The NY Times is righteously unrelenting in its coverage of the U.S. foreclosure crisis, once again, in Thursday's edition. Gretchen Morgenson and Andrew Martin provide some of the very best coverage I've read to date on this escalating story in the paper's lead: "
Battle Lines Forming in Clash Over Foreclosures." Perhaps better than I've read anywhere else over the past month, today's front-page story lays out trenchant facts and numerous other brutal realities which all drive home the truth that it was Wall Street's quest for profits which have brought this monumental mess to where it is, today.
Battle Lines Forming in Clash Over Foreclosures
By GRETCHEN MORGENSON and ANDREW MARTIN
New York Times (Page A1)
October 21, 2010
...Mortgage documents of all sorts were treated in an almost lackadaisical way during the dizzying mortgage lending spree from 2005 through 2007, according to court documents, analysts and interviews.
Now those missing and possibly fraudulent documents are at the center of a potentially seismic legal clash that pits big lenders against homeowners and their advocates concerned that the lenders' rush to foreclose flouts private property rights.
That clash -- expected to be played out in courtrooms across the country and scrutinized by law enforcement officials investigating possible wrongdoing by big lenders -- leaped to the forefront of the mortgage crisis this week as big lenders began lifting their freezes on foreclosures and insisted the worst was behind them.
Morgenson's and Martin's passing mention of a meeting of federal officials in Washington on Wednesday, however, was very much contorted by the real estate- and mortgage-industry trade media (See: "HUD Secretary: Foreclosure problems not 'systemic'") into something quite different than what we read not only in the Times' coverage of this unfolding drama, but in the actual text of the trade media outlet's piece:
HUD Secretary: Foreclosure problems not "systemic"
by JON PRIOR
Housing Wire
Wednesday, October 20th, 2010, 4:26 pm
Department of Housing and Urban Development Secretary Shaun Donovan said recent foreclosure problems at some mortgage servicers are not "systemic issues."
--SNIP--
Donovan added that so far the review has shown significant differences among the servicers, and that while some have shown errors in the foreclosure process, others have not.
"Where there have been mistakes made or errors, we will hold those entities, those institutions accountable to stop those processes, review them, and fix them as quickly as possible," Donovan said.
In between the opening and closing graphs of the Housing Wire story, however, we learn that reviews and civil and criminal investigations concerning the foreclosure crisis are currently underway in no less than 14 different government agencies:
--The Federal Housing Administration
--The Financial Fraud Enforcement Task Force (led by the DoJ) "is working with 20 federal agencies, 94 U.S. attorney's offices and dozens of state and local offices" (supporting an information-sharing initiative regarding foreclosure and servicing practices)
--The Federal Housing Finance Agency
--Fannie Mae
--Freddie Mac
--The Office of the Comptroller of the Currency
--The Office of Thrift Supervision
--The Federal Reserve System
--The Federal Deposit Insurance Corp.
--The Federal Trade Commission
--The Treasury Department
--The Securities and Exchange Commission
And, of course, that doesn't include the 50 states' attorneys general and the FBI, all of whom are conducting their own investigations.
Back to the NY Times' coverage, today...
...In short, the legal disagreement amounts to whether banks can rely on flawed documentation to repossess homes.
While even critics of the big lenders acknowledge that the vast majority of foreclosures involve homeowners who have not paid their mortgages, they argue that the borrowers are entitled to due legal process.
Banks "have essentially sidestepped 400 years of property law in the United States," said Rebel A. Cole, a professor of finance and real estate at DePaul University. "There are so many questionable aspects to this thing it's scary..."
And, while I will give HUD Secretary Donovan the benefit of the doubt here, the bottom line in the Housing Wire story is the following, in terms of the extent to which Treasury Secretary Geithner's office has indicated that it's onboard:
...The Treasury Department issued a notice to mortgage servicers on Oct. 6 participating in the Home Affordable Modification Program, reminding them of the requirement to exhaust all possible loss mitigation options before foreclosing on a home...
The reality is that, as of today, the HAMP program has been one of the biggest failures of practically all of our government's programs associated with the Great Recession: "HAMP Seen Hurting Housing."
Here's McBride from Calculated Risk, from the very beginning of the year. Is this guy prescient, or what?
