For HAMP’s first two years, the government offered very little public detail about its oversight efforts. It was virtually impossible for the public – or even Congress – to know how well the banks and mortgage servicers were complying with the government’s effort to prevent struggling homeowners from losing their homes. Those years were crucial, because that’s when the vast majority of homeowners eligible for a modification – about three million – were evaluated by servicers.
The documents obtained by ProPublica show auditors finding serious problems at a major servicer during that time. Instead of publicly revealing the findings, Treasury chose to privately request that GMAC fix the problems.
“For two years, they’ve known how abysmal servicers were performing and decided to do nothing,” said Neil Barofsky, the former special inspector general for the Troubled Asset Relief Program, better known as TARP or the bank bailout, which provided the money for HAMP.
“It demonstrates that if you have a set of rules for which compliance is completely voluntary and no meaningful consequences for those who violate them, having all the audits and reviews in the world are not going to make a bit of difference,” he continued. “It’s why the program has been a colossal failure.”
Treasury continued to release few details about its audits until this June, when it began publishing quarterly reports based on the audits’ results. The public report showed what Treasury called “substantial” problems at four of the ten largest servicers – Bank of America, JPMorgan Chase, Wells Fargo, and Ocwen – and Treasury for the first time withheld taxpayer subsidies from three of them.
The Fed’s annoucement of buying longer-term treasuries is a nothing-burger for housing. Any benefit of lower mortgage rates will be scooped up by the lenders, not us. You might see an occasional high-3% offering, but is it even necessary?
I don’t think so, buyers are happy with the prospects of 4% mortgage rates.
The Fed/Gov needs to address consumer confidence, and none of these multi-billion dollar T-sprees are going to change how people feel about buying a house. They should do something for the folks who pay their bills on-time, save money in spite of 0% interest, and allow politicians to live cushy livestyles.
What can they do?
1. Ramp up foreclosures.
Don’t just issue a few extra NODs, let’s get down to business. Fannie/Freddie owns the most REOs, and the Fed/Gov pulls their strings. Let’s blow out sxome real volume, and show America that the government is about doing what’s right, for a change.
I am a REO listing agent for Fannie Mae, and not much is coming my way. This month I receives two more assignments, after a 6-week dry spell. Another 2-bedroom house in City Heights that was in short-sale limbo with a buyer who would have paid more than I’ll get for it. The other is a National City triplex clouded with title issues that will take months, if not years, to resolve.
The powers that be fear that more foreclosures would mean lower prices, why don’t they consider the disgust they are causing with buyers? The erosion of consumer confidence in our leaders is more damaging to the real estate market than expediting the foreclosure process – because plenty of buyers are going to wait this out until the shenanigans are done (chime in if you are one of those!).
The foreclosures are going to happen anyway, it’s just a matter of time – let’s have some market clearing and cause consumer to have more confidence in our leaders!
2. Declare a specific exit strategy from the mortgage market.
The Fed/Gov may not get out altogether, but whatever the policy is, put it on the table and let’s go. Private lenders aren’y going to surface until there is a need. There is no need if the government policy is to coddle the mortgage market.
3. Make decisons
Make specific policy about 1) allowing foreigners with means to emigrate if they buy a house, 2) MID, 3) increase/decrease capital-gains tax, 4) putting the Tan Man in jail.
If people sensed that there was clarity and direction in government policy, they’d be more likely to take positive action. With today’s psuedo-policy, people just want to put their dough in jars and bury it in the backyard.
The definition of leadership is ‘demonstrating the ability to lead’. Now is the time.
Hat tip to Susie for sending this in from thenytimes.com:
The Obama administration is considering further actions to strengthen the housing market, but the bar is high: plans must help 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.
Exactly how a refinancing plan might work is still under discussion. It is unclear, for example, whether people who are delinquent on their mortgages would be eligible or whether lenders would administer it. Federal officials have consistently overestimated the number of households that would be helped by their various housing assistance programs.
A working group of housing experts across several federal agencies could recommend one or both proposals, or come up with new ones. Or it might decide to do nothing.
