Category Archives: foreclosure crisis

Meet the New Boss

Here is a fairly scathing review of Obama’s presidential performance that you should read, written by Dr. Drew Western, a professor of psychology who advised Democrats in the last election.  He definitely gives voice (and then some) to the sense of frustration felt by the progressive left over what has to be considered a year of wasted opportunity.  If I had to summarize Obama’s freshman year in office, it would be: “stabilize the stock market, and fuck the rest”.

Maybe all the recent healthcare drama is inducing amnesia, but I’m having a hard time identifying any significant policy changes from the Bush years.  There’s been no rebuke of the torture years, just a polite brushing under the rug.  There’s been no check on the titans of Wall Street (even the Brits instituted a 50% tax on bank bonus payments).  Anyone recall anything remotely close to that over here?  (This blog doesn’t count).  We’ve got escalation in Afghanistan, and even the Iraq troop drawdown is following the Bush timeline.  McClatchy has a truly infuriating story about the Home Affordable Modification Program (HAMP) which was supposed to help people facing foreclosure stay in their homes, but instead is helping banks to fast-track the eviction process:

To date, more than 759,000 trial loan modifications have been started, but just 31,382 have been converted to permanent new loans. That’s averages out to 4 percent, far below the 75 percent conversion rate President Barack Obama has said he seeks.

In the fine print of the form homeowners fill out to apply for Obama’s program, which lowers monthly payments for three months while the lender decides whether to provide permanent relief, borrowers must waive important notification rights.

This clause allows banks to reject borrowers without any written notification and move straight to auctioning off their homes without any warning.

[...]

Flores bought her home in 2006 for $352,000. Records show that it has a current fair-market value of $99,000. The new owner bought it for $78,000 at an auction Flores didn’t even know about.

You can’t even blame Bush for this one.  Explain to me why it is better for a bank to sell a place to real estate vultures at below market value, rather than let the owner-occupant renegotiate (i.e. cramdown).  We really are on the road to neo-feudalism.  Peace be with you, fellow peasant!

UPDATE

While in no way, shape or form endorsing the thinly veiled racism… this is fun:

Blame it on Bubba

The tire iron wielding Bubba isn’t alone in his hatred, ignorance and xenophobia…the folks over at Wall Street feel the same way toward the poor masses. How else could one explain their continued adherence to the notion that the nations poor are to blame for the worst global financial meltdown in 100 years? This quote from the WSJ Op-Ed pages is patently ridiculous to anyone with even a basic understanding of what caused the meltdown:

Fifty percent of the high-risk loans are estimated to be CRA (Community Reinvestment Act) loans, with much of the remainder useful to the GSEs (Government Sponsored Enterprises) in meeting their affordable-housing goals.

The flood of CRA (Community Reinvestment Act) and affordable-housing loans with loosened underwriting standards, combined with declining mortgage interest rates-to 5% in 2003 from 10% in early 1991-resulted in a massive increase in borrowing capacity and fueled a house price bubble of unprecedented magnitude over the period 1997-2006.

So the government is to blame for the crisis because they made it so much easier for poor people to buy a home…right.

The reality of what happened is pretty well summarized in “Fool’s Gold”…I think this review of the book is spot on. The only way bad mortgages take down the entire financial system is when they are used as the ‘raw material’ for speculation by the investment community, whose insatiable appetite for risk, for betting on just about anything, and unfettered greed will always destroy any sane conventional system of banking. History has shown us this several times…Greenspan’s now infamous ‘shocked disbelief’ is laughable when you consider a historical perspective. Or maybe it was those irresponsible poor people who didn’t read the fine fine fine print on the terms of their sub-prime mortgage, right Wall Street?

Teevee news I would watch

This is for all the Saturday morning InRoads monkeys out there…

Don’t know if anyone has been keeping track in the sidebar, but Matt Taibbi has opened up a floodgate of Goldman Sachs bashing, which I love of course.  To be fair, they’ve brought it on themselves, with their recent announcement of record bonus payments in the midst of the worst recession since the Great Depression.  But Taibbi has made it mainstream to call them out for the swindlers they are.  Here’s all the must-read/watch pieces:

Taibbi: The Great American Bubble Machine

What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.

