BREAKTHROUGH: Why Americans Are Allowing the Foreclosure Crisis to Continue


It’s coming up on two years since I started writing my blog, Mandelman Matters, and since those oh-so-humble beginnings back in late December of 2008, I’ve written and posted 375 in-depth articles focused on the political, economic, social and legal aspects of the financial and resulting foreclosure crises.  And as I’ve said countless times before, although in hundreds of ways to avoid obvious repetition, both crises continue to drag our economy into a deep and prolonged recession as their combined impact destroys the accumulated wealth of all but America’s wealthiest citizens.

Those that have been reading my column since the early days, in many cases know me quite well by now. They know that I write in an effort to help homeowners better understand the global financial and credit crisis… so that they will know that what has happened to them was not their fault.  It’s not the borrowers that caused this crisis… it’s the banks.

Our country’s economic crisis wasn’t the result of people buying homes they knew they couldn’t afford.  In fact, considering everything that’s come to light over the last two years related to what our bankers did leading up to the meltdown, that sort of thinking at this point is just plain old idiotic.

I write because I want homeowners to know that, even though there’s quite a campaign being waged that’s intended to make them the irresponsible villains, they should not feel ashamed of their situations, afraid to speak out for fear of being judged harshly by others around them.  Easier said than done, perhaps…

My readers also know that I vehemently detest what the banks have done, and continue to do to homeowners, treating them as if they were deserving of nothing but disdain and their homes to foreclosure.  And they know that I hold my government directly responsible for this deteriorating state of affairs for our government has failed to do anything to improve the situation at every turn in the road.  It’s our government that has unabashedly shoveled $12.2 trillion into the very banks that caused both the crisis and their own insolvency… while allocating just 1/1000th of that amount to helping homeowners and communities through foreclosure prevention efforts.

Most of my readers also know that I’ve spent a great deal of time, not only looking for and sharing meaningful answers when I find them, but also trying to motivate others to take up the cause and speak out to their elected representatives, urging them to do more to stop the foreclosure crisis.  Because as long as it continues, and housing prices continue to fall, there can be no real recovery, and more and more homeowners will fall into the economic abyss.

The biggest challenge I’ve faced, has been the complexity of the situation that makes it impossible to influence anyone’s view through sound bites, and at the same time, those with only a cursory knowledge of the subject matter, the people I’d most like to influence, aren’t likely to read long, in-depth articles.

Still, I try to find entertaining ways to present complex subject matter, and I feel like I’ve been pretty successful getting people to read longer articles than they’re used to reading, and on topics they didn’t expect to be reading.  I know, from the thousands of emails I receive regularly, that there are more than a few whose lives I’ve touched in meaningful ways.  And even though I haven’t succeeded in many other ways as yet, that does in fact make it all worth it.

I remember the day the real crisis began… July 10, 2007… the day the music died, as it were.  Moody’s and S&P had announced that they were downgrading the ratings on 1,032 bond offerings, and not just slightly, but by several grades.  Two weeks later banks had stopped lending to each other.  The Fed was forced to reverse its position announced just weeks before and it started pumping cash into emergency programs to keep liquidity from drying up.  The availability of credit essentially dried up over night, starting on that summer day in 2007.

You see, up until that July 10th, all that was happening was that our housing bubble had started to deflate, largely due to the efforts of the Greenspan’s and then Bernanke’s Federal Reserve.  By the summer of 2006, the Fed had raised interest rates 17 times in a row.  As rates climbed, the market softened, homes stayed on the market longer than in the recent past, and prices began to slowly fall.  Those that had been closest to the edge of the precipice when they bought their homes, many the victims of predatory lending practices, although certainly some their own worst enemies, fell in, their homes lost to foreclosure when they couldn’t make the rising payments on adjustable rate loans, and couldn’t refinance or sell as a result of falling prices, and tightening credit standards for mortgage loans.

All of that is what’s supposed to happen as a bubble deflates, but on July 10, 2007, the impact of the bubble’s deflation was rendered moot and everything fell off a cliff.  Within a month following that July 10th announcement by Moody’s and S&P, no one could get a mortgage, no one could refinance one… homes stayed on the market until many were taken off the market… and prices started to fall fast.

By the end of 2007, we would all start hearing the surreal amounts of write-downs being taken by Merrill Lynch and Citibank… and the rest would soon join in. Before the following year would come to its end, Bear Stearns would be handed off to Jamie Dimon, CEO of JPMorgan Chase, essentially in the middle of the night… initially for just $2 a share, although the price was soon raised to $10 a share in deference to Bear’s shareholders.  It seems that even Jamie Dimon thought $2 a share was too much raping and pillaging.

