Just a day after the Congressional Oversight Panel (COP) issued
a detailed, scathing report on the government's mortgage modification program, HAMP--a program that has failed so badly at keeping people in their homes that even Treasury Secretary Tim Geithner has publicly acknowledged its poor performance--the leader of the 50-state foreclosure fraud investigation, Iowa Attorney General Tom Miller,
"...told homeowners at risk of foreclosure today that he supports a settlement with the big banks that requires significant principal rate reductions, loan modifications, compensation for citizens defrauded of their homes, and criminal prosecutions against big bank executives who broke the law."
Putting it another way, he said: "We will put people in jail."
(I've been following Miller in the news since the Great Recession started, in late 2007, and he is without a doubt one of the straightest-talking advocates for Main Street in government in this country, today, IMHO.)
Here's Yves, as usual, on top of the story, and light years ahead of not just the MSM, but the rest of the blogosphere, too...
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(Note: Naked Capitalism Publisher Yves Smith has provided written authorization to the diarist to republish her blog's posts in their entirety for the benefit of the DKos community.)
More on the HAMP Train Wreck in Latest Congressional Oversight Panel Report
Yves Smith
Naked Capitalism
Tuesday, December 14, 2010 2:46AM
The Congressional Oversight Panel has issued another typically detailed report, this one focusing on the Administration's widely criticized mortgage mod program, HAMP. HAMP is so widely recognized as being a failed program that when a group of bloggers met with Treasury officials last August, even Timothy Geithner didn't try to pretend the program worked very well. The defense offered was that it "succeeded" by flattening what would have been a spike in foreclosures by getting some people into trial mods that failed and delaying the inevitable for a few months. Of course, that view conveniently omits the fact that servicers told borrowers that were current to quit paying so they could qualify for HAMP, plus the fact that the borrowers that did not get "permanent" mods also were assessed missed payments and late fees.
But the focus on HAMP has been mostly about how badly the program worked operationally, and less on the crappy design of the misleadingly-labeled "permanent" mods. Only in the US could a kick the can down the road strategy be branded as "permanent". The HAMP mods are five year payment reductions. They don't reduce principal, when studies and the experience of distressed investor Wilbur Ross have found that meaningful principal mods are far more successful than mere payment reduction plans. By contrast, HAMP leaves 95% of borrower in a worse negative equity position than before.
Worse, a formula in the HAMP program allowed banks to focus the mod program on the high negative equity homes. These were the ones the banks with large second mortgage portfolios were least likely to foreclose upon, since in those cases, the second lien would clearly be wiped out. Admittedly, they would also be the ones where a mod is a bigger win for the investor. Nevertheless,one has to wonder how much HAMP was designed with the "save bank equity by shoring up second mortgages that should be written off" objective in mind, versus its stated aims, particularly in light of the level of second liens versus bank Tier One capital:
Bank of America 83%
JP Morgan 78%
Citigroup 41%
Wells 116%
The facts presented in the latest COP report are far uglier than they might appear on a superficial reading. The first year default rate is 21%, if you can believe the Treasury figures (the COP report notes that Treasury lacks "complete or valid" information on 13% of its permanent mods).
Not bad, you might say, in contrast to other factoids about mod programs, where six month redefault rates have been reported to range from 20% to 40%. But many of those so-called mod programs are anything but. They typically include service payment catchup plans (a hoop servicers in the past have forced borrowers to go through before even considering them for a mod) which often result in borrowers facing higher monthly payments. HAMP should have done much better by virtue of putting borrowers through a trial mod, plus offering deeper payment reductions than typical private mods. How much better is an open question, but a 21% first year redefault rate says the program will fall far short of Treasury's goal that the program would show only 40% defaults over the five year "permanent" mod time frame.
The report is chock-full of troubling information. For instance:
The Congressional Budget Office (CBO) last month projected that Treasury will spend only $12 billion on all TARP housing programs, including HAMP and the Hardest Hit Fund, out of the $45.6 billion in TARP funds allocated for those programs....
Treasury has declined to state publicly any metrics or benchmarks by which HAMP should be judged, a fact that has frustrated Congress and TARP oversight bodies, and has made clear to the Panel that it has no other unarticulated goals for HAMP.
The COP report just makes clear what we already knew, that HAMP was window-dressing. Per Adam Levitin, as part of an if-anything more critical post than ours:
Ultimately, the message to take away from HAMP is that the Obama administration just isn't serious about helping homeowners. The plight of distressed homeowners' is subsidiary to protecting the banks from having to take serious write-downs. There's plenty to say about the politics of that decision, but from an economics perspective, I just think it's short-sighted. The economy will not see a robust recovery until there is serious consumer deleveraging and a stabilization of the housing market. Those two problems go hand in hand, given that mortgage debt is the biggest chunk of consumer leverage. And there really isn't any way to deleverage consumers without there being losses for the financial sector.
(End of first Naked Capitalism post.)
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Iowa AG Miller Commits to Prosecution of Bank Execs, Seeking Principal Mods
Yves Smith
Naked Capitalism
Tuesday, December 14, 2010 5:04PM
We asked readers to sign a letter to Iowa attorney general Tom Miller, who is leading the 50 state probe into foreclosure and mortgage abuses. Here is the official report from National People's Action, which was part of the group that met with Miller earlier today:
Leader of 50 State Foreclosure Probe Tells Struggling Homeowners: "We Will Put People in Jail"
Iowa's Attorney General Miller also agreed that principal reductions, loan modifications, and compensation for defrauded homeowners are all on his agenda
The lead Attorney General in the 50-state foreclosure investigation, Iowa's Tom Miller, told homeowners at risk of foreclosure today that he supports a settlement with the big banks that requires significant principal rate reductions, loan modifications, compensation for citizens defrauded of their homes, and criminal prosecutions against big bank executives who broke the law.