Elliot Spitzer on Bloomberg teevee

More Taibbi: The Real Price of Goldman’s Giganto-Profits

Taken altogether, what all of this means is that Goldman’s profit announcement is a giant “fuck you” to the rest of the country. It is a statement of supreme privilege, an announcement that it feels no shame in taking subsidies and funneling them directly into their pockets, and moreover feels no fear of any public response. It knows that it’s untouchable and it’s not going to change its behavior for anyone. And it doesn’t matter who knows it.

Paul Krugman: The Joy of Sachs

The American economy remains in dire straits, with one worker in six unemployed or underemployed. Yet Goldman Sachs just reported record quarterly profits — and it’s preparing to hand out huge bonuses, comparable to what it was paying before the crisis. What does this contrast tell us?

First, it tells us that Goldman is very good at what it does. Unfortunately, what it does is bad for America.

Second, it shows that Wall Street’s bad habits — above all, the system of compensation that helped cause the financial crisis — have not gone away.

Third, it shows that by rescuing the financial system without reforming it, Washington has done nothing to protect us from a new crisis, and, in fact, has made another crisis more likely.

Then there’s the new scandal brewing involving the former employee who supposedly stole their software that has the ability to unfairly manipulate markets.  Interesting that Goldman would come forward with this info only after the software was released into the wild.  Surely they themselves never used it for nefarious purposes while it was still under their control!  What makes this story all the juicier is that prior to the news, Zero Hedge had been tracking Goldman’s “program trading” volume on the NYSE for months and became convinced that they were manipulating markets.  Possibly through “front-running”, in which, oh, say, they had a program that monitored their online client’s stock purchases.  Before letting a purchase through, Goldman would then pre-buy the stock themselves, then let the client’s buy happen, then sell their own recently bought shares, which would have appreciated in value by an infinitessimal amount over the previous microsecond.  Consider that Goldman’s online trading volume is twice as high as its nearest competitor.  Further consider that as speculation mounted, NYSE suddenly announced they would no longer issue their daily program trading reports that Zero Hedge was analyzing.  Cap that off with the twin announcements of rogue software and record bonuses, and I’m declaring it’s once again pitchfork and torch time.

No shame being poor, but might as well be

I heard a report recently on local public radio talking about the various tent cities that have been popping up around Baltimore, as more and more people slip through the economic cracks.  They profiled a man and woman, probably late 30′s / early 40′s, recently out of doors.  They’re living in the woods off of 8th Avenue in Glen Burnie, probably a few blocks away from where Reefercake and Monkey Woman saw G Love kickboxing behind his tour bus roughly 10 years ago.  But I digress…

A couple of things struck me about the interview.  For one, these people were still employed (at least the woman was).  She commutes to a job as a nurse’s assistant or some such thing in Columbia, MD, which is no small commute.  So they still have a car.  When asked how they came to be homeless, the dude said something to the effect that living in motels was too expensive.  They’re basically trying to save up enough money to get back on their feet, and maybe into an apartment.

Anyway, the reporter made a point of asking if they still considered themselves to be “middle class”. The question pissed me off.  After a brief instant of perplexion - probably thinking the same thing I was: “asshole!” – she replied that she did, though their current circumstance was one of poverty.  

God bless her for being gracious, but what was the point of that question?  Reasonable people can have different definitions of what constitutes middle class, but homelessness does not make the cut under any scenario.  Even people in the “lower” class still have a roof over their heads.  So what was the reporter asking?  Was he just taunting these people?  (“They so poor, they think they middle class!”)

Perhaps the reporter thinks “middle class” is just a state of mind.  If so, that’s good news for all these fools about to lose their homes in the next wave of home foreclosures:

The Wall Street Journal reports that estimates of people underwater on their homes (owing more than it is worth) are anywhere from 15-27 million homes.  In other words, the low end (15 mil) represents 1/5 of all owner-occupied homes.  Combine these numbers with continued job losses, and the prognosis for the next two years looks bleak.  That the Senate voted to kill the cramdown provision in the face of this crisis is unconscionable.  To quote Sen. Dick Durbin last week:

And the banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place.

