The Only Victims in the Foreclosure Mess Will Be Taxpayers
In modern politics, if you have a better narrative than the other guy, your chance of swaying the public at large to your point of view increases substantially.
As we have seen, the narrative doesn’t necessarily have to contain facts, or even represent the truth. What matters is if it sounds plausible and plays effectively to the preset prejudices and opinions of the majority.
In this respect, the two competing narratives involving the foreclosure mess may both be successful in demonizing pet targets like big banks or ACORN. But as far as reflecting the reality of the problem, both narratives come up considerably short.
On the left, it’s heartless, greedy banks foreclosing illegally on tearful, innocent homeowners, throwing children and grammas out in the street for no reason hardly at all. On the right, it’s sinister forces manipulating the system in order to allow deadbeat homeowners to remain in houses as a result of nothing more serious than a paperwork snafu, despite the fact that they should long ago have been foreclosed upon and evicted.
Compassion versus personal responsibility. Class warfare versus the politics of resentment. As political narratives, both succeed in playing to the emotions and preconceived notions of their respective partisans. But as commentaries on what is actually happening, they are wildly off base.
By any measure, we are facing an extremely serious crisis that not only affects foreclosures, but mortgage securities, the financial viability of banks that are still “too big to fail,” and, most importantly, the rule of law in America. Silly, pretentious attempts to gain political points in this crisis will only make it more difficult to act when the crunch comes.
Is a crunch coming? The uncertainty alone is already affecting the housing market, bank stocks, the credit markets, and the economy in general. And until a way can be found out of this mortgage quicksand, it is likely that those trends will continue, threatening to throw the economy back into recession and perhaps even initiating another financial meltdown similar to the one we experienced in September of 2008.
What exactly happened and why? In large measure, we are suffering a paperwork hangover from the mortgage security binge of the first years of the century when mortgages were pooled and sold in chunks to investors, ostensibly to spread the risk. (A good primer on the crisis in foreclosures can be found here.)
Here’s where things get tricky. When a mortgage is securitized, the investors in the mortgage bonds don’t get assignments or notes. The investment vehicle doesn’t get the assignments or notes either. Instead, the physical notes are typically sent to a document repository company. The transfer of interests is noted in an electronic database.
But during the height of the housing bubble, investment banks were churning out mortgage bonds in such a frenzy, sometimes the assignments never got executed and mortgage notes never got delivered. Keep in mind that this was during the years when lenders were giving out low-doc and no-doc mortgages. It was inevitable that the fast and loose and slightly documented culture would not stop at the mortgage originator but stretch all the way through the process.
Fast forward to the housing collapse and millions of loans going into default. The banks were overwhelmed with a tsunami of paperwork and employees, and under pressure to keep the process moving forward. They ended up falsifying signatures, not reading what they were signing off on, failing to attach the proper “assignment” papers to the foreclosure docs, and allowing other irregularities that threw the entire foreclosure process into question.
…and you WHAT!? You bought a house for CASH!?…money that was YOURS!?…
…..suckahhhh!!
And I feel like a sucker for continuing to pay my mortgage even though my house is worth less than half what I still owe on it.
Can anyone say “Government Bail Out?” I’m sure that if this happens once again, especially during a lame-duck Congress, the Democrats can kiss not only the White House goodbye in 2012, but most of Congress for a generation to come. This may be unfair because there are so many parties that are guilty in this mess, but all the public will see is yet another government bail out forced through Congress by the Democrats before they are thrown out of office. In short, they may not be totally wrong for doing it, but it will look really, really, bad.
But I thought St. Barack was supposed to solve this mess? Wasn’t he and his team of the “best and the brightest” supposed to be able to solve just about anything? “Competence” over experience was what the American public was sold on during the election (and put an emphasis on the word “sold”). Who cares that he had abosulutely no experience in running anything, he was the editor of the Harvard Law Review. My God, doesn’t THAT qualify you to be President of the United States and the leader of the greatest economy in the world?
November. Start putting an end to all of this in November. It’s the only hope we have.
So I’m curious, what would be a proper Tea Party position on this issue? I would think it would be to support contract law and let the banks suffer the consequences. I guess this might be the first big issue to see if those elected in November will “walk the talk”.
I see your point about there being only villains in this story and that Congress’s likely fix would be terrible policy. But what would you propose?
“Narrative.”
This author seems to have learned this word only last week, and is intent on showing all of us “plebes” down here just how wise he is.
Sorry, but when a article on this topic can’t bring The Community Reinvestment Act of 1977 and Bill Clinton’s “steroid changes” thereto to the fore, I can only sigh at the tepid attempt at “look at me, I’m so smart!” journalism.
Granted, Rick Moran is no Ruben “Mow My Lawn!” Navarrette on the scales of journalistic ideology, but his works reflect a thinking which seems to ache for – oh, the YEARNING! – recognition by fellow meely-mouthed propagandists like Noonan, Brooks, Parker.
This sort of pap no longer is accepted by thinking readers as just another perspective, but rather seen as a dying gasp of those “go-along-to-get-along (on their way to Hell)” writers. Let THEM take that road to Hell, we are done with them. PJM would be well to take note.
Agreed, Ed. Any article that attempts to list the mortgage crisis villians and fails to mention the Community Reinvestment Act, Congress, Chris Dodd and/or Barney Frank is just another pile of excrement. Peddle your delusions somwhere else, Rick.
All those people with MBAs and JDs, and they can’t keep their paperwork striaght. An education is good for what exactly?