HAMP Seen Hurting Housing
by CalculatedRisk on 1/01/2010 09:15:00 PM
From Peter Goodman at the NY Times: U.S. Loan Effort Is Seen as Adding to Housing Woes
The Obama administration's $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good...
--SNIP--
* For the people that qualify - and aren't deep underwater on their homes - HAMP is a fine modification program. However there is no way this program will "reach up to 3 to 4 million at-risk homeowners". I noted HAMP would probably be a disappointment when it was announced early last year...
--SNIP--
...None of these programs is especially attractive, so I expect more delays and "can kicking" that will keep foreclosures elevated for years.
And, here's Binyamin Applebaum, also in today's NYT: "U.S. Tries to Ease Wider Worries Over Foreclosures."
U.S. Tries to Ease Wider Worries Over Foreclosures
By BINYAMIN APPELBAUM
New York Times
October 21, 2010
WASHINGTON -- Administration officials renewed efforts on Wednesday to ease concerns about the integrity of the foreclosure process, saying that no evidence had emerged so far of any problems that threatened the health of the financial system.
--SNIP--
"We have not found any evidence at this point of systemic issues in the underlying legal documents," said Shaun Donovan, secretary of housing and urban development. He added that the reviews remained at an early stage and that the government hoped to complete the work this year.
Mr. Donovan, speaking at a White House news conference, also sought to shift the focus of public concerns about the foreclosure process. He said the administration was more interested in making sure that mortgage companies helped homeowners avoid foreclosure by modifying or replacing unaffordable loans.
A government investigation started in May has found that some large mortgage companies are not offering borrowers a fair chance to modify loans, Mr. Donovan said. The companies are required to offer the modifications because the loans in question are guaranteed by the Federal Housing Administration. Mr. Donovan said the government would act shortly to enforce compliance...
Sorry Mr. Secretary, I'm trying real hard to give you the benefit of the doubt, but you're coming off looking kind of lame. And, frankly, many others (including yours truly) cite inconvenient realities (coming from...[AHEM!]...a certain other cabinet secretary and his offices) that tell us there's a conflicting agenda (more about that in a moment).
Since this story first started making it to the MSM, about a month ago, it's focused upon "...the connection between Wall Street private equity firms and those law firms, often known as foreclosure mills." See the third story in today's NYT on this--this one's the lead in the paper's business section--for more info, excerpted immediately below: "Foreclosures Profit Some Equity Firms."
Foreclosures Profit Some Equity Firms
By BARRY MEIER
New York Times (Page B1)
October 21, 2010
With a surge in lawsuits against law firms specializing in foreclosures, a case in Mississippi is casting light on another aspect of the mortgage mess -- the connection between Wall Street private equity firms and those law firms, often known as foreclosure mills...
--SNIP--
"We have been keenly focused on the mortgage-default services space," the buyout fund stated in a 2007 news release. "The space is important to our strategic investors which represent six of the top 10 mortgage investors/servicers."
--SNIP--
Law firms receive a relatively low fee from companies that service home loans, say about $1,200 a case for handling a foreclosure-related proceeding. But those fees can translate into big profits for lawyers and their private equity partners when tens of thousands of foreclosures are involved. The law firms and the private equity firms have structured these deals with an eye toward avoiding legal statutes and ethical rules like those that bar fee-splitting between lawyers and nonlawyers.
--SNIP--
In its S.E.C. filing, Prommis alerted potential investors that it could face challenges from bar associations, prosecutors or homeowners that its relationship with its law firms constituted the "unauthorized practice of law" or involved "impermissible fee sharing" arrangements.
Prommis also stated in that filing that any steps that slowed the pace of foreclosures, like government programs that helped homeowners renegotiate loans, would hurt its revenue.
Bold type is diarist's emphasis.
Ah, yes....using my best Maxwell Smart impersonation: "The old hurt - its - revenue - if - we - don't - screw - Main - Street" trick!
Well, of course, we all know that when it comes to our government and Wall Street making a decision between hurting the status quo's revenue streams versus screwing over Main Street, the little guy loses every time!
In case you're wondering what's really going on here, I'll let former Goldman Sachs Managing Director Nomi Prins fill in the blanks, from Alternet, last Thursday (h/t Zero Hedge): Why Is the White House Against Freezing Foreclosures in the Face of Rampant Fraud?