"We will put people in jail," Miller said, in response to questioning. "One of the main tools needs to be principal reductions, just like in the farm crisis in the 1980s...There should be some kind of compensation system for people who have been harmed...And the foreclosure process should stop while loan modifications begin. To have a race between foreclosures and modifications to see which happens first is insane."
Attorney General Tom Miller met Tuesday with more than 100 people from 15 states representing community, faith, and labor organizations, foreclosure victims and struggling homeowners from across the country. Participants urged Tom Miller to make a strong settlement that includes loan modification and principal reduction as the primary tools for cleaning up the mortgage mess created by the banks.
Miller also agreed to continue to work with grassroots community, faith, and labor groups from across the country and agreed that the Bank Accountability Campaign's members are stakeholders who deserve a seat at the table.
"We are very pleased with how this meeting turned out and now our expectations are higher than ever," said Deacon Mike McCarthy, an Iowa Citizens for Community Improvement (Iowa CCI) member from Des Moines, IA.
"Attorney General Miller made it clear that he sees this investigation as a chance to clean up the foreclosure crisis that has ransacked our communities for over three years now and continues to push down housing values for everyone. He stated that loan modifications will be a core component in any settlement," said Gina Gates, a foreclosure victim with PACT-PICO in San Jose, California.
"The stakes are high. A strong settlement is the best hope to hold Wall Street banks accountable and prevent millions more Americans from losing their homes," said Mikael Broadway, from IAF in North Carolina.
"The big banks have repeatedly weakened efforts to get to the root of the foreclosure crisis," said Shirley Broomfield, a struggling homeowner from Melbourne, Florida who is working two jobs to pay her mortgage. "They've failed to live up to their promises and outright ignored the rules of the game, with little to no consequences. The Attorneys General have a chance to change this."
This is the first of a series of similar meetings with the state Attorneys General who are on the investigation's executive committee. Participants in the meeting included borrowers who have lost their homes unjustly, other homeowners in danger of foreclosure, clergy and community advocates from 15 states - including Iowa, California, Illinois, Washington, New York, Colorado, Ohio, North Carolina, Florida, Missouri, Massachusetts, Kansas, Michigan, Montana and Oregon. The participants presented a stack of homeowner testimonies to Mr. Miller and made it clear that this investigation is their best hope for resetting the housing market and helping millions avoid foreclosure.
The group is staging protests this afternoon at the Wells Fargo Home Mortgage headquarters in West Des Moines and at branch of Bank of America in Des Moines to highlight the massive bonuses that bank executives will receive this month while millions of homeowners face foreclosure. They plan to lift up a new report showing that restoring equity to underwater homeowners would cost the big banks $73 billion, approximately one-half this year's bonus & compensation pool. Similar protests will take place this week in New York and California.
The growing activity from homeowner groups comes amidst a turbulent time for big banks, especially Bank of America, with both investor lawsuits and the Attorneys General investigation pending, and some analysts beginning to predict the eventual need to restructure America's largest bank in 2011.
The meeting with AG Miller and other events this week are organized by PICO National Network, National People's Action, SEIU, Alliance of Californians for Community Empowerment, Alliance for a Just Society, and IAF Southeast.
Yves here. This is certainly good news, since the public can hold Miller's feet to the fire if he fails to live up to these commitments. One concern I have is that the standard for fraud under the law, as opposed to from a common-sense perspective, is stringent, which means it is extremely difficult to prove. Remember Joe Cassano of AIG, the head of AIG's financial products group? An investigation of him did not lead to prosecution, effectively because he has discussed what he was up to with AIG's accountants. Fraud, as defined under the law, requires intent. So perversely, "I thought this was kosher" will get you out of a fraud charge.
We have a short form discussion in ECONNED as to how various laws and regulations were weakened over the 1990s to make it very difficult to prosecute financial fraud successfully. You can find a full treatment in Frank Partnoy's book Infectious Greed.
(End of second Naked Capitalism post.)
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Almost last but not least, here's blogger George Washington, from eight days ago (via Zero Hedge), reminding us why it's now up to the state attorneys general to do the job that our federal government did not....
Nouriel Roubini Confirms Double Dip In Housing
Zero Hedge
Submitted by George Washington on 12/06/2010 17:01 -0500
...As I've previously pointed out:
PhD economists John Hussman and Dean Baker (and fund manager and financial writer Barry Ritholtz) say that the only reason the government keeps giving billions to Fannie and Freddie is that it is really a huge, ongoing, back-door bailout of the big banks.
Many also accuse Obama's foreclosure relief programs as being backdoor bailouts for the banks. (See this, this and this).
The failure to prosecute fraud and the stubborn drive to prop up the too big to fail banks at all costs is what has prevented real action that would have helped stabilize the housing market. See this, this, this, this, this, this, this, this and this.
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As Yves pointed out, farther up above, Adam Levitin was spot-on when he said THIS...
Ultimately, the message to take away from HAMP is that the Obama administration just isn't serious about helping homeowners. The plight of distressed homeowners' is subsidiary to protecting the banks from having to take serious write-downs. There's plenty to say about the politics of that decision, but from an economics perspective, I just think it's short-sighted. The economy will not see a robust recovery until there is serious consumer deleveraging and a stabilization of the housing market. Those two problems go hand in hand, given that mortgage debt is the biggest chunk of consumer leverage. And there really isn't any way to deleverage consumers without there being losses for the financial sector.
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Here's a link to another side of the story, from Gretchen Morgenson in Sunday's NY Times: "The Nerve to Say No."