Sounds kind of like the blanket amnesty granted by Reagan to “solve” the illegal alien problem in the ’80s. There’s a window we can peek through to see how well this will work out.
Yes, but….
Rick, I believe that it is important to peel the onion down a few more layers. The enticement to purchase these toxic loans, I believe, balances the villains on the scales a bit.
In fact, the Director of the FDIC outlined the commonplace situation precisely:
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“It was not until 2008 that the FRB issued a more extensive regulation using its broader HOEPA authority to restrict unfair, deceptive, or abusive practices in the mortgage market. The new regulation, effective in 2009 and 2010, covers closed-end mortgage loans that meet a new definition of “higher priced” mortgage loans. The definition is designed to capture closed-end loans in the subprime mortgage market, and is set by the FRB based on a survey of mortgage rates currently published by Freddie Mac.
For this new category of higher priced mortgage loans, these changes address many of the abuses which led to the current housing crisis and help assure that mortgage borrowers have stronger, more consistent consumer protections, regardless of the lender they are using or the state where they reside. The rule imposes an “ability to repay” standard in connection with higher-priced mortgage loans. For these loans, the rule underscores a fundamental rule of underwriting: that all lenders, banks and nonbanks, should only make loans where they have documented a reasonable ability on the part of the borrower to repay. The rule also restricts abusive prepayment penalties.
As described in our January 8, 2010 comment letter on the FRB’s pending mortgage rulemakings, while these standards represent a positive step toward getting back to basics on responsible mortgage lending for higher-priced mortgage loans and traditional HOEPA high cost mortgages, we believe that an ability to repay standard should be required for all mortgages, including interest-only and negative-amortization mortgages and home equity lines of credit (HELOCs). Interest-only and negative-amortization mortgages must be underwritten to qualify the borrower to pay a fully amortizing payment. Otherwise, the consequences we have seen during this crisis will recur.
Similarly, the practice of making a HELOC without taking into account the consumer’s ability to repay, based on the fully drawn line, or without taking into account the consumer’s other obligations, should be prohibited. When unaffordable mortgage loans are made, the individual borrower and broader communities are subjected to unnecessary risks. FDIC-insured banks are already subject to this type of prudential standard. To promote a more even playing field and prevent circumvention of this requirement by nonbank lenders, we believe such an ability to repay standard should apply across-the-board.”
The “exotic” and “high priced” loans that were being doled out to homebuyers, was ALMOST ALWAYS sold with the promise that “we will simply replace, restructure, or take out this loan before it recasts at a higher rate”. The problem with that “promise” was…if there is no equity in the house, the homebuyer won’t meet the NEW guidelines for a refinance loan and they will be stuck with the higher payment.
BECAUSE the Democrats were so hell bent on getting “redistributive homeownership” installed and forced down the throats of lenders (who were being threatened with civil rights suits involving charges of “redlining and disparate impact”), the lenders felt compelled to soften the lending standards. This is de facto “homeowner affirmative action”.
The trap was set, baited, and snapped shut when the housing bubble burst. Most consumers who could not meet the “old standard” requirements for homeownership were given loans for which:
a) they had to put down nothing or next to nothing…giving them NO starting equity or very little;
b)were given “no doc or low doc” paperwork to fill out. Often called in what is now gallows humor, “NINJA loans”. (No income, no job, no assets);
c)In the case of the Negative Amortization, or Pay Option Arm, or Pick-A-Pay loans, the new homeowner had a “choice” of four payments. They could pay off at a 30 year fully amortized rate, a 15 year accelerated amortized rate, an interest only payment, (where they simply paid the interest and not the principle) OR…THEY COULD PAY A “minimum payment” rate.)
This last payment option, was LESS than the interest on the loan. In other words, the homeowner could “borrow more” against the “equity” in the home each month, without having to reapply for a refinance. These were often given at “teaser” rates of 1-2%.
Understand this clearly…a homeowner could put nearly nothing down, could provide little or no documentation of income, job status or assets and could obtain a loan that only asked for 1-2% per month….that is, until it recast.
When these homeowners asked (and nearly ALL of them did), what happens when this “teaser” runs out?…they were told, “don’t worry, we will refi you out of this loan and get you into a new one. Except, that was not possible. The homeowners didn’t meet the new standards.
Sheila Bair went on to say this:
“These new classes of mortgage products were especially profitable to originate since virtually all of them carried high fees and high implicit rates of interest. Homeowners found them appealing because many included an initial period of artificially low payments and, for some, the underwriting standards allowed them to qualify for a mortgage when traditional products and underwriting criterion would deny them credit.
A similar dynamic was at work in the mortgage markets. Mortgage brokers and bankers went into the subprime and other risky markets because these markets generated high returns not just for investors but also for the originators themselves. The standard compensation practice of mortgage brokers and bankers was based on the volume of loans originated rather than the performance and quality of the loans made. From the underwriters’ perspective, it was not important that consumers be able to pay their mortgages when interest rates reset, because it was assumed the loans would be refinanced, generating more profit by ensuring a steady stream of customers. The long-tail risk posed by these products did not affect mortgage brokers and bankers incentives because these mortgages were sold and securitized. The lack of a downside in these compensation schemes ultimately hurt both those who could not pay their risky mortgages and the economy.”
http://www.fdic.gov/news/news/speeches/chairman/spjan1410.html
Something else that should be part of the clean up would be to make it illegal to sell a mortgage. If you get a loan from B of A, then B of A will be the owner of that mortgage till it is paid off or bankrupted out of. That way everyone knows who owns the loan and none of this crap going on with “gee, you don’t own my mortgage, I don’t have to pay you” will happen again.