Investors may suspect a plan is in the works. Fannie and Freddie mortgage bonds had been trading well above their face value because so few people were refinancing, keeping returns on the bonds high. But those bond prices dropped sharply this week.
Administration discussions about housing proposals have taken on added urgency this summer because the housing market is continuing to deteriorate. On Wednesday, the government said that prices of homes with government-backed mortgages fell 5.9 percent in the second quarter from a year earlier, the biggest decline since 2009. More than one in five homeowners with mortgages owe more than their homes are worth. Some analysts are now predicting waves of foreclosures and a continuing slide in home prices.
There is not much time to help the market before the 2012 election, and given Congressional resistance to other types of stimulus, housing may be the only economic fix in reach. Federal programs to assist homeowners have been regarded as ineffective so far, and they are complex.
Some economists say that with housing prices and interest rates at affordable levels, only fear is keeping consumers out of the market. Frank E. Nothaft, the chief economist at Freddie Mac, said the federal action could instill confidence.
“It almost seems to me you want to have some type of announcement or policy, program or something from the federal government that provides that clear signal that we are here supporting the housing market and this is indeed a good time to really consider buying,” Mr. Nothaft said.
The refinancing idea has been around since at least 2008, but proponents say the recent drop in interest rates to below 4 percent may breathe new life into the plan.
“This is the best stimulus out there because it doesn’t increase the deficit, it accomplishes monetary policy, and it reduces defaults in housing,” said Christopher J. Mayer, an economist at the Columbia Business School. “So I think this is low-hanging fruit.” Mr. Mayer and a colleague, Glenn Hubbard, who was chairman of the Council of Economic Advisers under President George W. Bush, proposed an early version of the plan.
The idea is appealing because it would not necessarily require Congressional action. It also would not tap any of the $45.6 billion in Troubled Asset Relief Funds that was set aside to help struggling homeowners. Only $22.9 billion of that pool has been spent or pledged so far, and fewer than 1.7 million loans have been modified under federal programs. But Andrea Risotto, a Treasury spokeswoman, said whatever was left would be used to reduce the federal deficit.
A broader criticism of a refinancing expansion is that it would not do enough to address the two main drivers of foreclosures: homes worth less than their mortgages, and a sudden loss of income, like unemployment. American homeowners currently owe some $700 billion more than their homes are worth.
Got a chance to meet Josh Rosner (co-author, with Times reporter Gretchen Morgenson, of the new book Reckless Endangerment) last night during an appearance on Eliot Spitzer’s In the Arena.
We were brought in to talk about the new investigation of the banks that apparently is being launched by New York State Attorney General Eric Schneiderman, which looks like it might be the first for-real attempt at a prosecution of the systemic corruption that led to the financial crisis.
Schneiderman’s probe reportedly targets the banks’ mortgage securitization process during the bubble years. Morgenson reported that Schneiderman is focused on at least three companies: Morgan Stanley, Bank of America, and old friend Goldman, Sachs.
This investigation has the potential to be a Mother of All Nightmares situation for the banks for a couple of reasons.
For one thing, the decision to go after the securitization process is a total prosecutorial bullseye. This is the ugly heart of the wide-scale fraud scheme of the bubble era.
The business model during this time was a giant bait-and-switch scam. Sleazy lenders like Countrywide and New Century first created huge masses of bad loans, committing every conceivable kind of fraud to get people into loans (from doctoring income statements with white-out to phonying FICO scores to engineering fake appraisals). They then moved the bad loans quickly to the big banks, which pooled them and chopped them up (this is the “securitization” process), sprinkled hocus-pocus math on them, and them sold them to suckers around the world as AAA-rated securities.
The questions Schneiderman will seek to answer are these: did the banks securitize loans they knew were fraudulent, throwing the rotten mortgages into the stew before serving them to customers?
Did they also commit insurance fraud by duping the bond insurers (known as “monoline” insurers) into thinking the mortgages were not as risky as they really were?