Why Is the White House Against Freezing Foreclosures? A Look At The Fed's Suddenly Worthless Trillions In MBS Holdings
Nomi Prins
Alternet.org
October 14, 2010
...The government owns or is backing trillions of dollars worth of assets predicated on the same or similar suspicious loans that defaulted during the 2008 crisis period, which they did nothing to stop (or force banks to restructure).
Instead, the Fed now owns nearly $1.5 trillion of toxic assets that have no bid (meaning no one but the Fed wants them). They would have less of a bid if there was even more uncertainty about the loans that fill them. The Treasury is directly backing $400 billion of government-sponsored entity (GSE) securities, and is indirectly backing another $6.8 trillion. If foreclosed homes couldn't be sold because of fraudulent paperwork or had to wait for more detailed inspections, you can imagine how difficult selling assets stuffed with faulty loans might be. If it's tough to find a title for a foreclosed home, think how tough it is to back the related loan out of a pyramid of securities sitting on top of it.
See, the loan that might be analyzed in a foreclosure situation could be part of a chain connecting the underlying home to 20 or 50 different securitized assets, all depending on it for either the interest payments the loan was supposed to provide, or the value of the foreclosure property if those payments stopped (in Wall Street speak, the "recovery value"). If a foreclosed property isn't selling, it's not recovering any money back to any asset waiting for it. Think what that can do to the value of toxic assets living at the Fed and the Treasury Department. Kill it.
--SNIP--
Foreclosure fraud is not new. Many sane people and organizations have been talking about fraud for years -- you don't manufacture $14 trillion worth of mortgage-backed securities and all their permutations and mega leverage out of $1.4 trillion worth of subprime loans in five years without cutting a lot of corners. Banks knew that. But when the value of their assets plummeted, unlike individual borrowers, they got to dump them on the Fed and the Treasury department, while receiving cash injections and guarantees, and cheap money subsidies in return.
Geithner's stance is a sad reminder of how much things have resumed to business as usual...
--SNIP--
Selling REOs to hedge, private equity and asset management funds in bulk is the hot new business. (Small now, but so were CDOs when I first warned about them in my 2004 book, Other People's Money.) Banks aren't being nice to those deadbeat borrowers who were too dumb to foresee a housing and financial market collapse due to the overzealous fee-seeking attitudes of securitizing and trading banks. No, having gotten a multi-trillion dollar federal life raft, the big banks are prudently trying to salvage a growing business.
Meanwhile, Geithner and Bernanke are helping them, desperately trying to maintain the illusion of recovery and the narrative that their previous efforts worked, amidst the stockpile of crap they own...
By the way, Ms. Prins didn't even mention "The $1,387,796,500,000 Off-Balance Sheet Securitized Real Estate Loan Question." (The reference to $1.4 trillion worth of subprime loans, up above, is [almost entirely] unrelated to the off-balance-sheet issue, described below.)
The $1,387,796,500,000 Off-Balance Sheet Securitized Real Estate Loan Question
Zero Hedge
10/20/2010 10:56AM EDT
With all the hoopla around fraudclosure, it appears that pundits seem to be forgetting one important thing: namely, the fact that in addition to the $6.8 trillion in loans and leases in bank credit (per latest H.8) which is kept on the ponzi books (those afforded the mark-to-unicorn treatment by the FASB), there is also this little thing known as off-balance sheet securitization. And while the Fed was good enough to force the reclassification of around $400 billion in securitized consumer loans to bank books in March, the question of why a far greater number of securitized real estate loans continue to be carried off the bank books is (or should be) suddenly rather timely. Especially since the number is rather large: some $1,387,796,500,000 as of October 6 (seasonally adjusted) which also represent the bulk of off balance sheet holdings. Perhaps some of those very vocal advocates of how this whole mortgage crisis is nothing but a storm in a teacup can provide for a definite accounting method of how these nearly $1.4 trillion in securitizations will not be impaired. As otherwise the investing public may get some very nasty ideas that not all is well in off-balance sheet world and that this whole overture is nothing but a way to streamline the implementation of TARP 2...
Visual representation of said loans: Bank Off-Balance Sheet Items: Securitized Loans ($MM)
This post, from Jim Quinn, went somewhat viral on the financial blogs, earlier on Wednesday. I won't provide you with the title or any significant excerpts from it; just a couple of lines from the last quote (from the Grapes of Wrath) that concludes it (with the link here): "We're the people that live. They can't wipe us out..."
Peace!