Four Banks (out of more than 9000 operating in the US) control the majority (over 50%) of the mortgage market. (Anyone care to challenge me on that?) B or A; Chase; Citibank; and Wells Fargo. All too big to fail (and now,thanks to gov’t bailouts, bigger than ever). I say this time let them fail. Chop them up into bite sized chunks and let the other 9000 banks gobble them up…. and all Americans should resolve to never do business with these big government bedfellows ever again.
Yes ~ let the banks involved fail due to poor business decisions, and whatever happens after that point to be determined by market forces. Also, how about finding out who is on the board of MERSCorp? Who made the decisions at MERSCorp that led to this mess? “Overwhelm” with the amount of paperwork is an explanation that’s hard to swallow, and seeks to cast the blame on the employees, who are more than likely to do just what they’re told to do. Expect lies. Expect lack of disclosure. Expect that those responsible are so powerful that they may actually succeed in having us think the culpable parties are all just a bunch of overworked, bumbling idiots.
With the chain of title apparently having been broken on tens of thousands of mortgages and the banks not in a legal position to foreclose or to have foreclosed on the ones they already have it could turn out to be a catastrophic boondoggle. Legally with the title chain having been broken these mortgages/notes are null and void having no legal claimant to pay the delinquent homeowner now owns his house.
The dilemma is of course now legally the note holders, banks and other financial institutions cannot collect on these outstanding notes and these home owners now legally own their houses. All those that are current in their payments are still responsible to pay for their house. Explain that one Mr. Obama.
This chain of title having been broken is the reason the banks stopped foreclosing, not because they were good corporate citizens and wanted to give the home owner a break. They are not good guys, just ones having been caught with their hands in the cookie jar of sloppy book keeping and illegally foreclosing on homeowners to protect their financial asses. What a lot of them are guilty of is hiring legal firms called foreclosure mills that did actually, deliberately and categorically fake and falsify documents in order to expedite these foreclosures and evictions.
What sickens me the most is this will have a political solution that will be every bit as sleazy as the problem ever was. The senate will most definitely arise at a solution that circumvents all reasonable and honorable solutions to arrive at one that will save their own political asses.
Justification? We did it to save our country from financial collapse, where have we heard that one before. BASTARDS ALL.
If they are going to let the home”owners” who are delinquent keep their houses, they should let EVERYONE keep their houses (primary residence only) without continuing to pay for them.
“Going Dillinger”
http://www.practicalstate.com/?p=2891
Cheers
Point Number 2:
After the toxic loans were made (with the promises to refi out of them when they were set to recast), and all the “bundling” was done…Fannie and Freddie cooked the books and Barney Frank and Chris Dodd ran interference for them.
When President Bush wanted to dig into the mess, Frank stood up and said “move along, there’s nothing to see here”. His significant other, Herb Moses was the assistant director of “product initiatives”….knew or should have known about the impending collapse. He told the American people a bald-faced lie, saying there was no problem.
This lead to the total collapse of the residential real estate industry and the millions of people who work in that industry, directly or indirectly. And…it lead to the “loan modification” attempt to cure a part of the problem.
Only, there was a hidden agenda behind the “loan modification” programs. Neither the banks, the investors NOR THE GOVERNMENT was terribly interested in helping people get loans they could afford. It was a stall, hinder and delay tactic…to let the foreclosures bleed out slowly, rather than to crash the system all at once.
Staffers at Housing and Economic Rights Advocates (HERA), which is described as “a statewide, not-for-profit legal service and advocacy organization”, developed the language found in SB 1275. HERA drafted the proposal that became the basis for SB 1275, “in response to its frustrations over the treatment received by borrowers from their servicers, and their belief that many borrowers who are eligible for loan modifications are failing to be offered those modifications, before being foreclosed on by their lenders.”
In the draft of legislation, HERA, and many other persons and organizations who advocate for homeowners, say that they have seen all of the following:
• Borrowers told that they cannot be helped until they become delinquent, then told they cannot be helped because they are delinquent.
• Borrowers put on hold by their servicers for lengthy periods of time.
• Borrowers disconnected after long waits on hold.
• Servicers losing or misplacing borrowers’ loan modification paperwork, sometimes repeatedly.
• Servicers giving borrowers conflicting answers regarding the status of their loan modification application.
• Servicers willing to provide borrowers verbal denials regarding eligibility for a loan modification, but unwilling to provide a written denial letter.
• Servicers unwilling to explain to borrowers the reasons they were denied a loan modification.
• Servicers foreclosing on homes, while borrowers are under consideration for a loan modification.
• Servicers unwilling to consider options other than foreclosure, after a borrower is denied a loan modification.
Both homeowners and housing counselors throughout California continue to report that they face “seemingly insurmountable obstacles when they contact loan servicers for assistance”. Including:
• Delays of many months to over a year in processing applications.
• Financial and other documentation lost by the servicer.
• Repeated requests from the servicer for the borrower to send in additional documentation or to send in the same documentation over and over again.
• Miscalculations or misreading of income leading to mistaken denials.
• Misapplication and misrepresentation of investor guidelines and restrictions leading to mistaken denials. Inconsistent, inaccurate and contradictory information provided to borrowers about their rights and obligations.