And did they participate in the fraud scheme on a more basic level by lending huge amounts of money to the Countrywides of the world, knowing that they in turn would immediately use that money to create the bad loans?
In other words, did the banks finance the fraud in addition to brokering it? The reason this is such a potentially deadly investigation for the banks is that they seemed to be so close to getting away scot free.
There is another investigation into the banks’ mortgage abuses by the states’ Attorneys General, led by Iowa AG Tom Miller, that was rumored to be headed toward a settlement, despite the fact that nothing like a complete investigation has been done.
The expectation for some time has been that the banks would eventually have to pay a significant, but eminently survivable, settlement for abuses during the bubble era. Although the Miller probe was focused on practices like robo-signing and other such documentation abuses, it could theoretically have covered securitization as well.
But if the AGs were to sign off on a friendly global settlement for mortgage abuses prematurely, it would be like a DA offering a millionaire murderer a 2-year plea bargain before the cops even had a chance to interview all the eyewitnesses. It would be a blatantly political arrangement.
Such a desire to get some kind of deal done and sweep the mortgage mess under the rug once and for all seems almost universal among high-ranking politicians, and particularly in the Obama administration, which has acted throughout like it wants more than anything to simply get all of this over with and put in the past.
Schneiderman’s investigation throws a monkey wrench into all of this.
The banks cannot enter into a settlement with 49 states. They need all 50 at the table. But if Schneiderman breaks ranks and goes off on an end-run investigation that plunges right into the rotten core of the fraud era, then the whole pipe dream of an easy settlement vanishes in an instant. This is particularly true since Schneiderman is the most important AG, being from the state of New York, where most of the crime was probably committed.
The amount of money investors lost in this fraud scheme is probably gigantic.
The ill-gotten money the banks made off that same fraud is probably similarly huge. And the damage to society, in the form of mass foreclosures and other losses, is incalculable. If the banks end up being found liable for all of these offenses, they could face truly crippling fines and penalties. This goes far beyond the question of whether one bank like Goldman defrauded a client or two or lied to investigators. This probe could be asking whether the banks’ entire revenue model during the crisis years was based on fraud.
Everything I’ve heard so far indicates that Schneiderman’s investigation is not a publicity stunt and is an in-earnest attempt to get to the bottom of things.
As you may know, there is a proposal before regulators to require a minimum of 20 percent down on all residential transactions. If allowed to take effect, the rule would put home ownership out of reach for middle-income Americans. It would take the average family 14 years to save up the down payment to buy a home. We just don’t need more hurdles. So please take time to visit the REALTOR® Action Center to answer the Call for Action and tell Congress this does not work for our industry or our country.
Republicans in the House of Representatives unveiled seven more bills Friday to reform the government-sponsored enterprises for a total of 15 since March.
Rep. Scott Garrett (R-N.J.) is chairman of the GSE subcommittee and leads the GOP effort to wind downFannie Mae and Freddie Mac. He said Friday the second round of new bills continues the work of ending bailouts for these companies and ushering private capital into the mortgage market.
“We can no longer afford to sit back and allow the ongoing bailout of these failed institutions to continue,” Garrett said. “While special interest groups and the guardians of the status quo may not want to admit it, Fannie and Freddie’s days are numbered. It’s not a matter of if, but when – the quicker we begin the process of dismantling them the better off we’ll be.”
Two other House lawmakers introduced a bipartisan GSE reform bill this week that would wind-down Fannie and Freddie over five years and provide a government backstop for securities issued by five replacement companies funded by private dollars.
A proposed law facing a key vote in Sacramento on Wednesday would require lenders in California to make a decision on mortgage modifications for delinquent homeowners before beginning the repossession process, in effect ending “dual track” foreclosures in the state.
Financial institutions commonly pursue foreclosure even if a borrower has requested a loan modification, a two-track process the lending industry has argued is necessary to protect its investments. But dual tracking is under fire from regulators and lawmakers in the wake of last year’s “robo-signing” scandal, which revealed widespread foreclosure errors.
