Archive
OCC Hack (er, head) John Walsh Is Gone
The Senate apparently appointed somebody else.
Who? It doesn’t matter, as long as it’s not the worst regulator in US history.
Here’s a story about Walsh, his OCC, and me:
Walsh defended the conflict, even as Aurora was being quietly sold to Nationstar. Walsh was then just as quietly fired. That’s a shame because if I didn’t still have some liberal blood in me I would have advocated an old fashioned tar and feathering, or at least handcuffs.
My feelings towards Walsh’s well deserved place among the ranks of the unemployed:
Fannie & Freddie Signal Congress By Spending $600K at the MBA Convention
Oops, they did it again.
Mortgage Daily News reports Fannie and Freddie spent $600K in Oct., 2011 at the MBA’s annual convention. In 2010 they spent $640K on the same conference and Congress went ballistic. Apparently Fannie, Freddie, and the FHFA thought the outrage of our elected officials warranted a change, so they responded by reducing spending by a whole 6.25%.
I shouldn’t be writing. I’m backed up with arguably the most complicated and important data aggregation project I’ve ever been involved in. When finished I’ll be pushing out chart’s that make CR’s chart fascination look benign.
But I can’t help but to take a few minutes and digitally ink a few words about this.
Fannie Mae and Freddie Mac just stuck up the middle-finger to you, Congress, and to the American’s that you’re supposed to represent. Will you finally do something meaningful about it?
Unlike many I don’t think that Ed DeMarco is evil incarnate. I think that he’s doing his best given the constraints of HERA but he’s dealing with two unruly, entitled, dishonest beasts who hold themselves above the law, who have shown that they can’t be regulated, and who need to be unwound.
Let’s finally change HERA, the law that funds these monsters. Let’s admit we can’t mend it, and finally end it.
It’s time for Congress members to stand, Reagan-style, in front of their headquarters and scream “Fellow members of Congress, tear down these organizations.”
This isn’t a Democrat nor Republican problem: Fannie and Freddie have become the vision of an equal-opportunity contemptuous monster. They’re like the child of parents who bitterly divorced and who later realizes he can play them off one another, listening to neither, while repeatedly spending wildly on their credit-cards then sneering when called out.
Speaking of children, my own son is in a public charter-school math and science program where three years of honors high-school math are required before starting high-school. His class is the first where Hon. Algebra II wasn’t offered in summer-school because of budget cuts, so they took the class online. Teachers confirm that the whole group has struggled substantially more in pre-calc and now calc classes than their predecessors who had a real teacher for what is, for eighth graders, a tough class.
Congress, why don’t we have enough money to fund honors math classes for our brightest kids — the one’s who have proven by working their asses off that they’re the future one-percent types that pay all those taxes — but we do have $180 billion to fund these reckless, worthless, market-destroying organizations.
Here’s a blueprint to burn down Fannie Mae and Freddie Mac:
1. Over 3-6 months auction the portfolio, the loans they own, at whatever the private market is willing to pay. Allow people to “buy” their houses out of the pool at auction value plus a small administrative fee, and the rest go to private investors. Leave the guarantees intact since they’re contractual obligations. If people scream this is “illegal,” that it’s some type of taking, then just stop funding them, call Fannie and Freddie’s own loans when they miss a payment, and allow a bankruptcy judge to do what the Constitution contemplates should be done to bankrupt organizations. Since Fannie and Freddie executives advocate for fast foreclosures I’m sure they’ll be enthusiastic at their own organizations quick liquidation; they can quickly pack and leave, with no severance.
2. Create a new organization to continue the guarantees, albeit on a ramp-down period of 5-8 years until the private market can find it’s footing. That is, for the first 48 months the guarantee program will continue as-is, though with first-loss provisions for originators, then over the next 36 months the maximum volume of guarantees would be reduced by 1/36th of the volume from the first 48 months. Then .. they’re gone; nothing but a bad memory of failed social experiment that caused immeasurable suffering.
That’s it. Loans will be held by private organizations who have shown they have a substantially lower 12-month re-default rate, who are willing to write down principal when they realize it is in their bests interests, and who — while they’re far from perfect — are a lot better than the GSE’s.
Don’t leave them around to “create standards” for new technical infrastructure, their latest gambit. That’s best left to a consortia of private businesses. Plenty of people, myself included, would love to compete for this work by creating private businesses that will do this more competently and even more transparently than the GSE’s, since we’re not exempt from disclosure laws and have to answer to market forces.
With this latest move the GSE’s have set the stage for their own well-deserved execution. Now the question is whether our legislators will have the backbone to do what’s needed. Any legislator, from either party, that won’t cooperate deserves to lose their jobs this fall.
State of the American Economy: RepoGames, by Spike TV
Like many middle-aged men working on financial analysis I woke up in the middle of the night last night with heartburn. While waiting for a Tums or three to work their magic I turned on the TV and discovered a television reality show that could be as defining to our times as “Linda Green” was to foreclosure fraud, RepoGames by Spike TV.