• Foreclosures conducted while a modification application is pending (or while a trial plan is in effect) because the servicer failed to instruct the foreclosure trustee to postpone the sale.
• Unnecessary foreclosures conducted after an erroneous denial.
Here’s another HERA quote…
“In the vast majority of cases, borrowers and their advocates are confronted with an overwhelming lack of information and communication from the servicer – about the status of their applications, the documentation they need to provide, and, in the event a borrower is notified that an application has been denied, about the reasons for the denial. This lack of transparency makes it nearly impossible for borrowers to figure out where they are in the review process or assess whether a denial is erroneous.”
Point of No Return:
In August, Geithner and Treasury met with a number of bloggers “off the record” or “on deep background” and laid out essentially what was the truth of the matter. The homeowner was not the real target to be helped, the banks were.
http://www.interfluidity.com/v2/933.html
On HAMP, officials were surprisingly candid. The program has gotten a lot of bad press in terms of its Kafka-esque qualification process and its limited success in generating mortgage modifications under which families become able and willing to pay their debt. Officials pointed out that what may have been an agonizing process for individuals was a useful palliative for the system as a whole. Even if most HAMP applicants ultimately default, the program prevented an outbreak of foreclosures exactly when the system could have handled it least. There were murmurs among the bloggers of “extend and pretend”, but I don’t think that’s quite right. This was extend-and-don’t-even-bother-to-pretend. The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks. Policymakers openly judged HAMP to be a qualified success because it helped banks muddle through what might have been a fatal shock. I believe these policymakers conflate, in full sincerity, incumbent financial institutions with “the system”, “the economy”, and “ordinary Americans”. Treasury officials are not cruel people. I’m sure they would have preferred if the program had worked out better for homeowners as well. But they have larger concerns, and from their perspective, HAMP has helped to address those.
See also:
http://rortybomb.wordpress.com/2010/08/23/interfluidity-at-treasury/
Darrell Issa has tried to investigate, so far to no avail.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aK_QEqlvnBPg
http://thehill.com/blogs/congress-blog/lawmaker-news/121259-congress-must-oversee-executive-branch-rep-darrell-issa
“On HAMP, officials were surprisingly candid…”
People on hamp can be very candid. They tend to talk alot because that is one of the effects of hamp. They also like to eat alot of snacks which are called the munchies. (Someone actually named a program “HEMP” err… “HAMP.” Hehehehe)
I have a problem with this:
“Here’s where things get tricky. When a mortgage is securitized, the investors in the mortgage bonds don’t get assignments or notes. The investment vehicle doesn’t get the assignments or notes either. Instead, the physical notes are typically sent to a document repository company. The transfer of interests is noted in an electronic database.”
It isn’t in the analysis but the premise: that mortgages are always ‘securitized’ via the bond market. This was not always the case and is an invention of the Nixon Administration after HUD asked for this capability to be created in GNMA: Ginnie Mae. The result was the slow death of the traditional, local banks that actually took on mortgages and had an interest in the local community and the actual ability of the mortgage recipient to pay back the mortgage. The intervention of the federal government started a hard shift away from this mortgage model, well known all the way up through the 1960′s, to the ‘securitized’ market that got its blessing from Ginnie Mae. Documents from the FDIC and other agencies presented by Edward J. Pinto to the House Subcommittee on Housing and Community Opportunity on 08 OCT 2009 clearly show the change in trends after the creation of Ginnie Mae.
The FDIC analysis is also very clear that changes in retirement investing with the 401(k) changed the household outlook on what was a ‘safe’ investment. A 401(k) could be protected under bankruptcy proceedings while a house could not, which meant that gambling with higher price homes now meant that you could not be wiped out totally and your ‘safe’ investments would continue on regardless of how much you ‘invested’ in homes. The result is a slow but steady change in the Loan To Value ratio over the 1980′s and particularly the 1990′s as Congress encouraged more and more risky lending via Fannie and Freddie and ‘securitized’ by Ginnie. The federal government, then, takes part in not only getting the money out, but in determining risk and all of that is decided by politics, not market forces.
The long-term result of this had two major problems: the inability of S&Ls to compete against national banks that could spread risk throughout their larger sturctures and the forcing of the small banks to start getting into riskier, though more lucrative, investment schemes. That is a change in focus from a place where the local banks had a great amount of knowledge (the local economy, local housing markets, and lending risk to individuals) to one where they didn’t (large scale market investment in securities). Unable to compete with the larger banks and taking un unsustainable risks, the S&L scandal broke and further distanced the ultimate mortgage holder from the lender via the ‘securitized’ market of trading mortgages with a given government influenced rating.
What should be done?
First let the contracts go through as they are signed by adults. That is an adult responsibility and it may mean needing to do this thing known as ‘renting’.
Second is to get the government out of the home lending market in the forms of Freddie, Fannie, Ginnie, and the Dept. of Agriculture lending program to ‘farmers’ who don’t farm but give out mortgages based on the property type. Liquidate Fannie, Freddie, Ginnie and sell of their assets so that the final risk is spread in a market based environment and the government can get some cash from selling the physical assets of these government pseudo-corporations.
We will still have the 401(k) problem of that being a ‘protected asset’, but without the problem of government deciding that lenders need to lend to those who can’t afford the loans and then classifying those loans as ‘safe’ we may be able to live with it. The home used to be seen as a place to live, have shelter and raise a family, not as an ‘investment’ that was expected to gain in value. Before the 1960′s homes only appreciated about 1-2% per year, and there were better investments than that around. Getting back to that point means letting the market evaluate ‘risk’ and ending the government backing for ‘securitization’ as it has no business doing that for land held in the States.
