Congressional Panel Blasts U.S. for Failing to Aid Homeowners

[struggle4progress]

Source: Bloomberg

By Robert Schmidt

Jan. 9 -- The panel set up by Congress to oversee the U.S. Treasury’s $700 billion financial markets rescue criticized the Bush administration for failing to stem mortgage foreclosures while bailing out banks.

The Congressional Oversight Panel, headed by Harvard Law Professor Elizabeth Warren, also said a lack of transparency about the fund “erodes the very confidence” the program is supposed to restore. The group reiterated criticisms of Treasury Secretary Henry Paulson’s shifting strategy for the Troubled Asset Relief Program.

“It is not enough to say that the goal is the stabilization of the financial markets and the broader economy,” the panel wrote in a monthly report published today. “The question is how the infusion of billions of dollars to an insurance conglomerate or a credit card company advances both the goal of financial stability and the well-being of taxpayers, including homeowners threatened by foreclosure, people losing their jobs and families unable to pay their credit cards.”

The criticisms echo those made by congressional Democrats who are pressing incoming President Barack Obama’s administration to use more of the TARP money for consumers hurt by the credit crisis. The Treasury has defended its programs, saying it has helped average Americans by preventing a collapse of the financial system ...

Read more: http://www.bloomberg.com/apps/news?pid=20601103&sid=ayn4esm6tYY8&refer=us

[Idealism]

1. There may be headway on this soon

Citi yesterday said it was open to allowing bankruptcy judges to modify mortgages in a certain way (usually increased loan repayment time) called 'cram downs.' This is a reversal on Citi's stated opinion of the matter when it first came up months ago, but it is amazing what insolvency will do to ones cooperation. If I am not mistaken, MBA has already said it approves of this measure, so there is hope. The only problem is the 'cram down' process is time spent on it, although much preferable than being thrown out of your house, nothing in legislation moves too quickly.

[defendandprotect]

3. The larger picture on this, IMO . . .

is that the capitalists were ready and willing to see millions of citizens pounded into

the ground . . . It suits their GOP-"third world America view" --

[defendandprotect]

2. They were too busy bailing out capitalism . . . AGAIN . .. !!!

Their pals needed help -- who cares about these millions of homeowners!!!

[Waiting For Everyman]

4. Set a max interest rate of 5% per annum tomorrow,

and there would be vast relief and improvement in the economy immediately. Force all banks to do the Streamlined Modification Program. Why let this go to large numbers of bankruptcies first? It isn't necessary.

Nobody should be paying above market rates now. All markets deflated, but not mortgages and other debts. It isn't realistic, and it won't work. The economy will limp more and more until it's fixed. There is nothing else to be done, so why put off the inevitable when all that will do is create more damage to make the economy worse? It's more head-in-the-sand thinking, just like what brought us here.

The banks have been cherry-picking and redlining systematically for years - charging for instance some 4% and others 10% for little or no reason, merely as a rationale for theft. With credit cards and other loans it's even more ridiculous. We can no longer afford to allow that.

They got their compensation in the bailout, now Congress needs to pass a usury law for the rest of us. And this BK provision too, for cases when that isn't enough.

[sandnsea]

5. That is a good point

One of the complaints about letting people rewrite their mortgage is that people who did the right thing are stuck with a worse loan. But you're right, nobody should be paying above 5% with rates as low as they are. Rewrite anybody to 5% if they ask for it.

The problem, I think, is that the foreclosures were never really the key problem. The problem is that they bundled those mortgages and sold them as securities based on the profit between 5% & 10% interest. If they rewrite all the mortgages, then whoever is holding all those securities will be broke.

[BelgianMadCow]

6. "..the foreclosures never really were the key problem" YES YES YES

indeed, and as you say, it's the bundling, but even more importantly, the LEVERAGE they took on these securities.

They used 1 $ of their own money to lend 40 $ to invest in these derivatives. The leverage in this (unregulated!!) shadow banking system is then 40. And you won't be surprised it was Bush*co that eliminated the maximum on leverage in 2004 iirc (was 15 before).

The problem in the financial system (the SHADOW banks as Paul Krugman says) is the massive de-leveraging of this bubble, once they started calling each other's bluffs/stopped trusting each other. You may not have heard it that way, but there was and is a huge "bank run" in this system. Not by you and me the poor consuming public of course. Bailing that out is simply insane.

Making it look as if the foreclosures are the key is a pure LIE and a total rewriting of history, justifying the biggest bank heist ever in broad daylight. It is the leverage that MULTIPLIES the effect of foreclosures.

just mho, I just read the Stock Market Watch threads & watched an hour of Paul Krugman on the crisis.
regards
bmc

PS the end result: the people that made insane profits (belgian bank Fortis for example: 5 billion per quarter) get a truckload of money. The world goes into deflation, which only LOOKS like a good thing in the short term because prices drop, but tell that to the newly unemployed. The deflationary spiral is very ugly for all of us.
And guess who profits from a deflation? Those that can hold on to cash until the bottom get to scoop up assets on the cheap.
Hmmm, who do we know has HOARDED a shitload of money (instead of "defrosting the interbank lending" let alone helping struggling homeowners)?
Yep, the same people. :puke:

And on edit another PS: this is not to say the public doesn't bear any responsability about using cheap credit / being led to believe housing can only go up / living in an unsustainable way. It's just that the BLACK HOLE at the center is left out of the discourse.
If there is any upside to this, it will be a huge review of consumerism, which arguably was overdue anyway. And in such troubling times, people have to rely on each other instead of isolate themselves. I dream we would use this as an opportunity to reorient/rediscover our values.