Summarizing, a repo-man shows up with his tow-truck driver to repossess cars. Debtors are called out and asked if they’d rather play a game; answer three out of five questions correctly and the show pays off the car loan. Answer incorrectly and the human gorilla, who goes by the name Tom DeTone, screams at the tow-truck driver to take the car away. For each correct or incorrect answer they raise or lower the car on the tow truck.
Even though I work with a lot of reporters, including those who work in television, I’ll admit that I don’t normally watch TV. But it’s impossible for RepoGames to not catch one’s attention.
RepoGames is easy: the tow-truck driver and a bunch of people with video cameras show up to repossess a car. The thug in charge makes it clear this is a “legal” repossession. Ignoring that he’s ignoring a sizable portion of the Fair Debt Collection Practices Act, he explains to debtors he will take their car or they can try to answer three of five questions; answer three correctly and the show will pay off the car.
It’s not clear if “pay off” means pay the alleged arrears or the entire loan but at this point nobody, including your humble author, really cares; debtors always go for the game show.
Questions are mind-numbingly easy, to the point I wish I had a car loan so that I could try to qualify to default and have this show pay it off. Remember the show “Let’s make a deal?” where the top prize, which almost nobody won, was a car? Well, at 2-3AM, on this show, lots of people win cars. But more than a few lose them too — the family jalopy — with lots of cameras filming.
After each wrong answer the primary thug screams to the tow-truck driver “raise it up,” and he obliges by raising the to-be repossessed car. One has to wonder why they don’t know the answers to these questions, if if that might be the reason the repo-man is there.
I didn’t watch for long but RepoGames is one of those TV shows where a little bit is enough. One man, trying to save what looked like an old beater, pulled out a stack of $100 dollar bills and offered to repay whatever he owed. ”Here’s $5,000; leave me be.” Wearing sunglasses, at night, he answered “a little bit of this and a little bit of that .. whatever” when asked what he did for a living.
As the repo-man faced the camera and sais “that’s one shady character,” I’ll admit I agreed, especially since it looked like his stack of money was more than enough to buy a car just like the one being repossessed. In any event, the shady character, with the help of his girlfriend (understatement – she answered every question), “won” back his car. Who’d have thought being able to answer the question “What happens in ____, stays in _____” would win a free car?
The mother of seven children, who had to take them out of the van being repossessed, wasn’t so lucky. She missed two questions then went on streak by answering “Banks are closed on Dec. 25th in honor of who’s birthday?” correctly. But when she blew the fifth question off went her car, leaving her to question how she’s transport her children and me to wonder if we wouldn’t better off doing like the European’s and broadcasting soft porn, or nothing, in the middle of the night.
Any heartburn I had from whatever I’d eaten went away replaced by a different form, questioning how the world’s most prosperous country could have so quickly devolved into this type of dreck. Worse, even though I’m an outspoken consumer advocate focused on reforming predatory lending, I found it a little bit fun.
Like most in the collection industry, at least until they find their own job outsourced to India, “DeTome” is self-righteous about his work. He never stops to question whether the repossession might be the result of a double-digit interest rate, predatory lending, or stupidity by entering into auto finance loans with terms that used to be considered usurious until we all but eliminated usury laws (thanks, South Dakota).
DeTome follows the meme there’s nothing unusual about the economy and writes on Spike’s website:
God, we’re bad, as Americans. If you don’t make your payments, you have to expect that we’re going to come to your door and repossess your car. People need to live within their means. But we’re Americans, and we don’t do that. We want nicer things, and we live outside our means. People don’t really realize how badly they’re going to damage their credit rating for the next five to seven years. In high school, we need to learn about finance and not cooking or weightlifting. – Tom DeTone
Yep .. we’re bad. For treating one another like cattle and chattel, while sacrificing our humanity for cheap thrills.
Congratulations To My Close Friend Lynn Szymoniak, Toughest Anti-Fraud Attorney In the US
http://www.reuters.com/article/2012/03/12/us-usa-housing-settlement-idUSBRE82B1A020120312
As part of the foreclosure fraud settlement reached with the fifty state attorney general’s one name stands out, mainly because it’s a woman I’ve stood with for years working on these issues, my close and dear friend Lynn Szymoniak who will receive a well deserved $18 million as a lead whistle-blower.
I know the settlement has taken its lumps but now that it’s out there’s one point especially that needs to be highlighted.
First, a link to the settlement. Each of the Big Four banks has the same verbiage, but I’m focusing on Bank of America. The language is the same but they’ve been the worst, plus it gives me a chance to make fun of Brian Moynihan’s “hand-to-hand” combat comment. [Note to Brian: next time you decide to pick a fight in a rowdy bar think twice about how it might end up.]
Besides the long (long, long, long) list of exclusions this one stands out the most:
“For avoidance of doubt, this Release shall not preclude a claim by any private individual or entity for harm to that private individual or entity, except for a claim asserted by a private individual or entity under 31 U.S.C. § 3730(b) that is subject to this Release and not excluded by Paragraph 11.” Appendix F – Pg. 40.