When I went to buy a house I had to pay for an agency to provide me a guarantee that I would have clear title. I had to pay for that service before anything could be formally agreed on. As a buyer, I now had clear title with a lien or bank morgage on it. Let me emphasis a lien. That lien certified in good faith that I would diligently make my payments. On the other end, the bank was expected to keep track of my payments and was the legal holder of the paper backing that agreement. My first notice that something was amiss was that the morgage had been sold to another party. I know that this is a common practice but it didn’t go down well with me after having established a “relationship” with this bank.
Since then my bank has been taken over by Chase which is a new can of worms. Now here is the rub. Has my bank kept its end of our relationship and kept a good record of our agreement? If it hasn’t, it can’t move to foreclose on me. No court would agree to take a man’s home on just here say. You have to have documentation. Is that fact that I have been paying a loan enough documentation in a court of law. Or is the fact that the bank has lost all necessary documentation enough to break the said contract. Remember, I’m still paying in good faith. Also should I want to sell my property at this time, does this lost contract color my deed and make it impossible to sell my property.
I welcome any and all comment and discussion of this matter.
I’m personally dumb on the matter, despite those nights at the Holiday Inn. I would suggest that you either talk to a lawyer with knowledge in this area – you should get a free half-hour if you find one through the Bar Association – or find a helpful economics professor, maybe at a local state university or college. I don’t know if you are a writer, but maybe you could provide some publicity to such a knowledgeable individual if that will get his/her attention for an interview.
Also, fairly dull perusals of various web sites might help. And Amazon probably has several books on the topic – people write books about all kinds of things.
What a G_d-awful mess. Moran makes a valuable point, one which doesn’t sit well with conservatives but is nonetheless true – that conservatives bear a measure of the blame. Nor did Bush show fiscal responsibility with his spending and miscalculations of war costs. You can say ‘that doesn’t matter because it was necessary for security reasons: essential.’ That’s debatable. That goes back to a discussion of the causes and responsibility for 911, Clinton’s role, the prominence of the Taliban, and so on. A strong argument can be made that it should have been Pakistan, not Afghanistan, that should have been invaded. And the propping up or winking of the Saudis relates to the mortgage mess in the sense that money and greed seem to trump common sense and morality every time. Human folly.
It looks like pols in both parties and the banks all did their part. However, it also appears that Frank, Dodd and friends, including the gov’t bureaucrats of Fannie, Freddie or whoever, did their parts. No doubt the idea of giving mortgages to poor people without any real financial base was mostly a Democrat idea, though I don’t know whether in fact – as people claim – Bush was trying to stop this. Yes, he made some effort…but how much?
There must be some semi-scientific way, in a scholarly book, for people interested in this like Rick Moran, Green and the statistically and conceptually brilliant Zombie to write a book on this. To first put down the ideological biases to the extent that this is ever possible, and analyze away. I suspect that the results will mostly substantiate Moran’s claims – and that is not to say that BHO is not a Marxist America-destroyer at heart.
All this goes to prove that the government does not create value; it only destroys. Government meddling and government “oversight” of anything is all
bad. We need to dismantle the regulatory state and well as the welfare and entitlements. I would rather be ruled by 100 (true) capitalists; than the 100 senators sitting in congress anyday.
I read articles in Business Week and Forbes that business is wary of the the
Tea Party candidates. Could it be that they would lose their seat at the trough?
No, the only one responsible for this mess is the government, which began the meme that home ownership was the “American Dream” and tried to turn it into a right as opposed to privilege. It was the government which passed laws to try and increase the supply of homes and the demand for homes, and the market participants -buyers, sellers, and lenders – obliged to play along. However, let’s not kid ourselves: if pols didn’t get it in their heads to try and manipulate markets, then we wouldn’t have this mess.
It is the logical end result when governments get too involved in markets that it does not understand. If you think this is something, just wait until it gets more involved in energy and finance.
Great Caesar’s Ghost! How in the world, without a clear chain of title and a mortgage satisfaction piece, will any of these properties ever be able to be sold again, except for cash – and caveat emptor? And who would be rash enough to buy one of these properties withourt a clear chain of title?
Take a look at the comments which show up here regarding the self inflicted wounds of the US financial sector, and housing sector: http://disqus.com/telegraph-36d487f3-f39d-482d-8f39-cc6bdc2d044f/
Plus, take a look at what Ireland is doing with banks that frankly have atomized, or vaporized, balance sheets.
