Originally published on December 7, 2009.  How depressing is that.  Two years later and it’s just as current now as it was then.  How does it feel to be absolutely running in place.  Are you having fun yet?

Okay, first of all… you’re not buying any of this “the recession has ended” nonsense, are you?  Because if you’re one of “them,” then I’m really not sure there’s a whole lot I can say to you except maybe… well, no… actually there’s nothing I can say to you that you’ll find interesting.  Just go back to trading your stock portfolio, buying REOs, and loading up on Citigroup, or whatever it is that you guys do these days.

To everyone else… I have a question: At this stage of the foreclosure crisis, is there any doubt that we need some sort of lender and mortgage servicer reform?  I’m only asking because it’s hard for me to imagine that there’s anyone, at this stage of what’s definitely not a game, that wouldn’t readily agree, the American Bankers and Mortgage Bankers Associations, Financial Services Roundtable, and American Securitization Forum, et al, notwithstanding.

In point of fact, I don’t think there can be any doubt that lenders and mortgage servicers in this country are working solely in their own best interests, and it should be just as clear that those interests are not aligned with the interests of anyone else; not the investors they’re supposed to protect, not the borrowers whose lives have been torn apart but will someday recover, and certainly not our nation as a whole.  The Obama administration has tried to address this situation, but to be entirely candid, their efforts to-date have been limited to a voluntary program, offering what many would describe as meager financial incentives, some stern language and a few public relations efforts.  And let’s not dress this thing up… it’s not working.

In August, the administration made public the servicer “report cards,” the thinking being that the servicers would be publicly shamed into improving their performance relative to their peers, and were the servicing industry capable of shame, or in other words, if the servicers gave a hoot what regular people thought of them, it might have been effective to some degree.

As it is, however, all it should have done was show the country that no one, not even the President of the United States, is capable of making the lenders and servicers do what they don’t want to do.  President Obama, Secretary Geithner, and just about everyone in Congress tell them to modify mortgages… they write them a check for a few hundred million… and the lenders and servicers say “no problem,” and then return to doing pretty much whatever they darn well please.  And why shouldn’t they?  What’s the president or anyone else going to do to them?  I mean, absent government support, they’re already insolvent.  And they know he’s not going to let them fail no matter what.

Of course, that’s not how the servicers would describe it… they’d say, to borrow a line from ex-President Bush: “It’s hard work.”  And there’s no shortage of highly compensated apologists running about explaining that servicers are “overwhelmed,” as if there should be an outpouring of sympathy from the general public.  Poor servicers… having to deal with all those “irresponsible homeowners” who didn’t see the absolute destruction of the capital markets coming around the corner the way nobody else did.  Being a servicer is hard.  Boo-hoo.

Judging Servicers

I see, so Bank of America expects us to believe that they simply cannot figure out how to answer the phone.  Anything over a few thousand calls a day and the place basically shuts down.  I understand… it’s hard to answer the phone… all those buttons, don’t you know.

Chase?  Well poor Chase can’t seem to hire anyone.  They’re having a dickens of a time finding good help.  Understandable.  The financial sector is running at full employment, after all.  And as to Wells Fargo?  Well, the banking types at Wells just can’t stop losing borrower submitted paperwork… over and over again.  It must be hard to stop bank employees from misplacing things.

I can’t even listen to this drivel anymore.  Bank of America has 40 million credit card holders, and you can call the toll-free number on the back of their cards 24/7, get a live person within a couple of minutes, and he or she can tell you how much interest you paid in 2005 and where you bought gas last Thursday… even if you’re calling on Christmas Eve.  Chase could have hired every man, woman and child in the state of Florida by now if they’d wanted to.  And Wells Fargo?  Okay, fair enough.  I have no trouble believing that Wells is telling the truth when they say they can’t stop losing stuff.

The story of servicers being overwhelmed might have been mildly interesting 18 months ago… maybe, but today?  We’ve given them enough money to float the Titanic, which is metaphorically exactly what they are in terms of their financial realities.  So, if they wanted to be efficiently modifying loans, you can bet your soon-to-be-foreclosed farm that they’re more than capable of doing so right now.

And who could ever forget the dumbest argument of the new millennium: “Loan modifications don’t work because a huge percentage of borrowers re-default.”  We should all understand that the term “loan modification” is a synonym for “lower your monthly payment,” so to say “they” don’t work is evidence of a beautiful mind.  I remember how I felt when I learned that more than half of the modifications in 2008 resulted in borrowers having a higher monthly payment.  I thought to myself: “Hmmm… I wonder if that could be why they’re “not working.  Maybe someone should study that.”  Morons.