So, what does that mean exactly? It means that except for whistle-blower claims already settled servicers remain fair game .. for everybody. Securities fraud claims? They’re still there. Criminal liability? Still on the table. Clouded titles? Who knows if they’ll win but anybody who wants to win the next $18 million has the right to try.
I know the settlement terms have been described as “broad,” and they look broad at first blush, but nobody pointed out that the exclusion list looks just as broad. This settlement is about government entities settling on very specific terms, terms so narrow when the exclusions are factored in that it’s not clear whether banks signed this as a release, or whether they signed it as a promise to basically move on and start behaving.
I still haven’t hard Moynihan retract the hand-to-hand combat phase and finally say “OK – that was ill advised and didn’t work out so well,” then admit that his bank has behaved recklessly, irresponsibly, and shamefully, then express a genuine desire to grow up followed through with action.
There’s some I know are hopeless. Infamous crook David J. Stern still has a license in good standing to practice law in FL thanks to the FL Bar; might be time for a ballot initiative to strip them of their disciplinary authority. Palm Beach County Judge Meenu Sasser, who pushed the disgraceful rocket-docket while proclaiming “I don’t see any widespread problem” documents (oh yeah, and while sitting on an enormous amount of bank stock) can now see how respectable judges react to the cesspool Stern and his ilk filled her courtroom with. FL Rep. Kathleen Passidomo — who tried to fast-track the fraud through the court system — is unlikely to say she was wrong (the same Rep. Passidomo who suggested an 11 year-old asked to be gang-raped because she was dressed like a “prostitute”).
But maybe there’s hope the banks themselves will realize it’s in their own best interest to start working in good faith.
Bankers are tired. Investors want the private MBS market to come to life again, and there’s no reason that it shouldn’t except for uncertainty on the part of other investors that they won’t be defrauded .. again. But now it’s been made clear there is a path to accountability; the settlement left no ambiguity that investor lawsuits are wide open.
Responsible banks run by responsible bankers should welcome this settlement, but also those lawsuits, because they provide a path to a return of confidence that the rule of law, and the fundamentals of the free market, rule the US. In much the same way that the first step to fixing an abandoned home is to rid it of rodents smart, responsible, respectable bankers have to realize ridding the system of human rodents is good for the banking system, good for the economy, and ultimately great for them.
I can’t stress enough how much I am not “anti-bank,” but I am anti-fraud. Real business people can’t compete with fraudsters because it’s impossible to beat Madoff’s returns. They should use this settlement as an excuse to step out of the woodwork and start to scream as loud or louder than Lynn has been over these past years.
For the sake of the economy, the banking system, and the families — and no, when you’ve done this for a few years it becomes impossible to forget the families, even when mired in financial and legal data — let’s hope banks take the opportunity they’ve been given to change their ways and clean up their mess.
Common Financial Crisis Myths, Part I
Myth: The financial crisis was caused by irresponsible borrowers lying to banks.
Fact: On stated income loans, those without documents, banks either knew when borrowers were lying to them — and sometimes outright prodding them to do so — or could have easily found out with minimal due diligence. Loan originators did not want to find out though, because they planned to quickly flip the loan to somebody else in much the same way condo-flippers flipped condo. That is, originators — those who create loans — wanted to close them as much or more than borrowers. In any event, many bubble-era loans were full documentation loans.
Myth: Borrowers made out much better than banks when the bubble was rising.
Fact: Banks used the notes, the loans, as collateral for trading leverage. For every dollar a person borrowed a bank could borrow up to $40 for trading activities. This is called leverage, and excessive leverage by banks is the root cause of the financial crisis. Leverage tore down Bear-Stearns within weeks, went on to destroy Lehman, finished Merrill Lynch .. just like a family that borrows 40 times their annual earnings excessive leverage toppled banks.
Myth: Foreclosures are the result of free market forces.
Fact: But-for the bailouts people’s loans, every loan of every type, would have been sold for pennies on the dollar to new banks willing to renegotiate at steep discounts. Mortgages would have been purchased for 3-9 cents on the dollar, performing credit-card debt for a penny or two on the dollar, sub-prime dreck for virtually nothing. If a banker buys a $500K mortgage for $50K they can renegotiate it to $100K and make a mint of money. Everybody wins .. except for the bank that voluntarily and knowingly agreed to fund the loan, and who suffered the genuine free market repercussion of insolvency as a predictable result.
Maybe Myth: Without TARP we would have faced another Great Depression.
Fact: This isn’t clear, though it’s difficult to criticize those unwilling to gamble the world economy on theory. During the Great Depression there was no FDIC so when a bank failed people lost their money. This loss of middle-class money is what caused the Depression, because the middle-class had no money to spend on goods and services. But that was then; now middle-class accounts are protected by the FDIC. If debt was reduced through fire-sale auctions many big business would have failed, which would have been bad for India and China, where they outsourced jobs to at a frantic pace, but maybe not so much for the US, where small business has created most jobs. Much lower overall debt, thanks to the fire-sale auctions, combined with less competition from now-bankrupt large competitors may actually have been good for the economy. We’ll never know.
