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Forget TBTF, How About TBTBR?

8:26 am in Uncategorized by Cynthia Kouril

Too Big to Fail was the slogan that allowed Hank Paulsen and Tim Geithner to scare Congress into providing TARP funding with NO STRINGS ATTACHED. The phrase was music to banksters’ ears. And I suspect that this week they will be dusting it off in a series of phone calls to the Fed, The Comptroller of the Currency, FDIC and other bank regulators.

Why?

Because the recent revelations that bankster record keeping is SOOOOO horrendous that it is unlikely that they can prove that they own the mortgages they have been trying to foreclose have serious implications. Not only has it already caused several large banks to suspend foreclosure operations pending internal review of their lousy paperwork, but such doubt about their ownership of these assets, or their ability to prove ownership, will trigger certain capitalization requirements under the banking laws.

A new phrase has emerged that should strike fear in the hearts of bank CEO’s, Too Big to be Rescued. Switzerland has just notified its two biggest banks that they need to increase their capital reserves by 10% because they are TBTBR.

Understand, Congress gave trillions to banks in TARP money to deal with the toxic securities on their books that were backed by these bad mortgages. Treasury told the banks to modify the mortgages and even set up a [crappy] program, HAMP, as an example, but banks were free to and encouraged to do their own much more aggressive programs.

Instead, the banks refused to admit their own fault and tried to blame and then punish the homeowners. The banks squandered their chance to modify the loans BEFORE everyone found out that they paperwork for them was missing and/or bogus and the loans might be uncollectable. The magnitude of this problem may be much bigger than the size of TARP.

The failure to take advantage of the breathing room and liquidity that Paulson and Geithner provided to the banks, may mean that that banks have moved from TBTF to TBTBR. If true, and I would need some time with bank balance sheets to know that, it’s very sad, because it means that we are all headed for a world wide depression that was completely avoidable.

This is not to paint Paulson and Geithner as the heroes of 2008. They made a fatal error by not getting sufficient concession up front from the banksters in exchange for TARP. They socialized the debt and the liability, without socializing the control and the ability to fix the problem. Had they temporarily nationalized the banks, they could have modified the loans, cleaned up the record keeping mess, instituted realistic due diligence and lending standards and then re-privatized the banks. Of course, this happened on Bush’s watch, so no way anything like that was going to be allowed.

[More reporting on mortgage issues and foreclosures on the Firedoglake Foreclosure Fraud Page]

Promises Obama Can Keep Today, but Probably Won’t

12:42 pm in Government, Politics, Republican Party by Cynthia Kouril

A recent Politico piece posited that Obama is losing progressive, independent and swing voters because

The president’s reluctance to be a Democratic version of Ronald Reagan, who spoke without apology about his vaulting ideological ambitions, has produced an odd turn of events: Obama has been the most activist domestic president in decades, yet the philosophy behind his legislative achievements remains muddy in the eyes of many supporters and skeptics alike. There is not yet such a thing as “Obamism.”

In short, Obama is losing these voters because he has a PR problem. CNN offers similar "messaging" advice. I disagree.  The President does not need to improve his messaging, he needs to improves his substance.

There are distinct, non squishy, promises that Candidate Obama made over and over, which President Obama has utterly failed to act on.

Closing Gitmo: The President is Commander-in-Chief. He can order Gitmo closed TODAY. Don’t hand me any malarky about Lindsey Graham won’t allow funding for the closing. George W. Bush never worried about how he was going to pay for military spending, he just went ahead and did it and sent Congress the bill after the fact. Lindsey Graham is not the Commander-in-Chief (though I think he might have footsie pajamas with that title embroidered on it).

DADT: All this surveying and rule making is just a stall. We are not talking about whether to allow the induction of gays into the military, they are already serving in the military, taking showers, sharing barracks, the whole nine yards; all we are talking about is not forcing them to lie any more.  Again, the President has powers as Commander-in-Chief at his disposal.