The California Homeowner Protection Act, authored by state Senate President Pro Tem Darrell Steinberg (D-Sacramento) and Sen. Mark Leno (D-San Francisco), is one of the furthest-reaching efforts to limit the practice. Several other states have passed requirements for third-party groups to oversee mediations between mortgage servicers and homeowners.
The California bill, SB 729, would require a lender to fully evaluate a borrower for a loan modification before filing a notice of default, the first stage in the formal repossession process, and a significant change in the way foreclosures are conducted in the Golden State.
The law would give delinquent homeowners the right to sue their lenders to stop foreclosures if they believe the requirement to properly evaluate their loan modification requests had not been followed. If the sale occurs without the proper evaluation,homeowners would also be given the right to sue for damages or to void a foreclosure sale for up to a year after the sale.
Such a change is necessary in the state because the two-track process often leads to unintended foreclosures by mortgage servicers that “don’t know what they are doing” and often bungle the loan modification process, Leno said in an interview.
“We know of folks not only entering the loan modification process, but folks who have already been accepted, and are making timely loan modification payments, and then getting a knock on their door and being told ‘your home will be sold,'” Leno said. “The stories are many and horrifying.”
“March could be the month where we begin to see the return to the kind of levels of foreclosure activity we would expect given the underlying conditions,” says RealtyTrac’s Rick Sharga. “We actually did start to see increased levels of foreclosures in the non-judicial states in particular California was up, Nevada was up by about 35%. Even some of the states like Florida that had foreclosure activity pretty much seize up show a little bit of forward movement in foreclosures. So the dam might be starting to burst.”
Diana: It’s a slow burst, which means that instead of a big spike, we are going to see foreclosures plateau at a high level for a prolonged period of time. That will only put more downward pressure on home prices everywhere. About three quarters of the top 200 markets in the nation saw their foreclosure activity rise at the end of 2010, year-over-year, so this is not just relegated to the troubled states we’re always talking about, like California, Florida, Arizona and Nevada.
You can argue all you want about new regulations to safeguard the market in the future and pricey penalties to pay for the wrongs of the past, but as foreclosure activity begins to percolate back up again against the backdrop of a still very weak housing market, the industry needs to focus on the present and what exactly they can do to jumpstart home sales and loosen up credit.
Foreclosures in San Diego County are down over the last few weeks, and cancellations went ballistic. Because she doesn’t offer any ideas to jumpstart home sales and loosen up credit, let’s give her a hand.
How to Jumpstart Home Sales:
Publicize the Mortgage Underwriting Guidelines. If people knew the rules, they’d be more interested in trying them on for size.
Publish hyper-local sales data. With precise, relevent data, both buyers and sellers will make better decisions.
Educate sellers about pricing. They are winging it – give them a hand!
How to Loosen Up Credit
Have the cost of mortgage insurance be based on credit score/loan quality.
Have a no-doc EZ-qualifier loan with ample down payment. Whether it’s 30%, 40% or 50% down payments, have something available at regular interest rates for those with high credit scores only.
Publicize the local grants available, and other first-time homebuyer programs.
If they used a few million dollars from the latest servicer penalty to effectively advertise all of the above, we might get somewhere!
Hat tip to kwaping for sending this along, from theAP:
WASHINGTON – The federal government on Wednesday ordered 16 of the nation’s largest mortgage lenders and servicers to reimburse homeowners who were improperly foreclosed upon.
Government regulators also directed the financial firms to hire auditors to determine how many homeowners could have avoided foreclosure in 2009 and 2010.
Citibank, Bank of America, JPMorgan Chase and Wells Fargo, the nation’s four largest banks, were among the financial firms cited in the joint report by the Federal Reserve, Office of Thrift Supervision and Office of the Comptroller of the Currency.
The Fed said it believed financial penalties were “appropriate” and that it planned to levy fines in the future. All three regulators said they would review the foreclosure audits. Under the agreements reached, the lenders and servicers have 45 days to hire an auditor and will “remediate all financial injury to borrowers caused by any errors, misrepresentations, or other deficiencies.” There is no minimum or maximum dollar amount identified.