At least somebody still owns something.  To get back to our homeless couple, I think what the reporter was really asking with the “middle class” question was, “do you still consider yourself to be respectable?”  The listener is meant to find their affirmative response to be surprising and ironic. The very premise of the question is offensive, really, and only illustrates Kurt Vonnegut’s observation that our culture affords no dignity to its poor.  

But hey, who needs dignity when you’ve got Tent City?

No matter what you do, it’s Tent City for you

Could California’s economic crisis be the shit sandwich that puts reefer back on the menu?

Tom Ammiano, a San Francisco Democrat recently elected to the state legislature, announced that he was introducing a bill that would “tax and regulate marijuana in a manner similar to alcohol” in the state of California. According to Mr. Ammiano, Assembly Bill 390, which would impose a tax of $50 per ounce on marijuana sales, “would generate $1 billion in new revenue” for the state if it is enacted — and that’s a big “if.”

The San Francisco Chronicle reports that there is some backing for Mr. Ammiano’s proposal from state officials whose duty it is to enforce the current laws against marijuana, as well as from those who must balance the state’s books:

Ammiano’s proposal has the support of San Francisco Sheriff Michael Hennessey, who said the idea “should be the subject of legislative and public debate.”

It also has the backing of Betty Yee, who chairs the state Board of Equalization, which collects taxes in California. An analysis by the agency concluded the state would collect $1.3 billion a year from tax revenues and a $50-an-ounce levy on retail sales if marijuana were legal.

Meanwhile, down by the river, tent city is thriving outside the state capitol:

Tent cities — much like the “Hoovervilles” of the Depression — have sprung up elsewhere around the country. But Sacramento, with one of the highest foreclosure rates, has one of the biggest, with a population of “easily 300,” said Rob Fong, a Sacramento city councilman, and it is “definitely growing.” “It’s an unfortunate sign of the times,” he said.

This tent city is in a place of great natural beauty, between two rivers, with birds and open sky and a relatively mild climate. Homeless people have lived there for years, largely unseen, but as more working class people move in, the tents are multiplying and becoming harder to ignore.

The official count of homeless people in Sacramento is 1,226 people, and they are spilling out to the tent city because the housing shelters are full; one of the shelters is turning away more than 200 women and children a day.

The same article states that 10% of Sacramento’s rental housing is vacant, along with 5% of owned homes. Despite this glut of available living space, the mayor is talking about making tent city a permanent settlement (in other words, adding toilets).  You can’t just put these people in proper homes, because, you know, “it’s private property”.

Froggy went a-courtin’ (CRAMDOWN)

Last week the centrist Democrats, at the behest of their banker overlords, postponed a vote on a House bill that seeks to stem the ever-increasing rate of home foreclosures.  Among other things, the bill includes a “cramdown” provision that would allow people to renegotiate the terms of their primary mortgage.  That legislation is supposed to be re-visited today; it remains to be seen how they will attempt to water it down.

Needless to say, the financial geniuses at the lending institutions who approved these crappy loans are opposed to having their crappy investments devalued in bankruptcy court. They’d actually prefer to have these loans go unpaid and keep their inflated values on the books than to put the homeowner back into a position where they can continue to make payments.  In other words, they’d rather force people out of their homes than take a hit to their bottom line.  

Much like Willy Wonka’s squirrels, this foreclosure bill separates the “good” nuts from the “bad” nuts as far as Democrats are concerned.  Not to go all Nader on you, but the monied interests are just as cozy with the Dems as they are with the Repugs.  The only difference is the Democrats have an activist base that attempts to hold these swine accountable.  Jane Hamsher writes

[Head of the New Democrat Coalition, Rep. Ellen] Tauscher’s office also said she hasn’t met with any bankers or lobbyists on the matter, and that may well be true. She doesn’t have to. Adam Pase, the executive director of the New Democrat Coalition which Tauscher chairs, works directly out of her office.

