data from the Federal Reserve, as they lost a portion of the stake they can claim in their homes. A series of new reports reflects home prices are continuing to decline, increasing the pressure on America’s tepid housing market. Until the market finds a bottom, the foreclosure epidemic will feed upon itself, analysts say, as foreclosed properties drive home values down. With the unemployment rate hovering near 10 percent, and with companies showing historic reluctance to hire, the housing drag poses a significant impediment to an economic recovery.

Today Dan Froomkin wrote this at the Watchdog Blog:

Time For Real-Estate Watchdogs To Start Howling Again

You might not know it from reading the news, but the nation’s housing prices are in free fall again.

For the many Americans who have (or had) most of their wealth tied up in their homes, the consequences of this will be profound. The effect on nationwide consumption will inevitably be severe. In fact, there are some not inconceivable scenarios in which the housing market could just take the economy down with it again. . . . .

Despite the fact that the nation is officially in a period of economic recovery, the latest data show that home prices are diving. One recent survey pegged the decline at 0.7 percent per month; another found prices down 5.8 percent between August and October.

One analysis found  home values will likely drop more than $1.7 trillion this year, on top of the $1.05 trillion drop in 2009. That would bring the loss in wealth to $9 trillion since the June 2006 market peak, when the housing stock was valued at about $24 trillion.

And many market analysts expect prices to drop 10 percent or more in 2011.

The sudden decline starting this past summer is traced in part to the end of the home-buyer’s tax credit, in April. But the real problem is the huge downward pressure caused by the the record number of homes being foreclosed.

Foreclosures depress prices directly –  foreclosed homes are currently selling at a percent discount. They also depress prices indirectly, by creating urban (and in some cases suburban) blight.

Load more