A lot of people don’t know this, but it was right after Bear Stearns went down in flames in the Spring of 2008, that Treasury Secretary Hank Paulson, horrified by having seen s glimpse of what was to come, used back channels to contact the Speaker of the House of Representatives, Nancy Pelosi, to talk to her about the situation and the potential need for help from the legislature.  This contact by Secretary Paulson, although I never saw it reported by the media, was well documented by Phillip Swagel, Treasury’s Chief Economist during the last two years of the Bush Administration, in his white paper written for the Brookings Institute and published on March 9, 2009.

Swagel explains in his paper that Paulson was told not to come to Congress for help unless he could assure Congress that “a crisis was at the door”.  It was the last year of an unpopular Republican president, and since 2006, the Democrats had taken control of the House.  Congress simply wasn’t going to do anything to make the Bush Administration look good.  Whatever problems Paulson wanted to talk about would have to wait for the next president… because whether a he or a she, would likely be a Democrat.

It was the first of many times, when politics would prevent us from dealing with the tsunami that was now unquestionably growing in its destructive power as hosing prices continued their precipitous fall.  The foreclosure crisis, which had started a year earlier when higher rates started to have their intended effect, but shifted into a higher gear when the ratings agencies announced that they had been wrong about the ratings on 1,032 bonds, then quickly became a credit crisis as banks stopped lending even to each other.

And then it happened… I’m not sure of the date except to remember that it took me by complete surprise… what had been talked about in terms of bond ratings and a crisis in the credit markets all of a sudden was branded the “sub-prime crisis”.  It was all going to be the fault of the borrowers… those “irresponsible sub-prime borrowers,” not to put too fine a point on it.

Irresponsible sub-prime borrowers?  Yucky, who are they?  Get them away from me.  They sound like they have cooties, right?

Two things occurred to me right away:

  1. It’s wasn’t borrowers not making mortgage payments that was taking down the titans of Wall Street.  Not a chance.  There weren’t nearly enough of them, for one thing, the numbers just were not adding up.  The banks had abused the system in so many ways that it would be impossible to count them all, and to lay the blame for such acts at the feet of borrowers was nothing more than disingenuous crap.
  1. Telling everyone that their neighbors were the source of the growing problem would divide the country to an even greater degree than it was already, and we were already acting pretty much like Jets and Sharks.  When they figured out that it wasn’t irresponsible borrowers that had destroyed the global financial system, it would be too late.  No one would support helping what they had been told we’re  be “irresponsible sub-prime borrowers,” even if that was precisely what would be needed to stop the downward slide.

What they were saying about borrowers was just factually wrong.  Not that there weren’t some number of speculators, and some number of people that had bought homes beyond they’re ability to pay for them, but with home prices falling and credit frozen solid you didn’t have to be “irresponsible” in order to soon have trouble paying for the home you bought during a giant housing bubble.  No one had planned for what was about to come.

And, in point of fact, according to one of the country’s top real estate economist’s, Stan Liebowitz, professor of economics and director of the Center for the Analysis of Property Rights and Innovation in the management school at the University of Texas, Dallas, who conducted an exhaustive study of a database of some 34 million mortgages, sub-prime and prime loans had started defaulting at the same time.

There were more sub-prime defaults than prime, but that was only by definition.  From reading Professor Liebowitz’s study, it became quite clear to me then that if you made any real estate decisions based on believing that the next 10 years would look at least something like the last 70… well, you were likely going to find yourself being called an irresponsible homeowner in the near future.

And the longer the free fall in housing prices was allowed to continue, the more company you’d have, because increasing numbers of foreclosures meant lower home values, which meant reduced consumer spending, which led to corporations laying offer workers, which would in turn fuel more foreclosures.

This fire that began when investors realized that they could no longer trust the ratings of the mortgage-backed securities that Wall Street bankers had been pedaling all over the world for the last several years, was now burning out of control.

We’d borrowed our way out of the last recessions, but that wasn’t going to be possible this time because without investors to supply the capital through their purchases of asset- and mortgage-backed securities, credit simply wasn’t going to be available this time around.  And with the baby boomers marching faster and faster towards retirement age every year, we would soon no longer have 78 million boomers willing to spend their three trillion dollars in annual discretionary income, borrowing anytime and without a second thought.

There was never any doubt in my mind…. this one was going to hurt like the dickens, and for a long time.  Most of my lifetime anyway, and at only 49 years old, that meant much of my then 13 year-old daughter’s as well.  I felt that I had to try to do something to shorten the duration of what was to come… and I identified three areas on which I would concentrate my efforts: Education on what had happened in simple, entertaining terms.  2. Information and resources to get through the storm.  3. Actionable tools for moving beyond the crisis towards a secure future.