Myth: The majority of people foreclosed on are deadbeats, with sub-prime loans, who bought more home than they could afford.
Fact: The majority in default, by dollar volume, is by far prime loans, not sub-prime loans. These are largely people who fell on hard times, saw the value of their houses drop, saw their incomes drop, but did not see the cost of their loans drop due to non-market forces. There were (and remain) some condo-flippers, people using liar-loans to buy palaces, and other malarkey. There were also a great many dishonest mortgage brokers and crooked appraisers.
Myth: Foreclosures increase home prices.
Fact: I’ve debunked this more times than I can count. More inventory does not increase house prices. Recent house price gains are the result of less inventory, sometimes because of foreclosure pipelines slowed by Robogate, sometimes voluntarily on the part of the banks, but in any event fewer foreclosures means stable or higher home prices. That doesn’t mean we don’t have to find a floor for the housing market — we do — but we don’t have to view foreclosure as the only option available to make that happen.
Myth: People cheat; banks don’t.
Fact: Banks regularly cheat. When a person cheats a bank they go to prison; when a bank cheats a person the banker gets a bonus.
Myth: It’s a good idea to pay your second mortgage but default on your first if you cannot afford to pay both.
Fact: This is absolutely untrue. Your bank may say so but don’t listen (see the prior point about banks cheating). Except for first loans for a house you live in any loan above the value of a house can be discharged in bankruptcy, including second loans. Banks know that, and this gives borrowers much more leverage to renegotiate than banks will ever admit. Repeating: never, ever pay a second lien loan before paying your first.
Myth: Fight hard enough, buy a book, hire a non-lawyer “modification specialist,” and you’ll get a free house.
Fact: No, you’ll get kicked to the curb. Hire a high-quality, ethical foreclosure defense lawyer and they might win a modification, but free houses are extremely rare. Even when awarded, which is virtually never, banks can still often come back and demand some money for them. Your odds of ending up with a free house are probably better if you use your house payment to buy lottery tickets than arguing many of the theories I’ve heard (the lottery ticket quip is sarcasm: don’t try that either). Hire a licensed, ethical, and competent lawyer if you can’t afford your mortgage payment. Trying to negotiate with the bank yourself is usually an awful idea; call center workers tend to be sociopath like liars. Unless you’re a lawyer, and even then except in unusual circumstances, it’s usually best left to other lawyers.
Myth: The US is doomed; we’ll never dig out of this mess.
Fact: I know it seems awful but we’re not doomed. We’ll be OK, but it will take an honest dialog, hard work by public policy makers and bankers, and time. Right now time is the only one of those that seems to be substantively happening.
PNC: “We Don’t Do Fraud” .. Except, Of Course, They Do
“We don’t do fraud,” said financial predator Elizabeth Stevenson, a self-described employee of PNC Bank when answering a question about a brazen, overt violation of the CARD Act.
PNC allowed a one-time, non-recurring debit card transaction to push a bank account $18.62 underwater, then went on to demand and collect $214.99 in overdraft fees, paying nothing except the $18.62.
Even that amount was triggered by the misuse of that same debit card for a series of questionable nickel-and-dime purchases by Internet vendors; the carcass of this account was well picked-over by predators. But PNC, the bank that was supposed to protect the money, is by far the worst offender.
Stevenson’s co-worker, who goes by the nom de plum Alex “Jones” (Stevenson was appalled I had her real name) brazenly lied that the Federal Credit CARD regulation, which allows consumers to opt-out of debit-card overdrafts, only applies to checks.
Depending upon one’s interpretation this overt screw-you by PNC to Congress, the Federal Reserve, and banking regulators, either represents $214.99 in illegal fees — taking out the charge that should never have been processed — or 233.61 dollars, in that if these thieves this bank had followed federal law the charge would never have been processed.
Processing debit card transactions that have opted out of “overdraft protection,” which every consumer should, to push a balance to fall below zero, then assessing late fees, is absolutely, unequivocally banned by the Credit CARD Act. There is no ambiguity on this matter; this was one of the key provisions of the CARD Act. Despite Alex’s unsolicited legal advice to the contrary PNC is outright ignoring the law.
I some ways Alex’s advice was helpful, in that he verified charging overdraft fees on opted out accounts is a recurring “problem,” showing this is not a mistake but, rather, an pattern of overt fraud.
If PNC wishes to actually address the issue but doesn’t know Alex’s real name his direct dial phone number is 412-762-5638. Somebody from the legal department might want to call and have a chat with him, or maybe the Federal Reserve, the CFTC, and FBI, the OCC, or any mildly hungry class-action plaintiffs litigator. If anybody takes up the challenge, please tell Alex and his supervisors to preserve their all audio tapes in anticipation of regulatory action and litigation. They’re in enough trouble without adding destruction of evidence to the list of wrongdoing.
Some schmuck at PNC probably believes the 1,155% ROI they brought in from this scam is brilliant. Elizabeth sure did: she laughed at the notion anybody would sue the bank for “a little over $200.”
