Posts tagged with 'mortgage'
Weekly Audit: Republicans Poised to Declare War on Welfare State
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by Lindsay Beyerstein, Media Consortium blogger
Senate Republicans scuttled a bipartisan $1.2 trillion dollar spending omnibus bill last week. Now, Majority Leader Harry Reid (D-NV) is scrambling to pass a temporary funding bill to keep the federal government’s lights on.
The GOP abruptly pulled the plug on the omnibus, a massive piece of legislation that Republicans and Democrats had collaborated on for months. Why? Because the Republicans want to start over in the next session of Congress when they will control the House and pick up seats in the Senate. They intend to rewrite the spending bill with much less Democratic input. In other words, bipartisanship proves once again to be a racket.
War on the welfare state
At Truthout, economist Dean Baker offers some predictions on what Republicans have in mind for the 112th Congress. The Bush tax cut extensions that passed with great fanfare are supposed to be 2-year extensions. However, Baker asks why we should expect that the GOP will allow the tax cuts to expire? (more…)
Weekly Audit: Foreclosuregate Hits Home
by Lindsay Beyerstein, Media Consortium blogger
Earlier this month, Bank of America (BOA), the country’s largest bank, announced a moratorium on foreclosures in all 50 states.
The bank promised not to sell any foreclosed homes or take any more delinquent borrowers to court until it had reviewed its potentially defective foreclosure process. Other major lenders soon announced that they too were suspending foreclosures in dozens of states. Why are the biggest banks in the country voluntarily calling for a time-out? It’s a hint that we’re facing a huge problem: The banks aren’t sure if they have the legal right to foreclose on millions of homes.
Here’s what’s new in foreclosuregate since the Audit took up the story last week. The Bank of America announced that it would resume some foreclosures on Oct. 25, having deemed its own methods sound. The stock market begged to differ. BOA’s stock fell over 5% on Thursday and other bank stocks also took a beating, as did mortgage bonds. This pattern indicates that investors are very worried about the effect of the foreclosure crisis on the health of the banks.
Rep. Alan Grayson (D-FL) is calling for a foreclosure moratorium under the new Financial Stability Oversight Council (FSOC), as Ellen Brown reports for Truthout. The FSOC has the power to preemptively break up any large financial institution that threatens U.S. economic security. Grayson wants a moratorium on all mortgages securitized between 2005 and 2008 until the FSOC can determine which foreclosures are valid and which are bogus.
The missing link
So, what kind of “defects” in the foreclosure process are we talking about? Fraud, basically.
Zach Carter of the Campaign for America’s Future explains to Chris Hayes of the Nation why Bank of America and other major lenders are in so much trouble: They are just administering loans for other lenders. You make your check out to the Bank of America, but the bank is just babysitting after the loan for the bondholders.
The real creditors are the investors who own bonds made up of pieces of many different mortgages, including yours. The bond gives the bondholder a share of the money that you and other borrowers pay each month. If you don’t pay, BOA initiates foreclosure. If you’re late, BOA charges you fees.
However, the bank can’t just hire a foreclosure company to take your home away on a whim. The bank must first show proof that it is entitled to foreclose because you’ve defaulted on your mortgage in the form of a mortgage note. If you hold one of those toxic asset mortgages, there’s a good chance the bank doesn’t have the note.
As Dean Baker explains in Truthout, in many, if not most, cases, “liar loans” (mortgages issued with no proof of income or assets) have given way to “liar liens” (foreclosures with no proof of default).
According to Carter, all the big banks have been hiring foreclosure mills to rubber-stamp their claims without checking. Unscrupulous foreclosure companies are admitting to “robo-signing,” i.e., foreclosing without even checking whether the bank’s claims were legit.
Foreclosuregate
According to Andy Kroll of Mother Jones, the Bank of America stands to lose up to $70 billion over what’s come to be known as “foreclosuregate.” A mortgage starts out with an originator, typically a bank or a mortgage broker. In the heyday of mortgage-backed securities, investment banks were buying up hundreds of thousands of mortgages, making them into mortgage-backed bonds, and selling them to investors.