So, a full two years and 375 articles later, here we are.  The foreclosure crisis continues to grow in intensity and spread geographically.  The latest Zillow Report totaled the cost to American homeowners at over $9 trillion to-date.  And there is nothing in place, or even known to be on the drawing board with even the smallest potential to solve the problems, and the president has been clear… no more help is coming.

But, as the flood of foreclosures continue unchecked, and the bill being sent to all American homeowners continues to rise by trillions each year, it seems that only a relative few even notice, let alone care.  There are still people out there blaming the borrowers for buying homes they couldn’t afford, while the most devastating financial crisis the world has seen in at least 70 years, and perhaps ever, barely even makes the evening news most nights.

I mean specifically… how is it that anyone in this country is still on the side of the bankers?  Haven’t we learned enough despicable things about these Wall Street types over the last couple of years?  What more could we learn that would make them appear any worse?  Perhaps were they also molesting children en masse.

We gave them trillions and they gave out hundreds of billions in bonuses… they went broke and we bailed them out and the very same year and they used the money to pay record bonuses.  They made no apologies about it.  We provided them with hundreds of billions in TARP funds and when we asked what they did with the money they said “none of your business,” and we said… “okay, sorry we bothered you.”

We wanted to pass some financial reforms so that they would have a harder time destroying the world next time, and they fought every proposed every single regulatory change tooth and nail.  Regulate derivatives? No, we couldn’t possibly… it will ruin the economy.  But didn’t derivatives like credit default swaps being unregulated play a major role in ruining things this last time?  No, this last time was simply people buying homes they couldn’t afford.  Really?

Right now, as I write this, in Providence, Rhode Island, there’s a bankruptcy court that has a new rule that mandates that there be a meaningful dialog between servicer and borrower to try to work things out before a foreclosure can go through.  The bankruptcy judge has no right to force the servicer to modify, or to insist on the terms of a modification… just that the two parties talk about other possibilities before foreclosure and trustee sale of the property.  And the banking lobby is strongly opposing the rule, as if to say… “Nooooo, you can’t make us talk to them… nooooo.”

A few months back, in New York, there was a bill that proposed to allow a homeowner to recoup legal fees in a foreclosure suit if the homeowner won the case… just like the banks were already allowed to do.  The banks were already allowed to get their legal fees if they won, but the homeowners were not entitled to legal fees if they won, so this bill proposed to make that lopsided situation… I don’t know… fair?  And the banking lobby spent tens of millions to block its passage, and then when it passed anyway, they kept on fighting to stop it from being signed by the governor.  I mean… who does that?  Are these guys opposed to handicapped bathrooms too?

We passed a bill about credit card reform in 2009… we wanted to limit the annual fees that could be charged by credit card companies.  It passed, and there were fee limits imposed, but the banking lobby also removed any caps on interest rates.  So, now we have a credit card with a 79.9% interest rate.  Want to know how the bank chose the 79.9% figure?  Well, they obviously decided that 89.9% would have been offensive.

Elizabeth Warren, a Harvard Law School professor and consumer advocate, who has studied issues affecting the middle class in this country for the last 30 years, had an idea that we should have a federal agency whose job it is to protect consumers.  The president agreed and it was included in the financial reform bill.  The banking lobby… led by the Republicans, by the way, vehemently opposed her appointment to the post, and demanded that the new agency report to the Federal Reserve Chairman.

As if even having one single person in government… one out of so many I couldn’t even count them… whose job is to protect consumers and it’s: Nooooooo.  Because, I suppose, protecting consumers is dangerous to the economy?

And when they don’t have the paperwork required to foreclose what do they do… why forge it, of course.  Isn’t that what we all do when we lose some important piece of paper?  Of course it is.  Why just this morning, I was home forging my daughter’s birth certificate, and after that I’m going to recreate my social security card.  Luckily, although I’m not a notary, I stole one of those stamps they use from a notary’s office, so I’m all set there.

So, I’ve spent the last… I don’t know how long… asking myself the same question:

WHY? Why does it seem to be perfectly okay with the majority of Americans that foreclosures proceed as the banks see fit, even though it’s costing those same Americans trillions each year… and with all of the news of banking fraud now widely known… and after bailing out those same banks to the tune of $12.2 trillion… why is it perfectly okay with most folks that the foreclosure crisis continues and remains largely ignored if at all possible?

It makes no sense whatsoever.  Unless… hang on… I may have something here.  Actually, I’ve figured it out, and the answer was right in front of my face the whole time, but yet so hard to see.


It all started while I was watching CNN last week reporting Florida foreclosures.  They had footage of people approaching a table to ask questions about applying for loan modifications and the like… and something struck me… I thought… wow, those people look like they’re really poor.  I’m not talking about down on their luck, I’m talking about destitute.  Even the kids looked like they had come straight out of a modern day Oliver Twist… as in “please Sir, can I have some more?”