Luckily Congress thought the cost-benefit analysis better than the scam artists at PNC; the stunt will cost them $5,000 for each violation. If the class-action is filed in a loser-pays state a plaintiffs firm can net tens of millions of dollars with not much work than PNC did the $215. You see, PNC’s own computers will do most of the work; I’d be happy to help show how.
PNC received $7.6 billion in bailout funds, which you’d think would make them grateful, or at least vaguely law-abiding. Instead, they’ll probably ask for another bailout to cover their fraud costs.
PNC has obviously taken their cue from the Obama-Geithner Doctrine, the doctrine that anything that inflates a bank balance sheet, including outright criminal behavior, is good public policy. It’s clear that the Panderer in Chief sees these behaviors as a net positive, because they increase bank balance sheets.
Given the actions of the Federal Government in the MF-Global fiasco — they’ve done nothing — it’s clear that simply stealing deposits is included in Obama’s list of acceptable banking activities. It’s only a matter of time until banks start stealing deposits, PNC/MF-Global style, and label the behavior a brilliant business strategy. I can just hear a bank executive testifying, “who would leave their money just sitting there, in our depository .. the depositors should take more personal responsibility in protecting their own funds,” they’ll sneer.
It will be interesting to see if the Consumer Financial Protection Bureau (CFPB), which was set up to address exactly this type of scheme, does anything. This violation is so egregious, so illegal, and so well documented it will serve as a canary in a coal-mine.
Just to be clear, this was not an ACH payment, nor even a recurring debit-card payment; this was an ordinary debit-card payment, on a verified opted-out account, that resulted in fraudulent overdraft-fees vastly larger than the amount charged. Enabling small charges on opted-out accounts then assessing steep fees is exactly what the Credit CARD Act was created to prohibit.
Predatory PNC appears to be following a pattern from their thuggish older cousin Citi. Not long ago an alleged Citi whistleblower who sent me what they claim is a Citi collection script, as well as their internal settlement guidelines. I’ve been working to verify the authenticity of that chilling document which looks and sounds authentic.
If accurate then Citi routinely steers debtors into raiding their retirement funds, despite that every low-level collection agent has authority to wipe-out 2/3rds of credit-card debt, and up to 90% with further approval. To enable Citi to steer American’s into raiding their 401K’s Citi received $45 billion in bailout money, plus a government guarantee on the pile of junk debt they’re siphoning out of retirement accounts.
Once upon a time people traded in gold and silver. That was dangerous since thieves could see the bulky gold and silver then easily rob the person. In response banks sprang up, and issued private notes to be used in place of gold and silver.
That is, people once put their money in banks to keep it safe from thieves. Now it’s become apparent the thieves are in charge at many of the banks, allowing them to skip the inefficient mugging process.
Back in the day you had a literal fighting chance, you knew you’d been robbed, and if caught the robbers faced harsh justice. These days, computers enable thugs like PNC’s Elizabeth and Alex to do the same, then have the gall to label their practices “business.”
Thanks to the Obama-Geithner Doctrine the US has transformed from a place where banks had to earn the trust of people to where people are entirely at the mercy of lawless banks. Timmy’s sneer makes a better Sheriff of Nottingham than any actor I’ve seen play the role.
Needless to say, allowing these banks to operate in this manner, much less thrive, is terrible public policy.
Not long ago Elizabeth, Alex, and whoever their crime boss is would have been thrown into a dank dungeon, joining Jon Corzine who would have been hanging by his wrists for months already. It’s long past time we returned to those good old days.
Obama Administration Fights For Higher Rents
Over the past few days Obama announced a plan to Stick It To The Man, except the former community organizer has apparently become confused about who “The Man” is. El Presidente plans to hand defaulted landlords a potentially massive government subsidy at the expense of already stressed-out renters.
Before I go on, a disclaimer. I’ve been on one of those marathon programming session, the kind you see in movies. I’m working with one of my most ambitious data projects ever. Good data comes from large record-sets and large record-sets come from tedious aggregation algorithms. Working on housing and foreclosure data sounds fun and glamorous, especially when it’s featured in the news, but like anything glamorous behind-the-scenes the work is often mind numbing. I suppose that’s a good thing though, or more people would focus on collecting the data rather than speculating what data collected by others might mean.
While I’ve been on the compilers, President Obama has been on the airwaves, and he appears to have lost his his mind given some of the announcements I’ve seen rolling through my email inbox over the past couple days.
Personal confession: I’m a Democrat. I was an early and active Obama supporter, buying into the whole Hope & Change shtick right up until Rahm Emanuel labeled Democrats that disagreed with the President “retarded.” Later he apologized .. for using the word “retarded,” because it’s politically incorrect. Looking at Geithner’s sneer, Emanuel’s words, and Obama’s actions I came to the epiphany that I’d been had.
At the back of my mind, or sometimes the tip of my lips, comes Reagan’s line, “I didn’t leave the Democratic Party,” sayeth the Gipper. “The party left me.” My girlfriend put the slogan on a t-shirt telling me “take the hint, Olenick.” I still haven’t had the heart to wear the shirt.