Unfortunately, if the bank doesn’t have the note, who does? The mortgage originator may have gone bankrupt, many were fly-by-night operators that folded when the housing bubble burst. Many mortgages were bought and resold more than once before they found their way into a mortgage-backed bond.
So, the question is whether the bank really owned the mortgages it made into mortgage backed-securities and sold to individuals, pension funds, and other institutions. If not, the banks stand could be on the hook for selling assets they didn’t actually own to investors.
Moratorium now
The scandal affects so many mortgages that some lawmakers are calling for a nationwide moratorium on foreclosures until investigators can sort out who owns what once and for all. Rep. Edolphus Towns (D-NY) told Amy Goodman of Democracy Now! that Congress needs to stop banks from putting people out on the street until there is some way to differentiate between fraudulent foreclosures and justified ones:
And so, I just think that people who are saying that this is going to hurt—I think that it’s going to help, because once people gain confidence in the fact that they’re being treated fairly and that there’s no discrepancies in the records, then people will feel very comfortable in terms of trying to move forward. But until that happens, you’re always going to have these comments about the fact that that was not done right, it was done unfairly. And, of course, I think there’s enough here for us to stop and to pause and to say, let’s take a look here before we move forward. So a moratorium is definitely in order.
The Obama administration opposes the moratorium on the grounds that it would hurt the housing market and thereby slow the economy. Towns counters that what would really be bad for the economy is letting banks take people’s homes away without any semblance of due process. If the government doesn’t act to protect the innocent, foreclosuregate could shatter the confidence of potential home buyers. Would you want to invest in a house if you were afraid the bank could just take it away from you?
In AlterNet, Mike Lux argues that fraudulent foreclosures are one more assault on poor and middle class Americans. He argues that the banks are so used to being coddled by Washington that they’re counting on legislators to retroactively change the rules to protect them from the consequences of their own devious behavior.
At this point we don’t know what percentage of foreclosed-upon homes have simply been stolen by banks to pay bondholders, but we do know the problem is vast and systemic. The Obama administration is content to let the banks seize private property first and ask questions later. We need a moratorium to take stock and restore the rule of law.
This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.
Weekly Audit: Bank Execs Looting Consumers, Shareholders and Taxpayers
by Zach Carter, TMC MediaWire Blogger
Some of the largest U.S. banks may be on the ropes these days, but the disparity between the plight of financial executives and ordinary Americans has never been starker. Over the past two decades, the banking system has grown accustomed to scoring massive profits by preying on its own customers, making 2009′s transition to pilfering taxpayer wallets an easy one. After burying the economy under a mountain of unaffordable debt, bank CEOs are now finding ways to subsidize their own paychecks with taxpayer bailout funds.
With over $550 billion in government money already dedicated to shoring up the financial system under the Troubled Asset Relief Program (TARP), it’s easy to wonder just what Wall Street and its highly-compensated executives actually do for the economy. Federal Reserve Chairman Ben Bernanke offered one explanation in a speech last week in Washington, D.C. At its best, Bernanke claimed, Wall Street innovates, creating new financial products that expand access to credit, making it easier to run small businesses and improving living standards for households. Armed with ever-expanding paydays, Wall Street has indeed innovated over the past thirty years, radically altering the economic landscape in the process.
But as Ezra Klein emphasizes for The American Prospect, much of Wall Street’s so-called innovation is sheer gimmickry. Financiers have intentionally designed loan contracts to be mystifying and complex to the ordinary consumer, tricking bank customers into racking up unaffordable levels of debt. From credit cards to credit default swaps, these new products have indeed signaled progress for bank balance sheets, but in many cases, banks have enjoyed outsized profits at the expense of the broader economy.
“Innovations are not always win-win,” Klein emphasizes. “They’re often win-lose.”
Of course, some financial stunts were so convoluted that many of the nation’s most revered financial brands– including AIG, Lehman Brothers, Bear Stearns and Wachovia– crumbled under their complexity. Today, something as simple as mortgage has become a byzantine, hard-to-value security, once Wall Street wizards bundle it together with hundreds of other mortgages and sell it off to dozens of investors. In the below video for American News Project, Lagan Sebert and David Murdock put a human face on Wall Street’s toxic assets, telling the story of Sandra Berrios, a mother of two who was conned into a predatory loan by a deceptive mortgage broker. The broker provided Sandra with documents promising her a 30-year fixed-rate mortgage, but instead sold her an outrageous adjustable-rate mortgage in order to collect a fee from Flagstar Bank, which actually funded the loan.