Right away, my mind started thinking… those people look like they should never have bought homes in the first place… hey, wait a minute here.  I went to my computer and started searching for imagery representing the foreclosure crisis and sure enough… a whole lot of very poor people… mostly minorities… African Americans and Hispanics… and a few “white guys” with ponytails and beards in ripped sweats with several dirty faced children clinging to his legs.

Now, please understand that I’m not saying anything bad about low-income people… I’ve been one before, and gotten to know quite a few over the years… and it’s no fun.  Also, I’m not someone who cares at all what someone looks like or wears out to the store.  I’m 49, so one more year and I figure I can wear socks with sandals pretty much anywhere I feel like it.

These were people who owned homes in Florida, however, and I’ve been to Florida on several occasions… and although there are certainly many economically disadvantaged neighborhoods throughout the state… not everyone is dirt poor there.  But that’s sure what it looked like in the photos and video footage of the foreclosure crisis.

See, the thing is that I have readers from all over the United States, plenty in Florida… and since I write, some would say, lengthy articles, my readers tend to be smarter than average… often times way smarter than average.  They may be struggling through this crisis, but everyone’s doing that, or lying about it.  And I give out my email address and phone number and I encourage readers to call or write and they do all the time.

In fact, I had just gotten off the phone with a homeowner from Florida who wanted to talk to me about what was going on in loan modification land, and he was a dentist… last name “Anderson,” and it doesn’t get much whiter than a dentist named Anderson.  Why wasn’t he shown as the face of the foreclosure crisis?

Oh my God, I said out loud but to myself… they’re reinforcing the image that the people losing homes shouldn’t have bought them in the first place.  Empty homes with trash piled everywhere, graffiti on walls, tiny little box homes… this is supposed to be representative of who’s losing homes today?  Like hell it is.

Then again… it occurred to me that the Anderson Family so rarely stops to pose for a photo-op in front of their Volvo before driving away from their foreclosed home for the last time.

From there I started thinking about the article I had posted just a few days earlier.  It was about how much the meltdown in the housing market had cost American homeowners, and titled: Zillow: U.S. Homeowners to Lose $1.7 Trillion in 2006, Already $9 Trillion Lost Since 2006.  And I realized that I hadn’t received a single email about the article… not even one.  That’s weird, I thought.  That article should have pissed someone off… at least a little bit anyway.  But not a peep from readers about it.

I mean, if losing $9 trillion since 2006 doesn’t make every single homeowners in this country scream out: “STOP THE FORECLOSURES, DAMN IT!” then I just can’t imagine what ever would.  I don’t care if you’re making your mortgage payments without any trouble at all, or whether you own your home free and clear… or if you’re a paycheck or two away from foreclosure… no matter how you slice it, you’re losing your ass and the end of those losses is nowhere in sight.  How can you possibly want the foreclosures to continue… unless, of course…

I started asking people I ran into the following question, and I encourage you to do the same: Why is (insert bank name here) continuing to foreclose on so many homes?

Assuming the person you asked isn’t someone intimately involved in the foreclosure crisis, here’s the sentiment you’ll hear from the average person:

“Well, the banks are foreclosing because it’s in their financial best interests to do so.  The people bought homes they couldn’t afford, and now the banks have the right to take them back and sell them to others.  That’s just how it works.  It’s unpleasant, and I’d rather not watch, so wake me when it’s over, okay?”

Well, well, well… do you see what’s happening there?  These people that are acting as if there is no foreclosure crisis are actually making total sense… they should be ignoring the foreclosure crisis… if they believe that statement above, and when you ask around, you’ll find that they do.

If someone believes that the people losing homes should never been able to buy them in the first place, that there’s no way they can afford to keep them… and that the banks are foreclosing because it’s in their best financial interests to do so… then ignoring the foreclosure crisis is perfectly logical.  It’s like the wounded gazelle that separates from the heard… the lion is going to eat it… it’s the natural order of things… but it’s unpleasant and I’d prefer not to watch… so wake me when its over.

And why wouldn’t people believe that banks are foreclosing because its in their own best financial interests?  I mean, that’s what banks do, right?  They act in their own financial best interests, right?  That’s what they’ve always done in the past, right? Show-me-the-money-type-banks, right?  Why would they possibly not be doing what’s in their own best financial interests?

Average American: Are you saying that banks are foreclosing when it’s NOT in their own best interests?


Mandelman: YES.


Average American: We are talking about banks, right?


Mandelman: WELL, NOT REALLY… NO.


Average American: Okay, now I’m confused.


Mandelman: TOTALLY UNDERSTANDABLE… AND YOU ARE NOT ALONE.