The most recent part is this: Concerning Spain. Here’s a few points I noticed on the following website. The article also gives an update on Ireland now that the butchers bill has finally arrived.The base as well as worst case scenarios. Grim reading for Ireland but the 20 billion euros cash held for future pensions is insurance. To give you a scale of how big that fund is for Ireland (pop 4.5 million) it would be the similar to the US (66 times bigger) having 1.320 trillion euros in a wealth fund for future pensions. Ireland is not Greece and will not run out of money. Nor will Ireland return to the markets before early 2011. By the end of Feb 2011 the NAMA process is scheduled to be completed, purging bad debt from the banking system. Incidentally, jobless figures fell in August by just over 5,000 in Ireland. We shall see if this continues. http://notayesmanseconomics.wordpress.com/ From the article: ‘I have written previous articles on here about Spain and some misrepresentation in her fiscal statistics. The debate on Spanish statistics has moved on this morning as according to the Financial Times an email has been doing the rounds suggesting that Spanish GDP has been overstated by some 14.2%.’ It further stated ‘In the FT this: ‘We’ve contacted the INE to discuss.While we’re still waiting to speak to their economists — since they too were on austerity strike on Wednesday…’ Rumour or does it remind you of a country brought to my attention by your previous posts regarding Vanity Fair? Spain are already using their social fund for consumption according to a previous AEP article. If true, the implications are IMHO a potential game changer for the Eurozone. I am not alone. Apparently some months ago it was discussed and options examined at the highest level. A plan B. http://www.telegraph.co.uk/news/worldnews/europe/7837874/Germany-and-France-examine-two-tier-euro.html
The second most recent part is this: Not at all. Things have progressed since that posting. There will be no new lending for Anglo Irish. Instead Anglo Irish will be split into two between a bank holding the deposits and a separate unit to run down and manage those loans not passed to NAMA. This will allow the Anglo Irish liability to be quantified and ‘bounded’ with greater precision for Irish taxpayers. Many people in Ireland and no doubt abroad feel the actions of the previous management led by the now bankrupted Sean Fitzpatrick to have tarnished the Anglo Irish brand. So the bank in time will cease. On moral hazard for banker’s, former Anglo Irish Bank chairman Sean FitzPatrick now has an income of €188 per month, according to documents filed in the High Court as part of his bankruptcy proceedings. Furthermore the Garda is still investigating various dealings concerning Anglo Irish and the actions of Directors but that case is according to a Garda representative a ‘slow burner’. We will see if criminal proceedings will be brought. It would appear many months before this investigation will be completed.
The second oldest part is this: Assets passed to NAMA are discounted when they are transfered from the banks. So 25 billion euros transfered to NAMA has already been discounted in two batches, written off as bad debt at 55% and 62% I believe in the various Irish Banks company accounts, a large proportion of which is Anglo Irish. The remaining batches projected for NAMA transfer, 19 billion Euros in total value is scheduled to be completed by February.The discount applied for the outstanding 19 billion euros NAMA loans to be transferred will be determined at a later date. Note loan assets acquired by NAMA are from all the Irish Banks not just Anglo Irish.Taoiseach Brian Cowen said today it should take no more than 15 years to wind down Anglo’s bad bank. Then it will cease. Brian Lenihan, Finance Minister declined to disclose the cost of the plan, estimates of which have been assessed by the National Treasury Management Agency.It has been reported The Financial Regulator at the Central Bank would determine the capital required by both the savings or funding bank and the asset recovery bank, and these figures will be known by October.So by February, perhaps sooner it appears markets should have a clearer projected total cost as they are demanding.As for my confidence in bank stress tests worldwide, many are clearly little more than stress free PR exercises. Perhaps the sarcasm in my comment did not come across clearly enough. Sorry for any misunderstanding. I’m a little tired and like many in Ireland, more than a little angry about what has transpired.
The oldest part is this: Think of 3 institutions in the future involvement for Anglo Irish Bank.Firstly NAMA, the National Asset Management Agency. They purchase loans, including those considered toxic, from the Irish banks, including Anglo Irish at a discount. The last batch for example averaged a 62% discount. Ireland is I believe over half way through the projected process (NAMA has a projected limit) to clear up Ireland’s banking system. This discount is written off in Anglo’s balance sheet as a bad debt, hence the record loss just announced for Anglo Irish. NAMA who purchase these loans, can recover the full loan amount from the lender(s) if its possible. NAMA also have oversight and can run these assets themselves if needed. Hotels are a prime example. Whether the State will break even or make a profit or loss, time will tell. Paying 38 cents on the euro for the last batch does allow some leeway. These loans are further backed by assets. For example, around 25% of the last batch consisted of property (shops, hotels, etc) around London I believe. Indeed many of the loans purchased by NAMA are outside Ireland. Obviously not worthless despite what rating agencies might say.Second , Anglo Irish new ‘Bad Bank’. This will run down the existing poorer performing loans at the bank. Possibly, I imagine including those prior to any sale to NAMA. The reason, avoiding incurring a bad debt crystalized immediately for the Bad Bank. This process might be a slower asset recovery process but will save Anglo Irish the discount to the State and bad write-off from its balance sheet. Again backed by assets.Third, the better performing loans & assets. The projected future of Anglo Irish ‘Good’ bank. The balance sheet shrunk to about 20% of its current size in initial reports.The whole process will in time (the next year or so I would imagine) ensure better ‘mark to market’ valuations in Ireland’s banking system as assets are accurately reflected.Tell how many other countries will be implementing fair value accounting , FASB 157 to the same degree? Or are many assets in banks valued at the original valuations from years ago? No doubt the various bank stress tests address this problem.According to Eurostat in Quarter 1 2010, Ireland’s GDP rose 2.7%. Yes this is undoubtably a bad time for the Irish State and its banking system. However the problems are being addressed. In the next year or so, Ireland might indeed surprise many.
If the Lender cannot foreclose because of lost/defective paperwork, then the Borrower cannot get clear title to sell the home. Because the mortgage has been recorded as a lien on the home, to sell the home the Borrower must get the lien cleared, which he cannot do because the payments have not been made and because no one knows who has the legal authority to clear the lien on behalf of the Lender. The home remains in legal limbo, with the Lender unable to foreclose and the Borrower unable to sell, but with the Borrower living free of charge in a home that he has not paid for. The solution? Trace the original loan from the Lender to its ultimate destination, as there must be a “computer trail” even if there is no “paper trail”. Whoever currently owns any part of the original loan can legally foreclose on the home.