“We believed the broker . . . but what they were telling us was not the truth,” Berrios says.
Even though Flagstar has received $266 million in government bailout money, the company still refuses to renegotiate Berrios’ loan. While some money from TARP went to healthy banks, but Flagstar was truly desperate for the funding. The company’s stock is trading at around $1.00 per share thanks to fears over its financial stability, and Flagstar recently agreed to be acquired by a private equity company for still less to avoid complete financial ruin. The source of the company’s difficulties? Losses on loans like the one Sandra Berrios is struggling with.
Writing for The Nation, Christopher Hayes highlights a letter from a reader who questions malfeasance on the part of Goldman Sachs, which received $10 billion in taxpayer funds under the Troubled Asset Relief Program. Executives at Goldman recently decided to pay back the government before it paid off the investment from billionaire Warren Buffett, even though Buffett is reaping double the interest rate that the government is receiving from Goldman.
The scenario speaks volumes about just how lousy a deal taxpayers got under the bank bailout. Paying Buffett back first would clearly be the better deal for shareholders of the Wall Street titan, as it would save them years of payments at higher interest rates. But Buffett’s plan does not involve the same restrictions on executive compensation that are included under TARP. By prioritizing the TARP repayment, Goldman’s top brass are screwing their own shareholders to guarantee a bigger payday.
Exorbitant CEO compensation, especially on Wall Street, has played a major role in deepening income inequality in the United States. But even the onset of the worst recession since the Great Depression was cause for little alarm for top executives at American corporations last year, as Laura Flanders explains for GritTV.
“While wages and benefits have been going down for most Americans, more U.S. chief executives got pay raises than had their pay cut in 2008,” Flanders said, noting that “CEO’s weren’t just making more, they were making more while laying their workers off.”
Flanders notes that Citigroup CEO Vikram Pandit slashed 74,000 jobs at his company in 2008, but did not object to paying himself a whopping $38 million salary. The outrage is compounded by the fact that Pandit allowed his company to collapse last year, ultimately tapping taxpayers for multiple bailouts that have reached $45 billion in scope, an amount nearly three times Citigroup’s current stock market value.
The financial system doesn’t have to be a contest between citizens and executives. There is no good reason why responsible regulations cannot be enacted to rein in CEO pay, ban socially destructive lending practices and reduce the influence of banking behemoths on public policy. We’d all be better off with that kind of innovation.
This post features links to the best independent, progressive reporting about the economy. Visit StimulusPlan.NewsLadder.net and Economy.NewsLadder.net for complete lists of articles on the economy, or follow us on Twitter. And for the best progressive reporting on critical health and immigration issues, check out Healthcare.NewsLadder.net and Immigration.NewsLadder.net. This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.
Weekly Audit: How Predators are Profiting from the Economic Collapse
While the economy sinks into the abyss, some of the financial industry’s most egregious scam artists are already back on the prowl looking to take advantage of troubled borrowers.
In a sickening turn of events, financial professionals who profited from the predatory Wall Street mortgage regime are now remodeling themselves as specialists to help consumers avoid foreclosure. The Nation Institute helped fund a devastating expose written by Alyssa Katz on the mortgage broker makeover. published in Salon.com. Katz details how an industry that once pushed people into unaffordable loans with deceptive marketing and misleading documentation is now raking it in by helping people who are behind on their mortgages obtain modified loan contracts.
“The problem is that the majority of loan mods are lousy deals for homeowners,” Katz writes. “Federal banking regulators recently determined that more than half of all mortgages that were modified by lenders in early 2008 ended up heading into foreclosure again in less than six months. Most loan modifications, in fact, dig borrowers deeper into debt.”
These predators cash in on setting borrowers up for a fall, and instead of being barred from the banking world or prosecuted, end up raking in again to help them renegotiate their mortgages. Loan modifications almost never reduce how much borrowers actually owe on their mortgages. Often, whatever amount a borrower is behind by is added to the overall debt burden, giving banks a bigger pool to collect interest on. Nearly half of all loans modified in the fall of 2008 did not even result in a lower monthly payment for borrowers.