Restoring the rule of law with terrorist trials:  This is the easiest on the list, because it doesn’t require the President to lift a freakin’ finger. All he has to do it stop undermining his own Justice Department.  Attorney General Eric Holder had a perfectly reasonable and feasible plan to return terror trials to civilian courts, where there has been a long history of successful prosecutions — sustained on appeal. Everything was under control, until some pinhead in the White House got his panties wet over a PR attack — by the Cheneys of all people — and Whoomp! the President starts undermining his own AG. Just call Holder, tell him you’ll stay out the way of his prosecutorial discretion henceforth, and let the man do the job you hired him to do. The same advice applies to investigations and prosecutions of the BP oil disaster. Rumors of White House micro-managing the investigation will only undermine public confidence in the outcome.

Getting tough on Wall Street:  Unlike the disinformation being spewed by your own press secretary, I don’t know too many progressives who opposed federal intervention to stabilize the banks. I do recall a HUGE number of teabaggers who opposed TARP, however. What drives most of the electorate crazy, is not that you gave the banks the money, it’s that you got NOTHING back for it. No caps on compensation schemes, no increased oversight, no increased transparency, no meaningful mortgage modifications (including write down of principal). Nope, it was just an outright giveaway. FDR you are not. The banks were powerless before you and you let a good crisis go to waste.

Although appointments are not promises per se, filling the government with people who want to carry out the policy proposals you campaign on, is fundamental to keeping those promises.

Recess Appointments:  Even the Supreme Court doesn’t buy the President’s act about how mean old Congress won’t let him get his people confirmed. What happened with Dawn Johnsen really shook up a lot of the true believers. The midterm elections of this presidency are upon us, yet there are still many major positions unfilled in the administration. A two-year transition is just crummy management. If the Chief of Staff is too incompetent to get your own people hired, give that responsibility to someone with decent management skills.  Please don’t let history record that Monica Goodling had more management skills than Rahm Emanuel. Really, the White House needs to get someone to do HR for political appointees? The President has recess appointment power — period.

Dick Cheney, Tim Geithner and the World Wide Vampire Conspiracy

1:55 pm in Business, Financial Crisis, Government by Cynthia Kouril


OK, it’s official. Hank Paulson and Tim Geithner have now descended to that nadir of credibility where a conspiracy theory about vampires contolling the economy sounds every bit as convincing as the drivel about the causes for the financial meltdown they began peddling in 2008 to pry loose the TARP money from Congress.

They are now officially a national joke.

Assistant Treasury Secretary Cannot Figure Out How to Modify Mortgages

9:36 am in Uncategorized by Cynthia Kouril

On June 24, 2010, the House Oversight Committee held a hearing on one of my favorite subjects, mortgage modifications. In written testimony, Assistant Treasury Secretary Herbert Allison whinged about how hard it was for the industry to transition from being debt collectors to debt modifiers.

Further, in a game of move the goal posts, he has redefined success of the program from providing permanent modifications to, get this, allowing people to enter the trial modification period. Duh, why bother with a trial period and making several months of additional payments if you’re NOT going to get a permanent modification? Yet, he has the gall to actually put this drivel into the hearing record:

At the time we launched HAMP in March 2009, President Obama said that the program would "enable as many as 3 to 4 million homeowners to modify the terms of their mortgages." Since the way we get to the 3 to 4 million homeowners by the end of 2012 has generated some confusion, let me offer the following points:

•                The count applies to the modifications in both the TARP-funded first lien program and the companion GSE programs.

•                The President’s statement about "enabling" modifications is the reason that we have continued to report offers of trial modifications – the offer is when a homeowner is able to get a modification, and 1.4 million offers have been extended in the first twelve months.

•                A very similar picture of progress arises from the number of actual trial modifications begun, over 1.1 million in twelve months. Actual trial modifications are the point at which homeowners begin a lower mortgage payment — an average reduction of around $500 per month.

•                In a program scheduled to last nearly four years (March 2009 until the end of 2012), either the 1.1 million or 1.4 million in the first year places the program well on schedule to the goal announced by President Obama.

•                The Administration has never said that the program would implement 3 to 4 million permanent modifications, which take place only after the homeowner has been offered a trial modification, has performed for at least three months in a trial modification, and has met the full documentation requirements for the permanent modification. One important reason for having permanent modifications in the first place was a recognition that not all trial modifications would become permanent, such as when a borrower does not make the three payments needed to receive a permanent modification.  [emphasis added]

Does he think we are actually that stupid? Really, this is insulting to our intelligence.