Here a bank, there a bank, everywhere a bank, bank…

 

So, you’re starting to see this pretty clearly, right?  People are right to assume that the banks are foreclosing only when it’s in their financial best interests to do so… they’re also right to believe that otherwise the banks wouldn’t be doing what they’re doing.

But, those of us that live in the foreclosure crisis every day, me by writing about it pretty much seven days a week, and others by dealing with it as they work through the hell of getting a loan modified, or walking away from their home of many years, we all know that the banks we’re talking about are not really banks… at least not in the traditional sense of the word.

The banks that are rapid fire foreclosing today, and thus causing every homeowner in the nation to lose tens or even hundreds of thousands of dollars in equity are better thought of as “MORTGAGE SERVICERS”.  And mortgage servicers are not the investors that own loans, they are the companies that print and mail out monthly statements, maybe answer payment questions, send out late notices, post fees and charges, and when necessary, they foreclose.

Foreclosures are always more profitable for servicers because the servicers get 25 basis points to service a prime loan (a quarter of one percent), 50 basis points to service a sub-prime loan (half a percent), but then 125 basis points to service a delinquent loan, say… over 60 days late.

Then, should the borrower continue not making his or her payments, the servicer starts the foreclosure process and in doing so gets to add on lots of miscellaneous fees and charges that must be paid, if not by the borrower who loses the home and walks away, then by the investor when the home is foreclosed and is either sold or held in inventory as an REO… there’s just no way the servicer doesn’t get paid for the fees and charges associated with foreclosure.

(A few months back, I had the opportunity to interview an ex-employee from Chase Home Servicing, and I wrote an article that a huge number of people have read, but if you haven’t you’re missing out on something special and it’s titled: Inside Chase and the Perfect Foreclosure.)

So, servicers always make more money by foreclosing, even though the investor who owns the loan, in many instances, would likely come out ahead financially by modifying the loan.

Make Room for Daddy…

Lewis Ranieri is often referred to as the “father” of the securitized mortgage market.  During the 1980s, while he was vice chairman of Salomon Brothers Inc. he was responsible for capital markets becoming a source of funds for financing residential and commercial real estate purchases.

Most recently, Ranieri founded Hyperion Private Equity Funds, but he also serves as Chairman, CEO and President of Ranieri & Co. Inc., Chairman of American Financial Realty Trust, Capital Lease Funding Inc., Computer Associates International Inc., Franklin Bank Corp. and Root Markets Inc.  He was inducted into the National Housing Hall of Fame and a recipient of a lifetime achievement award given by the Fixed Income Analysts Society Inc.  Oh, and he’s Chairman of the Board of the American Ballet Theatre.

There is probably no one on the planet that knows more about securitizing pools of mortgages for single-family residences than Ranieri does, because he is the guy who brought it all together in a private sector, for profit environment, making the dream of homeownership one that could be realized on a scale never before possible.  And perhaps more so than anyone else, Ranieri knows what he’s talking about when he discusses how to handle securitized mortgages during a housing crisis.  Read his words carefully…

“You are almost always better off restructuring a loan in a crisis with a borrower than going to a foreclosure.

 

In the past that was never at issue because the loan was always in the hands of someone acting as a fiduciary. The bank, or someone like a bank owned them, and they always exercised their best judgment and their interest.  The problem now with the size of securitization and so many loans are not in the hands of a portfolio lender but in a security where structurally nobody is acting as the fiduciary.

 

And part of our dilemma here is “who is going to make the decision on how to restructure around a credible borrower and is anybody paying that person to make that decision?” And what we need here is financial innovation in the first instance because you can’t do this loan by loan, you are going to have to scale this up to a bigger level and we are going to … have to cut the Gordian knot of the securitization of these loans…

 

… because otherwise if we keep letting these things go into foreclosure it’s a feedback loop where it will ultimately crush the consumer economy.”

 

Will it really?  Do you think so, Mr. Ranieri?  My gosh, I had no idea something like that might happen.  A feedback loop that will “ultimately crush the consumer economy?”  That sounds really scary.

I am so glad we checked with you on this issue… and that you said what you just said… at the Miliken Institute Global Conference… that was held BACK ON APRIL 24, 2006!

Because…

… otherwise when Wall Street’s bankers one day cause the credit markets to freeze solid as a result of their fraudulent packaging of mortgage-backed securities and collateralized debt obligations which they sold as triple A rated bonds to pension plans and sovereign wealth funds all over the world…

… all because they were betting against them using entirely unregulated credit default swaps issued by insurance companies not required to hold reserves for paying claims…

… otherwise we might have STUPIDLY STARTED BLAMING BORROWERS and then allowed the housing markets to go into a free fall that would WIPE OUT THE AMERICAN MIDDLE CLASS, while we tried to prop up insolvent banks by pumping trillions of tax-payer dollars into them hoping against hope for our real estate markets to stabilize so that the toxic assets would magically turn non-toxic once again.