This is an excellent piece that ultimately agrees with a slightly more pungent piece called “The creativity of the Government to Redistribute Wealth – a Foreclosure Crisis”. It participates of the conclusion here that “those seeking to game the crisis so that events redound to their favor is proving to be far more important than the petty squabbling among factions over who’s to blame.”
But it goes further and into the basic ideology of the Administration that apparently are one of those that are gaming the situation for electoral purposes. Better to read it all at http://www.robbingamerica.com
Rick, you make good points. But I would say that MOST of those homeowners in foreclosure are there because they lost their jobs due to the financial crisis. And THAT financial crisis was caused by the GREED of the banks and investment firms that WILLINGLY, anticipating a government bailout if Fannie and Freddie screwed up, wrote those mortgages and securitized them.
The answer is not to bail out these banks and investment firms more than the TRILLIONS they have already received in one form or another, but to ENFORCE THE LAW and let the chips fall where they may. Let the BIG BANKS AND INVESTMENT FIRMS FAIL if that’s what is to happen and go into Chapter 11 reorganization like we should have allowed GM and Chrysler to do. THERE IS NO BUSINESS THAT’S TOO BIG TO FAIL. The American economy is the largest IN THE WORLD!!
If Congress is allowed to nullify legal EXISTING contracts, then there is NO POWER that can then be denied to it.
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Simply delusional post.
Or, merely another RINO troll?
It’s GOTTA be the GREEDY BANKS, no nooooo…it CAN’T be those GREEDY BORROWERS who were ENABLED due to corrupt Democrat laws!
Most in foreclosure because they “lost their jobs”?! How about the Federal Government’s Community Reinvestment Act and its crony minion Acorn (among others) FORCING banks – upon severe penalty – to loan money to MILLIONS of LOSERS (based on their poverty/race) who NEVER should have received a loan.
Geez. Like I said: DEE-lusional!
Czar, you are not entirely wrong. There was pressure on the banks to make some of those mortgages. But pressure is not the same as a MANDATE which could not have been enforced. The banks KNOWINGLY APPROVED mortgages that they knew were bad. Which legitimate business set themselves up to lose money ? It didn’t happen here either, amigo.
Someone can apply for a loan ALL DAY, over and over. But how can you blame the person’s greed for the APPROVAL of the loan ? The BANK APPROVES loans not the customer. And banks only approve loans when they anticipate making money of which they MADE HUGE PROFITS IN THE SHORT TERM.
Consider that there are THIRTY MILLION people either without jobs or are working part time looking for full time work. How many of these people, who once could afford to pay their mortgages, now find they cannot ?
I asseverate that it was the GREED of the banks and investment firms that got them into this mess. THEY approved the loans. THEY took the risk like any other business. THE LAW MUST BE FOLLOWED! AND NO MORE BAILOUTS !!
.
How does that go again, “There are none so blind as those who WILL NOT see.”
Only “pressure”?! Not a “mandate!?!?
Read the law again.
And THEN you hypocritically claim “the law musr be followed!”
Ha ha. You velly funny guy.
I can only guess Moran needed a few shills at the end of this fiasco to try to salvage face.
FAIL.
The law never mandated that mortgages be given to people who couldn’t afford them. In addition, the whole basis for the law was that banks were doing business in low income communities and therefore had an obligation to proffer mortgages to people in same.
The banks could have closed their branches in these communities and returned the deposits of the people who banked at those branches. Did they ? Greed.
AGAIN, no legitimate business deliberately makes decisions to lose money. And AGAIN, this did not happen here either. This was a corrupt COLLUSION between the liberals in government, who controlled Freddie and Fannie, and the banks – to make money for both. The investment firms were in on it by selling those bogus securities overseas. GREED, GREED, and more GREED. They were never at much risk since Fannie and Freddie, using taxpayer bailouts if necessary – as happened, were the understood guarantor of those loans.
The banks APPROVED, the investment firms SECURITIZED, and they ALL MADE MONEY – in the short term. And they made A TON OF MONEY with taxpayer bailouts and other Fed goodies.
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Follow the LAW! NO MORE BAILOUTS!!
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Oh, Peter, Peter, Peter:
“The law never mandated that mortgages be given to people who couldn’t afford them.”
But there was a hefty penalty to the banks IF THEY DIDN’T make such loans. THE DIFFERENCE BEING…?!?
You RINOs/Moran-shills are sooooooo disappointing.
Reply to Czar’s comment of October 21, 2010 – 1:56 pm (no ‘reply’ link):
Did you read just the one sentence of my reply ? Read the entire reply please.
AGAIN, the banks could have closed their branches in these communities and returned the deposits of the people who banked at those branches. Did they ? Greed.
I am going to leave you with this article, in today’s Washington Post (you may have to signup for a free subscription as I just did), about Fannie/Freddie bailouts:
http://www.washingtonpost.com/wp-dyn/content/article/2010/10/21/AR2010102101941.html
I hope you learned something. Good luck.
.
News Flash: Bank of America Sounds “All Clear”;
In Other News, Santa Charged With Domestic Violence
http://www.practicalstate.com/?p=2910
Cheers
This is technically incorrect. The tax payers don’t have to bail out these banks or the defaulters if the state laws are enforced. The states typically have a simple civil process here:
“Whoever f#$%s up the mortgage first loses.”