OK – enough of that and on to those announcements from our Bank Panderer In Chief.
The first, and worst, is Obama’s plan to enable back-yard landlords to refi to lower rates, Boom-Era Property Speculators to Get Foreclosure Aid: Mortgages. Obama has worked out a plan to refinance landlords. There’s Corporate Welfare, then there’s corporate welfare, then there’s .. this. Except for ramping up Fannie and Freddie, then telling investors their bonds were a surrogate for the 30-year Treasury, it’s hard to think of a more poorly devised public policy move related to housing.
I don’t need data to rate the chance of defaulted landlords passing on their windfall by reducing rent or improving the properties they “own” .. zero. These are landlords that collect rent while the property sits in foreclosure, leaving the tenant unsure what will happen to them once the bank takes the property.
I’ll ignore that there are laws to protect tenants after foreclosures, because the banks routinely ignore those same laws. Tenants face the same problems as a person losing their home to foreclosure, except they oftentimes made every payment and just had the misfortune to rent from a crook. If you think getting a damage deposit back from your college-era landlord was difficult try a foreclosed landlord pocketing the rent.
I can make a strong moral argument that the value of the notes, the mortgage loans, would have plummeted but-for bailouts and argue the free market is not operating for owner-occupiers. But people renting are entirely different because the price of housing, including rents, would have dropped had those notes been liquidated in bulk. Therefore, there is a very real economic and moral issue demanding rent from somebody while not paying anything to the bank, externalizing the stress of what will happen when a foreclosure is complete to a third-party that is paying every month.
I met a couple not long ago who were renting a FL house that went into foreclosure. They wanted to purchase it but their landlord, who made it clear he’d ruin their credit by moving to evict them if they stopped paying rent, would not cooperate on a short-sale offer. At the same time he also made it clear they were on their own for maintenance.
Their lease expired and they purchased a home around the corner. They know that there’s still enormous market volatility but didn’t care; they love the neighborhood, can afford their house, and have no plans to move. Their former neighbors watched as their former house, sitting empty, deteriorated and was eventually sold as an REO for a fraction of what they paid for a similar house less than a block away.
Subsidizing their landlord, at the expense of these people who never missed a payment is, quoting Obama’s former Chief of Staff, retarded. It’s morally and economically unjustifiable.
Tenants who are current should be given an option to make a short-sale offer to the mortgage holder anytime a property goes into foreclosure, with or without the cooperation of their landlord. If accepted, and the landlord doesn’t cooperate to close the deal, the house would be fast-tracked through the foreclosure system — put at the front of the line — and REO’d to the people living there. State government could even allow the renter to divert their rent to pay the legal fees for the expedited process, and ban credit bureaus from reporting them as “delinquent.”
Obama announced two other policies. One is a plan allowing people to refi bubble-era FHA loans, reducing mortgage insurance premiums and interest rates. I’ll ignore the question of who took out an FHA loan back when pulse-loans were available at cheaper prices and cut to the point: how does this help revive the private label MBS market? It doesn’t.
If the Administration was willing to take a gamble on mortgage insurance why not offer it to private lenders willing to refi on the same or better terms? As long as these plum government programs are available, private lenders will not be able to compete and, until they do, we’ll be holed up in housing purgatory forever.
Finally is the Service Members Civil Relief Act settlement, where wrongfully foreclosed service members were given a strong settlement, usually a free house and a six-digit check. This is reasonable compensation to military personnel, and a justifiable penalty to the banks, but Obama had nothing to do with it: most major banks offered this months ago. There’s nothing new.
I worked on some of the data related to military foreclosures and don’t remember much of a push from the Obama Administration. Congressional Democrats were justifiably fierce about the issue but Obama was MIA. I don’t remember any involvement at all by the White House. If anything, people who knew people who knew people said that those people were interested in other things. I guess that meant crafting more bailouts while labeling members of their own party “retarded” for caring about the subject the White House now boasts about.
OK, my test data run is finished so now my blog post is too. 19,477,672 pieces of digital data sitting about where they belong. I can see there are a few hiccups — they need to be sitting exactly where they belong — so I’m back to the compilers.
I wish the Administration would work on fixing housing and the underlying economy in the same way I collect my data; maybe we really would see some hope, and we’d definitely see some change. Even if they worked as hard as I do when making my morning coffee would be an improvement. But putting yet another tiny bandage on the gory mess that is the modern US housing market is, again repeating Obama’s Chief of Staff .. OK; even bleary eyed from programming I can’t sink to his level and write it again.
Trouble For the Triple A’s
Paul Krugman has a good column this morning, States of Depression, where he’s noticed that cuts at the state and local level are accelerating and becoming a burden on the overall economy. I don’t always agree with Krugman but he’s dead-on with this one.
I’ve been studying housing finance reports extensively lately and can’t help miss how few of the AAA-rated tranches have taken losses. According to official reports everything is peachy-keen with the overall majority of houses in subprimeville.