Whew… well we sure dodged a major bullet by talking to you back in 2006, and gaining an understanding of what servicers were all about.  Thank God we headed off that disaster…

OH WAIT A MINUTE… YOU MEAN I WASN’T DREAMING ALL OF THIS… YOU MEAN WE ACTUALLY DID KEEP LETTING THINGS GO INTO FORECLOSURE THUS CREATING A FEEDBACK LOOP THAT DID ULTIMATELY CRUSH AMERICA’S CONSUMER ECONOMY?

Noooooooooooo… We couldn’t be that stupid, could we?  We ran about blaming borrowers for doing things they could never have even gotten near, let alone understood… we allowed our society to focus on punishing people we called “irresponsible” when in reality they were swept under by forces way beyond their control…  instead of going after the bankers that were in fact the proximate cause of our economic collapse?

So, you see what’s happening here, right?

More than half of our country doesn’t care about the foreclosure crisis because to them, it’s just bankers acting in their own best interests by foreclosing on homes that borrowers irresponsibly bought knowing they couldn’t afford them.  It’s therefore the natural order of things, so to them, even though it’s already cost American homeowners $9 trillion and will soon wipe them out along with everyone else… it can’t be stopped, so they might as well not pay attention to the unpleasantness.  And please… wake me when it’s over.

But these individuals are wrong about their most basic assumption: what they think are banks aren’t actually banks… their mortgage companies that service loans, today widely just called “servicers”.  I wonder if Mr. Ranieri had anything to say back in 2006 about mortgage servicers specifically?

Oh, and wouldn’t you know it?  He did…

“Many mortgage (servicers) are reluctant to give strapped homeowners a break because the companies collect lucrative fees on delinquent loans.

 

Even when borrowers stop paying, mortgage companies that SERVICE the loans collect fees out of the proceeds when homes are ultimately sold in foreclosure.  So the longer borrowers remain delinquent, the greater the opportunities for these mortgage SERVICING companies to extract revenue — fees for insurance, appraisals, title searches and legal services.”

Wow… I wonder how the average American homeowner would think and feel about the foreclosure crisis continuing if he and she understood what Mr. Ranieri just said about mortgage servicer incentives.  Would they still feel the same way about foreclosures being allowed to go on unchecked… with no program anywhere in sight that might even partially stem the tide?

What if they knew that it wasn’t a case of banks foreclosing to protect their own best interests, but rather it’s servicers foreclosing merely in an effort to pump fees out of a transaction that is costing them their home’s equity?  Would they still be okay with what’s happening today, still ignore the crisis threatening their financial futures?

Break on through to the other side…

So, after two years and 375 in-depth articles on the political, economic, social and legal aspects of the financial and foreclosure crises, after countless hours spent carefully analyzing the factors preventing homeowners from having a voice that could be heard over the vociferous din of Washington D.C. lobbyists, I have finally had a breakthrough moment.  I now know what needs be done and I’m going to lead the charge to get it done.  If you’re a reader of Mandelman Matters for some time now… you’ve read along as I’ve figured this out.

Do you see what I now see?  And will you help me do what’s necessary to change the national dialog that’s facilitating the total destruction of our consumer economy?  Because I hope you see that there is no time to lose.  Very soon we will have reached the point beyond which there will be no coming back… at least not in my lifetime.  We’re not there yet, but you feel the path we’re on accelerating downward, can’t you?  It’s a race to the bottom where many of us will stay indefinitely.

Our government is simply wrong in how they are handling the crisis.  The most straightforward and incontrovertible evidence of this can be seen in the numbers… we put $12.2 trillion into banks and other corporations to-date… and yet only 1/1000th of that amount into stopping the housing meltdown and foreclosure crisis.  There is no plausible justification for that sort of imbalance in allocating resources toward our economic recovery… none whatsoever.

We need to do two things:

OBJECTIVE #1: Destroy the factually incorrect but widespread belief that servicers are foreclosing because doing so is in the best financial interests of investors.  Because it’s not true.

OBJECTIVE #2: Change the face of the foreclosure crisis from that of the very low-income and largely minority homeowner to a balanced depiction of Americans at risk of losing homes, or those that have already endured the tragedy of losing a home to foreclosure, so that the idea that foreclosures are only happening to those that never should have bought homes to begin with can finally be buried under the truth.

CONCLUSION…

It’s time to focus on the two key areas that have combined to paint such a distorted picture of the foreclosure crisis that millions of Americans today don’t even oppose that which is causing them such significant harm.