Meaning that the proper legal route here is for the court to glance at the docs, declare them a violation of the rules of evidence and summarily award ownership to the person with the title at the courthouse. If the bank never had grounds to transfer title to that owner, then the owner before that one can sue the new occupant for ownership.
Again, no bailout. Simple law enforcement measured in the thousands of dollars, not hundreds of thousands.
Why is this the best route?
1) No bailout from responsible homeowners who didn’t buy too much house.
2) No major increase in welfare from kicking out millions of people from their homes.
3) It would send a powerful message to America’s elite that the rule of law will be enforced, even if it means the functional equivalent of a stripping the carcasses of the major banks.
The rule of law is far more important than anything else here.
From today’s Washington Post:
For those who are listening to the liberals propagating the fallacy that everything is “Bush’s Fault”, think about this: January 3rd, 2007 was the day the Democrats took over the Senate and the Congress:
At the time:
1. The DOW Jones closed at 12,621.77
2. The GDP for the previous quarter was 3.5%
3. The Unemployment rate was 4.6%
4. George Bush’s Economic policies SET A RECORD of 52 STRAIGHT MONTHS of JOB CREATION!
Remember the day…
1. January 3rd, 2007 was the day that Barney Frank took over the House Financial Services Committee and Chris Dodd took over the Senate Banking Committee.
2. The economic meltdown that happened 15 months later was in what part of the economy? BANKING AND FINANCIAL SERVICES!
3. Thank Congress for taking us from 13,000 DOW, 3.5 GDP and 4.6% Unemployment to this CRISIS by dumping 5-6 TRILLION Dollars of toxic loans on the economy from YOUR Fannie Mae and Freddie Mac fiasco’s!
(BTW: Bush asked Congress 17 TIMES to stop Fannie & Freddie – starting in 2001, because it was financially risky for the U.S. economy, but no one was listening).
And who took the THIRD highest pay-off from Fannie Mae AND Freddie Mac? OBAMA.
I cannot believe what I am reading.
Please, guy if you are a journalist… please be aware over every points about the theme you decide to write.
This is the MOST “OUT OF MIND” (to do not say other thing) ARTICLE I ever read in my entire life.
I am Brazilian-American’s journalist and columnist, too.
Because the American Banks, Wall Street greed I come back to Brazil. However, I continue to write a Brazilian newspaper, in Florida, where I used to live. I sold a house in my original country, with money I made in Brazil to could live in USA. I brought foreign money to USA, NOTHING TO DO WITH TAXPAYERS MONEY… I just had 45% off in mortgage. In 2009, I tried to sell my apartment in Florida because I did want to live in country that was in crisis but I find out that the value of the apartment was EXACTLY the amount o my mortgage, it means 45%. The Wamu was supposing me that in 5 years I lost ALL the money I brought from Brazil. I went crazy and ask to talk to the manager. She told me that she could not talk to me because I was ON TIME in the payments. I have to STOP to pay that the Bank will call me to make some agreement about the total amount.
YOU KNOW WHAT HAPPENED????????
The Bank went to bankruptcy and CHASE bought…. AND THEN… They never spoke with me… they never negotiated NOTHING with me… they SUE ME in a Foreclose case.
The lawyer office of Marshall Watson, that today is under investigation, and I am hopping that this thief with license to steal houses by law go to the GAIL… file a foreclosure case. After one year, where I past the worse time in my life. The shame of being evicted from my house, that was alomost paid with money I brought to US trying to TALK… but they never listened to me, always hang up in my constant calls. I went to the court trying to defend my propriety in ANY WAY… However, the judge John Luzzo did not LOOK AT ME. I could not say a word and the man that suppose to be IMPARCIAL, just told to the attorney lawyer to past in his office to take the authorization to TAKE MY HOUSE…
Do you EVER felt the sensation of IMPOTENCE?
Yes, this was the worse sensation a human being should feel…and… I feel it until now, that I am living in my beach house, in Brazil… that thank God, I did sell to invest in US.
And… I have to read that the ONLY PEOPLE THAT IS SUFFERING ARE THE TAXPAYERS…
EXCUSE ME!!!!!!!!!
I believe that I am not the only one that brought money from another country and the American GREED and the government incompetency took away.
Please, next time you want to give this aggressive and generalized kind of opinion READ ALL ABOUT IT.
I am so furious with this big and unknowing article that I took my precious time to write to you.
My INDIGNATION is record, now…
I can follow my day more tranquil.
Suzana Munhoz
More info to debunk this awful article:
http://hotair.com/greenroom/archives/2010/10/24/how-george-w-bush-destroyed-the-economy-in-only-eight-short-years/
Another excellent post, Rick.
The ball is in the GOP’s court now, and it’s time for them to put up or shut up. Hard decisions will have to be made that might cost some of them their political careers in the next election cycle.
Will we see some courageous politics over the next two years, or will incoming Freshmen uphold the status quo to keep their jobs?
I’m hoping for the former, but I fear that we’ll once again be stuck with the latter.
By the way Rick, I currently have you listed as the only “Good Guy” on my Best and Worst of the Web list.
You’re one of the few bloggers out there who isn’t afraid to challenge the status quo, ask hard questions, make unpopular observations and criticize his own party when you know that the result is going to be a relentless stream of abuse, threats and hate mail. That takes a lot of courage, and it tells me that you’re a person of integrity, principal and good character.
We need more honest bloggers like you on both the right and the left, and I’d like to encourage you to keep up the good work. Don’t let the idiots discourage you.
Irish