Look, an elegantly simple way to put a floor under housing prices, keep people in their homes, give them a payment they can afford and allow the investors in mortgage backed securities to earn a likely better return than they would from foreclosure has been around since January 20,2009.

EXAMPLE:

John Smith Family owns a house with a current mortgage of $700,000. It is their primary residence (they live in it).

Smith household income reported on 2007 Federal tax return was $125,000 gross before any deductions (ie NOT their taxable income).

Current US 30 year Treasury notes have an interest rate of 3.125%.

Principle no 1: 30% of $125,000 means Smith can afford to pay no more than $37,500 per year or $3,125 per month for Principal & Interest on the mortgage.

Smith gets a new mortgage under this program with a 30 year term at 3.625% (3.125+0.5) for a nominal value of approx $600,000 (arrived at through DCF analysis based on what Smith can afford to pay). The Government gets the right to 80% of the difference between $600,000 and the original mortgage amount of $700,000 when the house is sold.

Ten years from now Smith sells the house for $700,000

He has paid about $2,900/month in interest for 10 yrs or $348,000 that has gone back into the US treasury.

He has paid about $27,000 in principal. He owes $573,000 on the new government mortgage, and $100,000 difference between his old and new mortgage originally financed by the US govt.

His gross profit on the sale of his house is $127,000. He owes 80% of this or $101,600, under his mortgage contract so that the Government gets the $573,000 and its $100,000 back and $1,600 more.

Smith has had his property written down to a reasonable value and his mortgage therefore becomes valuable in a resale. Banks can resell it or if they wish sell it to FNMA in the regular course of business. Smith has lived with a new lower payment and still got the tax deduction for interest. He has made a profit on the sale of the home!

Most importantly, Smith is not tempted to hand the keys of the house to the bank because he is upside down in the mortgage. The Bankruptcy/foreclosure process is completely avoided.

Really, it’s not as hard as he is making it out to be and the industry excuses truly ring hollow.

[Earlier posts in this series and related links at FDL's Foreclosure Fraud Resources]

Mortgage Delinquencies Hit Record High; BofA Plans Massive Foreclosures

2:26 pm in Financial Crisis by Cynthia Kouril

Mortgage delinquencies hit a record high in the first quarter of 2010, according to “The Washington Post”:

The number of U.S. homeowners who are behind on their mortgages rose to a record level in the first quarter, according to industry data released Wednesday … .

–Snip—

The increase in mortgage delinquency was a surprising and unwelcome sign for economists expecting the recent improvements in the economy to translate into fewer homeowners falling into trouble.

On a seasonally adjusted basis, about 10 percent of borrowers were delinquent on their mortgages during the first three months of this year — a record, according to the survey by the Mortgage Bankers Association. That is up from about 9.1 percent during the same period last year and 9.5 percent during the fourth quarter of 2009.

WaPo adds in some happy talk about unrelated promising economic signs, but what I see is more and more people in danger of losing their homes. TARP may have saved the banksters, but it is not working for ordinary Americans. The Masters of the Universe continue to declare record profits to justify their record bonuses, but people are still losing their houses. I also have my own doubts about whether those profits are really profits or just the product of more accounting sleight of hand.

A blogger called Irvine Renter broke the story that Bank of America plans to increase its rate of foreclosures by 600 percent in 2010.

[Irvine Renter] attended a local Building Industry Association conference on Friday 26 March 2010. The west coast manager of real estate owned, Senior Vice President Ken Gaitan, stated that Bank of America, which currently forecloses on 7,500 homes a month nationally, will increase that number to 45,000 homes per month by December of 2010.

After his surprising statement, two questioners from the audience asked questions to verify the numbers.

Bank of America is projecting a 600% increase in its already large number of monthly foreclosures.

This isn’t unsubstantiated rumor; this comes straight from one of the most powerful men in Bank of America’s OREO department (yes, that really is what they call it). It appears they have too many properties already.

[emphasis in original]

BofA clearly does not see any relief coming to homeowners this year.