Drill baby drill…

We need to reinforce the facts until the old ideas sound as absurd as they are.

We can do this… we can change the inaccurate view to a more correct one, and as we build momentum, we’ll see people change… because we’re right, and right always prevails.  No one should be comfortable turning his or her back on this country’s foreclosure crisis, because it is like turning one’s back to the ocean… you never know when that next set wave will crash into you from behind.

(BTW… Blogger, Rortybomb, has a lot more of what Ranieri said at the conference, and his is a great blog besides.  You might also want to check out his take on strategic defaults, not as colorful as mine, perhaps, but the guys is obviously wicked smart.)

~~~

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Comments

  1. cindie7777 says

    Martin so funny I see this article today because like you I've been racking my brain on why this continues when so many people really GET it they GET that the Banks are breaking laws committing fraud, lying through their teeth on a daily basis. Since taking the taxpayers bail out money they have been making HUGE PROFITS every quarter according to Wall Street while the rest of country circles the drain. Have you listened to Jon Stewart talk specifically about this he totally gets it. When I watched the Congressional Hearings last month with our good friend Dianne Thompson on the panel along with BOFA, CHASE,MERS and Fed Reserve people they were investigating the illegal foreclosure problem it was like the twilight zone first when Chase guy started his opening statement 2 rows of the audience stood up with signs and started yelling LIAR YOU ARE A LIAR thats what we want people to do get involved yell at the top of their lungs for help well they were escorted out. It was pointed out that B of A forged a document and submitted it in court to prove that they could not modify loans because of the PSA they replaced a comma with a period and conveniently left out the remaining paragraph that specifically says they are allowed to modify and should if it is in the best interest of the investor. The congress members were all saying their offices have been bombarded with calls from homeowners with horror stories so much so they had hire additional staff so the homeowners are taking your advice and contacting their goverment reps. The only thing the Bank would say in their defense is there had been mistakes and they are making every effort to fix the problems and improve on the way they handle modifications and foreclosures. I remember along time ago the Attorney General our new Governor was investigating them nothing came out of it just like the hearings its all out there on the record but nothing changes it gets worse now they are allowed to illegally foreclosure . Right after the twilight zone hearing I read your article where you say Help is not on the way thinking yep your right. Well today I see the article where Arizona and Nevada are suing B of A for fraud. I'm thinking maybe thats the only way to stop them is in criminal court they are commiting crimes I dont know of any criminal that can use the "I made a mistake and I'm working on fixing the problem" defense to keep them out of jail. These Fu***rs need to be in jail and their business's need to be shut down. It's like you said there will be no help from our government we need to get judges and juries involved people need to go to jail cease and desist orders need to be served on these banks they need to be put in receivorship or something. I'm sorry I'm rambling I'm just so sick of this and I think that is what the problem is people are on auto pilot because it makes you real angry when you think about it and being in a bad mood all the time is draining. We are becoming numb to it and that is scary we could end up like Afghanistan with no goverment just a bunch of rich overlords running things in their best interest.

  2. Sandy Lynn says

    Mandleman there. Yves over at Naked Capitalism posted an article over the weekend asking: "Are banks afraid to foreclose on the rich? " You might want to read that thought-provoking article. Multimillion-dollar homes, with $20,000 monthly payments that haven't been paid in 18 months, but the borrower has never been contacted about foreclosure.

    New York Times published a study that the rich default far more than the rest of us.

  3. mandelman says

    Hey Sandy... Mandelman here. (Don't you just love that?) I read Sans-Clothing Capitalism's piece on multi-million dollar homes and their propensity to not foreclose. It doesn't surprise me in the least, however, and I think I could answer her question about why it's the case... which I should probably do, now that you bring it up.

    First of all, as you've probably noticed, there are lots and lots of homes that people are living in for a year or more without having made a payment and without being evicted. Why? Because the banks can't afford to take the homes back, that's why.

    Remember a few months ago, when Secretary Geithner had a bunch of bloggers, including Yves Smith, I believe... come to Treasury to meet with undisclosed department officials.

    Treasury told the bloggers that they felt that HAMP has been a success because it allowed people to remain in homes longer at a reduced payment, because it came at a time WHEN THE BANKS COULDN'T AFFORD TO TAKE BACK THE HOMES... that it allowed for the win-win of delaying the foreclosures, while allowing the homeowner to remain in the home at a reduced payment.

    Now, I thought and wrote that Treasury's statements were beyond offensive... that they were torturing people by telling them that they would be modified when you know they wouldn't... but that's not the point here.

    The point here is that what Treasury was saying that there was a time when the banks couldn't AFFORD to foreclose on homes... and the reason is the accounting rules, having been suspended, allow the bank to keep the loans on their books at their face value... until they foreclose and sell the home, at which time they have to write it down to the real value.