Except that it’s not.
I’ve written extensively that there are a myriad of indicators showing that those losses are very real, that they will have to be accounted for, and that they’re coming soon to our front door.
For those not in the know, mortgages were bundled together into big pools — called securities for legal reasons, though they look like bonds in the same way a Siberian Husky resembles a wolf — under the notion that if you combine enough the whole pile cannot collectively fail. They were then divided into three sections, or groups, and each group usually divided into further subsections called tranches.
As losses hit these portfolios they were supposed to come from the bottom up, wiping out the lowest tier of the bottom group, then the next, and so forth. Sometimes this was changed slightly so losses from each group were held within the group itself, but it’s the same basic notion.
Most importantly, the bottom tiers were supposed to insulate the top-tiers. In fact, there was so much “buffer” built in that the top tiers they were deemed as safe as US debt by the ratings agencies and rated AAA; actually safer, given our shiny-new AA rating.
However, much of that buffer has been eaten away. Now that it’s gone we should be realizing the losses to the AAA’s but, rather, it’s “Houston (or, in this case, every other American city), we have a paperwork problem.”
Thanks to reckless, illegal, and unethical practices by mortgage servicers we really do have much worse than a “paperwork problem,” we had a fraud-fest that slowed down the foreclosure factory and delayed the losses. But that excuse is wearing thin and we have to face the more basic problem: we’re broke.
In much the same way that pooling together all those houses was supposed to make sure the whole collection could not fail, it made a countrywide (yes, that’s intentional) decline in house prices push down the entire pool. Rather than mark the losses we changed the accounting rules so that those losses could be delayed. Reality has a way of catching up though, and we’re about there.
Who invested in these AAA’s? Pension funds, life insurance companies, city, county, and state governments, college endowments; organizations that either should or were legally required to make extremely conservative investments. Know those annuities your uncle Lew said would always pay .. the money’s likely supposed to come from the AAA’s.
The number of people hurt by the micro-economic effect of the housing bubble and ensuing foreclosure fiasco has been relatively small, thanks to the bailouts. Love them or hate them — and I have to admit, I’m not such a big fan though I am beginning to understand them better — they buffered a severe blow to the economy.
All that will change soon as the AAA’s topple. It’s not a question of if, just when .. and when comes closer every day.
Uber analyst Meredith Whitney famously predicted widespread municipal failures, and was famously “wrong” as muni bond prices declined thanks to some magic force propping up the market. That force is called fraud, accounting fraud, and those muni’s will melt to mush. Just like Jefferson County’s sewer system left the residents there in the financial crapper, so too will those AAA’s; they’re a cancer that’s being ignored (“Judge .. can we delay this sale a sixth time,” asks the bank lawyer).
I’m thinking of a comment I read a couple years ago from a man who said that he’s worked as a state government employee his whole life but who’s now retiring and moving to a different country to enjoy low taxes. Somehow this putz didn’t see the correlation between his cushy lifelong pension to those same taxes.
Hopefully he’s having fun because it won’t be long until those fat checks for the tax-hating fat-cat bureaucrat will take a Marine-style haircut.
It’s virtually certain that a large percentage of his checks, and those that fund and fuel local spending, are invested in those AAA’s, and that those losses have not been accounted for. At one point towards the end of last year Florida’s pension fund was reporting an 18% return, in a year when most hedge funds reports losses, thanks to the delusional way we account for AAA losses.
Maybe the people of the city, county, or state he “served,” with resentment will be willing to see their property and sales tax tripled to support sending pension checks to far-flung ingrate retirees like him. Somehow I doubt it, especially since the anti-government feelings he embraces are widespread, and taxpayers resent being taxed for retiree pensions they themselves don’t have. More likely are upcoming municipal bankruptcies to thrown him, and those like him, under one of the soon to be idled buses.
Whitney is right but, thanks to fraud, her timing was off. When those losses start to hit everybody will feel the pain. Schools will be shut-down, services slashed, and fees increased. Soon we’ll be Greece, with fewer islands and lousier food.
One day we’ll look back upon the last few years and wish we’d had an honest discussion about how to quickly push down those principal levels and put a real floor on the housing market — and the structured finance products behind it — rather than the dysfunctional dialog that’s been ongoing.
Four Year Old Foreclosure .. Oops, Wrong Bank
“Equity imperatively demands of suitors in its courts fair dealing and righteous conduct with reference to the matters concerning which they seek relief. He who has acted in bad faith, resorted to trickery and deception, or been guilty of fraud, injustice, or unfairness will appeal in vain to a court of conscience, even though in his wrongdoing he may have kept himself strictly ‘within the law.’” Epstein v. Epstein, 915 So.2d 1272 (FL 4DCA, 2005), emphasis added.
I’ve written several times about my own foreclosure. I purchased a house with a girlfriend, the idea being it would appreciate then she would refinance and pay me back the $75K I brought to closing.