In the four years since the housing bust, about 5 million homes have been foreclosed upon. About 2.4 million primary mortgages were in foreclosure at the end of last year. Another 2 million were 90 days or more past due, putting them at serious risk of foreclosure.
Critics, including Democratic lawmakers in Congress, say the order is too lenient on the lenders. House Democrats introduced legislation Wednesday that would require lenders to perform a series of steps, including an appeals process, before starting foreclosures.
“I want to know what abuses (the government agencies) identified, which banks committed them and how their proposed consent agreement is going to fix these problems,” said Rep. Elijah Cummings, D-Md., the ranking member of the House Government and Oversight Committee. “Based on what I have read … I am not encouraged at all.”
Sen. Tim Johnson, D-S.D., chairman of the Senate Banking Committee, said the agreements struck were a “step towards addressing the improper and fraudulent practices to which many of the country’s largest mortgage servicers have admitted.”
The other lenders and service providers cited by the agencies include: Ally Financial Inc., Aurora Bank, EverBank, HSBC, MetLife Bank, OneWest Bank, PNC, Sovereign Bank, SunTrust Banks, U.S. Bank, Lender Processing Services and MERSCORP.
Citigroup said in a statement that it had “self-identified” needed changes in 2009 and that it has helped more than 1.1 million homeowners avoid foreclosure.
“We are committed to working with our regulators to further strengthen our programs in these areas and meeting these new requirements,” the company said.
Ally Financial, formerly known as GMAC, said it had not found “any instance where a homeowner was foreclosed upon without being in significant default.”
Without specifically identifying instances of bad foreclosures, the government agencies noted in its report that the “deficiencies in foreclosure processing observed among these major servicers may have widespread consequences for the housing market and borrowers.”
John Taylor, chief executive of the National Community Reinvestment Coalition, a consumer housing watchdog, said the government’s action is a year too late. It does little to help those who are just now wrestling with a foreclosure and those who have already been displaced, he said. Rather than moving swiftly to seize people’s homes, the banks should have done a better job helping people lower their mortgage payments through modification programs, he said.
“This should have happened a long time ago,” he said. “There are so many people who, if they had received a meaningful modification, could have stayed in their homes.”
The only bank that has been penalized for mortgage servicing lapses got slapped for doing the opposite of what state attorneys general have been demanding.
Bank of America Corp. was penalized in the fourth quarter for delaying foreclosures — not for moving too quickly. B of A expects to pay an estimated $230 million of “compensatory fees” to Fannie Mae and Freddie Mac for the lag.
Now, experts are wondering whether the absence of any regulatory fines amounts to a green light to speed up the processing of foreclosures as long as the paperwork is in better order.
“It’s ironic that servicers are being fined for not foreclosing fast enough but have faced no penalties for their poor performance on loan modifications and not helping borrowers,” said Steven Gillan, the executive director of the American Alliance of Home Modification Professionals, an Astoria, N.Y., company that helps servicers with the government’s loan modification program.
Regulators have failed to punish servicers for noncompliance with the Home Affordable Modification Program because, they say, they lack the authority to assess penalties.
Fannie has assessed similar fees against other servicers for dragging their feet in completing foreclosures within its prescribed deadlines, said Maureen Davenport, a Fannie spokeswoman, but it has not disclosed the names of the other servicers or the amount of fees assessed.
Whether servicers should pay fines — and how much — for lapses is a focal point of settlement talks with state attorneys general and federal banking regulators.
Cease-and-desist orders are expected early this week from federal regulators against the top 14 mortgage servicers, but they are not expected to include any monetary penalties. Instead, the regulators likely will demand servicers hire more staff or slow down the foreclosure process.
For HAMP’s first two years, the government offered very little public detail about its oversight efforts. It was virtually impossible for the public – or even Congress – to know how well the banks and mortgage servicers were complying with the government’s effort to prevent struggling homeowners from losing their homes. Those years were crucial, because that’s when the vast majority of homeowners eligible for a modification – about three million – were evaluated by servicers.