    So, to foreclose on a multimillion dollar home, which is currently on the books at its fictional multi-million price... and then auction it off at perhaps half its book value and take the write down as a result... well, the banks can't afford to do it, and they plan to do so as they make enough money through fees, and Treasury assisted programs.

    Meanwhile, they leave people in the multi-million dollar houses so as to avoid having to pay for maintenance and property taxes, etc. until they can better afford to take the write downs.

    I think this is also supported by an article I posted last night that talks about how Freddie and Fannie won't participate in principal reduction programs because even though they make sense, theay also require short term write downs they can't afford.

    It's all in the accounting regulations and which ones they don't have to follow and which they do. Or, in other words... the answer is money... what was your question?

  4. Redgill says

    As a college professor/counselor/poet—in other words, someone who is book smart but fairly naïve about the ways of the world—I appreciated your article. It resonated, as we English types say. Unfortunately so. My wife and I are in the process of trying to stave off foreclosure, and we are, sigh, part of the mosaic that makes up the whole foreclosure mess. We got into trouble when I was hired as a full-time, tenure-track professor in 2008 and had to move. We couldn’t sell our house, went through renter travails, and applied to a home assistance modification program that may or may not have been legitimate, and now are employing a private sector loan modification company to assist us in negotiating with the bank (the private company is 1st Foreclosure Prevention—kudos by the way, for your article, Pigs, puppets, and people in Peril, it made great sense, and we are relieved that the company that we chose was mentioned favorably in your article).
    As you so ably state, it is all part of the package—demonize the consumer, throw dust into the eyes of the middle class, and ride away with the loot. I always smile (with a superior expression of course, since I obviously know so much about how the world works) when people talk about conspiracy theories. There are absolutely no secrets about what the rich do, it’s in the papers every day, it’s in excellent blogs like yours. They do things that the lower classes cannot do, and they get away with it partly through the efforts of vast, well-funded disinformation networks such as Fox news.
    But it is through efforts such as yours that these obvious attempts to lie and cheat and steal must be opposed, and I thank you for it. And now I will return to reading Trollope’s “The Way we Live Now,” which is about the huge profiteering going on in Victorian England, where rogues and swindlers bilked greedy and naïve investors of their money. Nothing like a little literature to take your mind off the real world.

  5. mandelman says

    ... There are absolutely no secrets about what the rich do, it’s in the papers every day, it’s in excellent blogs like yours. They do things that the lower classes cannot do, and they get away with it partly through the efforts of vast, well-funded disinformation networks such as Fox news.
    But it is through efforts such as yours that these obvious attempts to lie and cheat and steal must be opposed, and I thank you for it. And now I will return to reading Trollope’s “The Way we Live Now,” which is about the huge profiteering going on in Victorian England, where rogues and swindlers bilked greedy and naïve investors of their money. Nothing like a little literature to take your mind off the real world.[/quote]

    Redgill...

    Thank you for writing in about this, and for your very kind words, but I had to say in response... doesn't it at least seem like it's more in your face than it used to be? Like, perhaps it always went on, but had they had the decency to at least pretend it wasn't going on. Now they don't even bother with anything like that... they report it on the news, as in...

    "The banking lobby opposes the new law, and is expected to be out in force, making passage of the bill unlikely. The banking lobby's president, says they are prepared to funnel $50 million to prevent the bill from passing. Now onto a breaking story in Atlanta... a 15 year old boy has been found sleeping in his own house..."

    And I agree completely that news no longer comes from anywhere but the various credible blogs... and there are a lot of really great ones out there today. Blogs can't be wrong about their facts - the readers point out anything factually incorrect immediately. And bloggers are motivated by something way beyond what just a job would provide.

    There are still some very good news in print as well. But television, and almost all radio... NPR the exception on my dial... is not worth watching unless we're talking about local news.

    I can't remember watching a cable news network's coverage of anything in maybe 2 years.

    Martin Andelman
    Mandelman Matters

  6. NootkabearMcDonald says

    I apprecaite so much the article. I have wondered over and over again, what the hell is wrong with Americans. Why the world have they not marched? Did we learn nothing from the 60's, and what it takes to get listened to?
    You have made so much sense. But how can they be so blind?

    The other thing that really puzzled me of late, is the "Occupy Wall Street". I had to search for quite some time the other day to find an article on it. With the internet everyone says that news will get out anyway. Where?

    I am truly disappointed in Americans. It is not the deadbeats, it is not those who bought what they could not afford. The reason this continues, is because no one cares. When did we become so callous? What the hell is wrong with us? Many of us grew up in the 60's or very close to that era. I thought we'd all have more balls than this!

    What a disappointment!

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