First, let me say to readers, friends .. this is an awful idea. I’d say don’t try it at home, but it’s more accurate to say don’t try it on a home. :)
Predictably, we quickly split up and I eventually purchased my own house, that I’ve since paid for.
My ex-girlfriend still lives in the other and soon after we split I asked the “bank” — knowing then virtually nothing about the mortgage industry — what to do. ”Stop paying for three months then you can short sell it,” they answered. ”This is a full-doc loan with a substantial down-payment, no second, in an area with rapidly decreasing value; a short sale should be easy.”
I followed their advice, even going so far to paint, improve landscaping, and pretend I really was selling a house rather than mitigating a breach. That worked well because I received two short-sale offers, both above generally acceptable values. One was for cash and the other a 50% down-payment on a pre-approved loan.
Both legally binding offers had clear, unambiguous deadlines, and I was asking the bank for no concessions other than to close the deal. That is, I was attempting to mitigate a breach in good faith. This wasn’t a strategic default, though I do not see anything wrong with strategic defaults; this was “owning” a house with an ex-girlfriend and reasonably desiring not to.
My “bank,” perennial bad-boy Aurora Loan Services — who had “purchased the loan” from the originating “bank,” GMAC not long before — accepted the offers months later, after they’d expired and after the value of the house plunged. Needless to say, those buyers were long gone.
While Aurora was extremely slow to mitigate the breach they’d induced they were extremely fast to hire fraudster David J. Stern to file a foreclosure.
I honestly find many foreclosure stories boring, and a little sad, so I’ll cut to the end: the latest law firm — the formerly venerable Broad & Cassel — filed their third amended complaint, and an umpteenth copy of the note; that is, the loan. It is clearly and unambiguously endorsed to Deutsche Bank, who is named nowhere in the lawsuit.
Deutsche Bank, the owner of the loan, appears nowhere in the foreclosure except on the note itself. Assuming Stern didn’t forge the note — which, for Stern, is admittedly a big assumption — I’ve been sued by the wrong bank.
At this point, I’m ready to write my own foreclosure.
This should have been a short-sale years ago, with little or no loss to investors. Instead it’s turned into a fiasco: years of protracted litigation and junk fees as Aurora continues to slog along. No doubt the loss severity will reach some threshold — 100% give or take a little — where they’ll magically figure out how to either prosecute their foreclosure or reappear and offer to close this never-ending saga.
Every month investor losses needlessly mount. Every month my credit sits in the tank. Oh yeah, and every month Aurora continues to collect higher servicing fees.
If Aurora had fulfilled their obligation to investors and to me to mitigate this breach, and closed that short sale, they would have collected nothing for the past couple years. Zero is much higher than the net amount I suspect they’ll end up with on this loan after the inevitable lawsuit against them by investors and/or the mortgage insurer.
Aurora can forget a statute of limitations defense: every month this continues they reset the clock for the inevitable fraud claims.
Forget the “living for free,” nonsense: if I amortize the amount I put down for that house, the payments I made, and the time I lived there I could have purchased it for cash at its current value. My ex-girlfriend has been living for free for years (no comment on my current longtime girlfriend’s feelings about that), but she is not me.
At least one law firm that worked on this fiasco, Stern — who Broad & Cassel has plead deserves to be paid for his malpractice — has disappeared in a fabulous and famous explosion of fraud after my data proved he was a sociopathic liar. Boom.
The second law firm, outfit run by Elizabeth Wellborn, quickly vanished after I wrote to Lizzie that I looked forward to finding out who her “friends at the courthouse” that will “speed your eviction” are, a statement she’d posted on her website. Ciao.
I have no idea what’s happened to Aurora’s OCC loan reviewer, Allonhill, after I found the company was founded and run by the same woman who’d run a prior company, Murrayhill, that created and audited Aurora’s default practices. I suspect it’s see ya’ Susie.
At some point I hope to find out which trust actually owns this loan — even with my large data sets my own loan has disappeared — so I can work with the investors and the mortgage insurer to bring about some justice to Aurora Loan Services. They deserve to join the ranks of the incompetent vendors they’ve hired.
Something is seriously wrong when a borrower spends years trying to bring a foreclosure to fruition only to be frustrated by vendors of the servicer — who, thanks to Lehman’s bankruptcy, may not even have paid for servicing rights — at the expense of bond investors and the mortgage insurer.
Foreclosure is what lawyers call an “equitable remedy.” Any party with “unclean hands” is theoretically unable to receive “equitable relief,” in courts operating under equity, mainly foreclosure and family court. The rule is easy and ancient: if you lie you lose.
Dismissal for unclean hands seldom happens though strict enforcement would be better for everybody that matters. Investors and mortgage insurers could sue servicers and their lawyers for the losses as the cases are dismissed. Judges would clear their dockets and, thanks to malpractice insurance, investors would get paid. Investors would still be able to force borrowers to pay something under a doctrine where you can’t get free houses, but that something would likely be something affordable.
Hopefully I’ll get the chance to work with the genuine parties who lent me money to rip back the money Aurora meant to make for month after month of delay, for this loan and every loan like it.