Over at Colorlines, Dom Apollon highlights the rise of a new mortgage company called PennyMac run by former Countrywide executives—the same Countrywide that is being sued by local governments for destroying communities with abusive subprime loans. PennyMac plans to buy delinquent mortgages on the cheap, alter the terms of the loans to keep borrowers in their homes, and pocket the difference between the new mortgage payments and what it paid for the loans as profit. If you think that is going to end well for the homeowners, then I’ve got a few condos in south Florida to sell you.
People who cause massive problems are not usually the best people to solve them. That’s why when the U.S. government agreed to bail out the world’s largest insurance company, AIG, policymakers kicked out CEO Martin Sullivan. But even after being nationalized, AIG has continued to drain taxpayer coffers, coming back to the bailout trough twice for a total of over $160 billion. To put that number in context, it’s about what the entire savings and loan crisis cost taxpayers back in the late 1980s and early 1990s.
Josh Marshall has a series of excellent posts on the AIG drama for Talking Points Memo. When the Federal Reserve and the Treasury Department refused to let AIG fail back in September, it was supposedly because letting AIG default on its enormous credit default swap business would be a disaster for the financial system. Credit default swaps were originally designed as insurance for loans. If a Goldman Sachs made a loan to Bank of America, Goldman could get AIG to insure the loan against default. Goldman would pay AIG a few dollars a month in insurance premiums, but if Bank of America failed to pay up, AIG would reimburse Goldman for the entire value of the loan. Eventually, however, the process got crazy. Companies started taking out “insurance” on transactions they had no involvement with. JPMorgan could go to AIG and agree to pay a few dollars a month in case Bank of America defaulted on its loan from Goldman Sachs– essentially betting with AIG on whether Bank of America would pay Goldman back. The same contracts could be used to insure mortgage-backed securities against default. Wall Street eventually put more money in credit default swaps than an entire year’s worth of global economic output.
By keeping AIG running on taxpayer support, Marshall notes, the government is essentially using the company as a conduit to funnel tax dollars to other major financial firms who made credit default swap bets with AIG. Who is getting the AIG bailout money? Neither the Treasury or the Fed will say, and Marshall points out, the government refuses to even explain why it will not tell us who is getting money. Maybe the government is worried that investors will pull their funds out of companies who are scoring big paydays from the AIG bailout, deeming them nonviable without government support.
That may very well happen. But indefinitely pouring federal money into Wall Street companies through AIG is not a solution, and taxpayers deserve to know how their money is being spent.
But at least one system for fleecing taxpayers seems to be on its last legs if President Barack Obama has his way. About four-fifths of student loans are made by private lenders who are subsidized by the government, while the remaining 20% are made directly to students by the Department of Education. The problem with the private-sector partnership plan is its inefficiency: a lot of that subsidy money goes to paying student loan company executives, while some of it simply ends up as profits for the bank. How much? According to Aaron Tang of Wiretap Magazine, Obama’s budget proposal would kill the subsidy program and instead invest that money in the direct loan program, freeing up $4 billion a year, enough to help millions of students pay for a college education.
The Obama administration’s willingness to end irrational financial policies should not end with the student loan program. Predatory lenders who created the mortgage meltdown should be barred from the banking industry, and the Treasury needs to be honest with taxpayers about who it is paying off.
One Last Note
The unemployment numbers keep getting worse: after losing almost 600,000 jobs in January, the U.S. economy shed another 651,000 in February, sending the unemployment rate all the way to 8.1%. As Steve Benen notes for The Washington Monthly, the accelerating job losses may not be surprising at this point, but they are painful nevertheless. The only good news for the labor market over the last week was the roll-out of CanMyBossDoThat.com, a site dedicated to informing workers on their legal rights on everything from COBRA health insurance benefits to getting employers to actually deliver final paychecks workers have already earned. The site, which is funded and managed by Interfaith Worker Justice, comes at an important moment, according to Wendy Norris of The Colorado Independent, who highlights that the unemployment rate would be a massive 14.8% if it included people who have been looking for a job for more than a year and people who want full-time work but are can only get a part-time position.