[sandnsea]

7. Right

When they get into leverage and derivatives and credit swaps, my head aches. I understand leveraging is basically borrowed money, but after that, ugh. I just know it's a buttload of money that the fattest cats in history are losing and that some of those fat cats are banks.

[WriteDown]

12. Huh?

This doesn’t make sense to me. I understand that the firm may have used debt to buy the “derivatives” but the thing is the debt should’ve been cheaper than the return the derivative is providing, thus a spread is created. So the firm makes money as long as the underlying asset, in this case a mortgage, performs. However, the mortgage didn’t perform, therefore the firm didn’t receive any interest pmts for their derivatives and was unable to service its own debt. IMO, firm leverage didn’t cause the problem, it only helped fuel the fire after the underlying asset stopped performing.

However, post #5 is correct in saying that rewriting the mortgages could cause a loss for the bond holders. If their cost of debt is higher than the return on the bond, game over.

[zeemike]

8. You are right we need a usury law now.

Lets put an end to get rich quick thinking.

[WriteDown]

11. Ridiculous and impossible...

If it was only banks that actually owned the loans then yes, but there are two types of loans, risk-based and non risk-based. Non risk based is far more common. That is where a servicer takes over collecting payments, maintaining the loan, etc. for a fee. That is who you are calling when you make a payment or want a modification. Unfortunately, the investor sets the rules as to whether the loan could be modified. Investors are also diverse and may even be foreign companies. It is impossible for a servicer to just modify the majority of the loans without breaking the contract with the investor. In that case, the contract usually states that the "risk" much be bought by the servicer. You'd basically see every servicer, Wamu, countrywide, Wells Fargo, etc. collapse overnight.

[Waiting For Everyman]

14. 80% of these mortgages aren't even legally owned by the investors.

Other debts too, just the same. They actually own nothing because these derivatives creators never bothered to transfer ownership properly, and that's why there is resistance to review by bankruptcy judges who are on to this scam of foreclosing without legal standing.

And usually servicers are given the ability to modify from the gitgo, they just happen to be paid MORE for foreclosure fees.

[WriteDown]

16. Links to any of that?

80%? Really?

And paid more for foreclosure fees? How would that work considering investors generally lose 40% of their investment with a foreclosure.

[Waiting For Everyman]

18. The servicers fees are higher for foreclosure.

I would think the investors would complain too, but I've seen no news stories about investors' revolts over losing their equity, have you?

The number comes from a professor who did an in-depth study on it, from the U. of Kansas I think, but no I didn't save it. I don't remember her name, only that she was a woman. The study was a link given in a news article (Cincinnati Enquirer, I think) on the first Judge Boyko case in Ohio - which btw, is a decision which is spreading to other areas, especially Florida.

Forensic auditors however, do report the same percentage of defects in title they find. Although I didn't originally see that fact on this site, here is one link to an example...

http://www.loansafe.org/foreclosure-defense/fight-foreclosure

[slackmaster]

13. No branch of the government has the authority to alter existing contracts

It would be nice, as long as you disregard the negative impact that suddenly lowering rates would have on those who own the notes - Which includes entities like pension plans in addition to "ugly" corporate investors and wealthy individuals.

[Waiting For Everyman]

15. Then what is bankruptcy?

[slackmaster]

17. Bankruptcy is a legally declared inability or impairment of ability of an individual or organization

To pay its creditors.

[Waiting For Everyman]

19. And it changes contract terms, no?

[slackmaster]

20. Actually, it doesn't

Read the fine print in your mortgage. I guarantee there is a provision for what happens in case of bankruptcy.

[Waiting For Everyman]

22. This is a little runaround.

You say that contract terms can't be changed when obviously they are changed. And then I suppose the bankruptcy law can't be changed because it's how it is now.

Whatever.

[slackmaster]

23. In bankruptcy proceedings, each case is scrutinized in detail by a court of law

You can't just pass a law that says interest rates on all existing mortgages are capped at some arbitrary value.

[ixion]

9. "it has helped average Americans by preventing a collapse of the financial system"

what a load of crap. The financial system is anathema to the 'average' American.

Rat bastards. :grr:

[No Elephants]

10. The whole thing seems so ill-considered, especially in light of the staggering sums given out. What

did we get from Bear Stearns in exchange for the bailout? The banks? What conditions did we set, etc. Who analyzed it to make sure we were protected? I remember Paulson doing the Sunday talking heads shows, insisting we could not delay more than a couple of days, no conditions whatever, etc. And Congress practically did as he asked. To their credit, only the Republicans put up any fight at all.

I just hope these bailouts don't go down in history as the biggest purely financial fiasco Congress ever crafted.

[Trillo]

21. It seems the Treasury is too "close" to the Federal Reserve,

I mean close as in metaphorically "intimate", and both are too close to the executive branch (kissy kissy). When banks are in trouble, the executive branch springs into immediate action!

We see the same problem with police and prosecutors, the later more often than not failing to hammer cops as hard or as quickly as civilians for similar crimes.

More and more all I'm seeing is the illusion of honest government.