Pase is a former lobbyist for the Twenty First Century Group, whose client, the Coalition for Fair & Affordable Lending, is an astroturf group, financed by the banking industry, that lobbied on behalf of. . . you guessed it. . . sub-prime lenders. Contrary to what you might hear on Morning Joe, it was national civil rights leaders who joined together tofight the Coalition’s predatory lenders as they tried to pass the Ney-Kanjorski bill, which would have enabled banks to get around predatory lending laws and make more bad loans. This they justified based on the oh-so-high-minded need to provide loans to low income and minority borrowers. It was true scumbaggery.

I’m very interested to see where this goes today.

Some quick notes:

  • The “cramdown” provision only applies to the mortgage of a primary residence… Why?  Because “people with vacation homes and investment properties, including flippers, can already go to bankruptcy court and have their loan terms modified.”  Ya got that?  It’s only the poor schmo who’s only got one house to lose that’s left squirming on the hook.
  • I’m sure I read somewhere that, if and when the value of the home goes back up, the bank could seek to recoup the original amount of the investment upon sale of the home.  (Or maybe I’m just mis-remembering the line of bull they feed us every time the Fed proposes we purchase Wall Street’s toxic assets at inflated prices.)
  • Up until 1993, the cramdown provision was law.  Not only did it help the homeowner in distress, but it also provided a (now obvious) check on unrestrained lending by banking institutions who had to fear writedowns on their investment if they made ill-advised loans.  Think that could have helped our present situation?  (See this excellent discussion of the importance of cramdown legislation over at Calculated Risk… in 2007, back before Congress killed it the last time… thanks, assholes!)…
In fact, I have some sympathy with the view that mortgage lenders “perform a valuable social service through their loans.” That’s why, when they stop doing that and become predators, equity strippers, and bubble-blowers instead of valuable social service providers, I like seeing BK judges slap them around. Everybody talks a lot about moral hazard, and the reality is that you’re a lot less likely to put a borrower with a weak credit history, whose income you did not verify and whose debt ratios are absurd, into a 100% financed home purchase loan on terms that are “affordable” only for a year or two, if you face having that loan restructured in Chapter 13. If you are aware that your mortgage loan can be crammed down, I’m here to tell you that you will certainly not “forget” to model negative HPA in your ratings models, and will probably pay more than a few seconds’ attention to your appraisals. You might even decide that, if a loan does get into trouble, you’re better off working it out yourself, via forbearance or modification or short sale, rather than hanging tough and letting the BK judge tell you what you’ll accept. That would be a major bummer, right? 

I love the phrase “moral hazard”.  It neatly confers victim status upon the kindly mortgage lender, while forcing the rapacious homeowner, whom it would be “immoral” to help, out into the street.  Nevermind the predatory actions of the lenders, who were an equal (I would say more than equal) party in the failed transactions.  Cramdown seeks to stem foreclosure rates.  With increased foreclosures, the housing market is flooded with realtor-owned houses – and  I guarantee nobody is buying them at their previous loan prices.  So these banks are taking a hit regardless – and they want to drag everyone down with them.

I would suggest that the moral hazard here is indeed heavy on the hazard, though low on morals.  How deep does this hole have to get before we have some responsible action?

Still not convinced about cramdown?  Here’s some more facts, courtesy of Anita Hill (via FireDogLake):

Women borrowers are overrepresented in the subprime lending market…Across the economic spectrum, women receive less favorable terms than similarly situated men on home purchase, refinance, and home improvement loans….

Elderly women are prime targets of refinance and home improvement subprime lenders….Rising property taxes and medical expenses make older women on fixed incomes particularly susceptible to lenders who promise money for necessary repairs, but instead exact huge fees and charge inflated interest rates….

A former loan officer testified about how she marketed subprime mortgages: “If someone appeared uneducated, inarticulate, was a minority, or was particularly old or young, I would try to include all the [additional costs] CitiFinancial offered.”

And lastly, for the heartbreak…

(thanks again to FireDogLake who has been all over this issue)

* * *  UPDATE  * * *

The House continues with suspensions today, apparently delaying consideration of H.R. 1106 at least another day. That gives us another day to contact your Representatives and Senators in support of the bill and in opposition to further weakening amendments. Mortgage modification keeps families in homes, and keeps banks getting paid. Tightening the noose any more just means more homeowners will give up and throw the keys back in the bank’s face — and then the banks will come to the rest of us eventually, anyway, only this time for a bailout check.