This post features links to the best independent, progressive reporting about the economy. Visit StimulusPlan.NewsLadder.net and Economy.NewsLadder.net for complete lists of articles on the economy, or follow us on Twitter. And for the best progressive reporting on critical health and immigration issues, check out Healthcare.NewsLadder.net and Immigration.NewsLadder.net. This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.
Bankruptcy Law is Key to Obama’s Foreclosure Fight
President Barack Obama unveiled his administration’s plan to fight foreclosures on Wednesday. Unfortunately, the most important element of the program will require Congressional action—and the banking and business lobbies are already on the attack.
The Homeowner Affordability and Stability Plan has three chief components:
- Offer financial incentives to persuade loan servicers to modify mortgages
- Allow Fannie Mae and Freddie Mac to refinance more mortgages
- Change bankruptcy laws and give judges the power to reduce the amount borrowers owe on their mortgages.
The financial incentives probably won’t help much, as Kevin Drum writes for Mother Jones. When a bank makes a mortgage, it doesn’t usually hold onto the loan. Instead, the loan is packaged into a security with a other loans and sold to several investors. Another bank collects payments on the mortgage for the security’s investors and acts as a point of contact, or loan servicer, for the borrower. To date, servicers haven’t shown much interest in keeping people in their homes, even though foreclosure is the worst option for all parties involved.
“Loan servicers already have an incentive to rework loans that would otherwise go into default, and for the most part they aren’t doing it,” Drum writes. “Will a couple thousand dollars [of incentives] change their internal calculus?”
The provision aimed at Fannie and Freddie will help some. It’s also a good use of the government’s authority over the companies, which were nationalized last summer. But the key to Obama’s plan is the bankruptcy provision. Until now, every government-enacted plan to reduce foreclosures has relied on incentives to encourage the banking industry to keep people in their homes. As Drum notes, bankruptcy is the stick behind those carrots. Obama is supporting a bill in Congress that would enable bankruptcy judges to reduce the amount a borrower owes to the present value of the home. The beauty here is that investors who own the mortgage securities, not taxpayers, will have to eat the losses. In short, investors will be held responsible for making a poor investment.
“The government is essentially presenting a choice for mortgage lenders: take our deal, which is standardized across the entire industry, or let a bankruptcy judge modify the loan however he or she sees fit,” Tim Fernholz writes for The American Prospect.
The bank lobby has been fighting the bankruptcy law change since the foreclosure crisis began in 2007, and they wasted no time lashing out at Obama’s proposal today. Elana Schor of Talking Points Memo highlights a nasty statement released by the U.S. Chamber of Commerce, one of “Washington’s biggest lobbying groups.” The release not only attacks the Homeowner Affordability and Stability plan, but takes a shot at Treasury Secretary Timothy Geithner as well, saying the policy “should have undergone a stress test to determine if it’s ready to stabilize a major portion of our economy.” Stress tests for the financial viability of banks were a big part of the murky bank bailout plan Geithner rolled out last week.
If Congress fails to pass a bankruptcy law overhaul, the entire plan will fall apart. And the record so far is not very promising—last year’s bill garnered only about half of the votes necessary to override a filibuster in the Senate.
Team Obama deserves credit for taking action on foreclosures, as John Nichols writes for The Nation. The Bush administration spent years vilifying troubled borrowers and then dedicated hundreds of billions of dollars bailing out banks. If Congress can’t pass bankruptcy law reform, the government should simply force banks to modify loans. The strategy would be simple—either keep borrowers in their homes, or return your check from the federal government.
“Ohio Congressman Marcy Kaptur and economist Dean Baker have some smart ideas,” Nichols writes. “They argue that the proper role for the federal government is not to fund mortgage negotiations but to insist that banks—many of which have already collected billions in taxpayer dollars—carry them out.”
This post features links to the best independent, progressive reporting about the economy. Visit StimulusPlan.NewsLadder.net and Economy.NewsLadder.net for complete lists of articles on the economy, or follow us on Twitter. And for the best progressive reporting on critical health and immigration issues, check out Healthcare.NewsLadder.net and Immigration.NewsLadder.net. This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.