The next installment in the servicer’s excuse-of-the-month club was the very popular: “It’s not our fault, the investors made us say no.”  Oh, did they now?  Which investors would those be?  Must be the ones that refuse to maximize their own returns?  That makes about as much sense as Bank of America being phone challenged.  Why would an investor refuse to modify an underwater mortgage in this market, when the alternative is almost always more costly?  It’s absurd, and I hate being treated like I’m six.

Nonetheless, almost everyone bought into this lie over this past summer, and I think the bankers figured that since you had to read a 600 page pooling and servicing agreement to determine whether they were full of crap or not, no one would.  It worked for a while, but now having read quite a bit more on the subject, I’ve come to realize that the vast majority of investors have about the same amount of clout with servicers as do borrowers.

Servicers essentially never get fired.  And unless there’s some creepy hedge fund lurking in the finely manicured hedges, what it says in most servicing agreements is basically that the servicer must take steps to maximize the returns for investors, something they almost never do.  In a phrase, it’s not the investors that are holding things back.

Further proof of this could be seen in September when Impac Funding, an investor that uses Bank of America Home Loans and GMAC to service many of their mortgages, started contacting borrowers directly with offers to help homeowners modify their loans.  It seems that Impac had grown tired of sitting back watching their servicers foreclose instead of modify, and in at least one case, a borrower’s loan was modified in 72 hours.  When you think about all of the millions of foreclosures that have already transpired, that is absolutely sickening.  And according to a source close to Impac, the results have already improved their returns, so what do you know about that.

So, what’s the next faux impediment to modifications going to be?  Rumor has it that the banks are starting to pull credit reports in conjunction with applications for loan modifications, so that should slow things down pretty good right there.

What’s the answer?  Well, we could ask Sec. Geithner to give the lenders and servicers another stern talking to, but we’ve just ended our sixth straight month of foreclosures above the 300,000 mark, with August coming in at 356,000, give or take, so it’s not exactly a plan likely to inspire widespread confidence.  As it stands, we’re forecasted to end 2009 with a staggering 3.6 million foreclosures for the year, and all forecasts point to even more in 2010 and 2011.

We could allow the banks, that absent the fairytale accounting rules that shun mark-to-market, and the trillions in government support provided in one form or another, to fail and then impose strict requirements that…  oh yeah… sorry… never mind.  I was dreaming there for a minute.

Here Comes the Judge

The answer is to reform the bankruptcy code to allow ‘judicial foreclosures,” which is simply another way of saying to lenders and servicers: “If you won’t do what you’re supposed to, we’re telling Dad.”

A bill that would allow bankruptcy court judges the discretion to write down mortgages on primary residences for homeowners filing bankruptcy has already been defeated twice.  These judges are already allowed to do this on just about every other loan… second homes, commercial property… but not on primary residences.

I have to admit something… I ignored the bankruptcy reform bills both times.  I didn’t even get it.  One side called it the “cram down,” which didn’t sound all that appealing to my ears at the time.  I was focusing all of my attention on what the administration was going to do to stop the foreclosure crisis and I had no time for “cram down” bills.  Shrewd thinking on my part, I’m aware.

Here’s the really interesting thing about this proposal that I’ve only recently come to understand: If judges were allowed to write down primary mortgages for those in bankruptcy… they’d rarely if ever be given the chance to do so.

The truth about this proposed change to the bankruptcy laws is that it simply creates a meaningful threat to lenders and servicers who refuse to modify mortgages, a big fat stick, if you will.  If the $50 billion in incentives that the Making Home Affordable program offers lenders and servicers for modifying mortgages represents a “carrot,” then allowing bankruptcy judges to write down mortgages on primary residences is “the stick”.  And I think it’s pretty clear that today’s lenders and servicers need to be hit with a stick in order to get them to do what we, as a nation, very much need them to do.  Nothing else has worked, and we are all suffering as a result.

“It’s very discouraging at times,” says attorney Tim McFarlin of McFarlin & Geurts, whose offices are in Southern California.  McFarlin is an experienced bankruptcy attorney who expanded his practice to help homeowners in need to loan modifications over a year ago.  “We get them done… eventually,” Tim explains, “but that can mean five, six, seven months or longer.”

“It’s clear that the servicers aren’t motivated to do anything quickly, there’s often no rhyme or reason to their behavior, and they do everything possible to give attorneys a hard time.  I don’t see that changing without some sort of reform that allows for judicial modifications.  Unless they see themselves potentially standing before a judge in the future, they’re not going to play nice on their own… why would they?  Homeowners in distress are hardly prepared to file lawsuits against giant financial institutions.  And the financial institutions know that.  They can do pretty much whatever they want with impunity,” explains McFarlin.

If it has been said once, it has been said so many times that its hard to believe that it’s not front page news every single day… our economy cannot recover without the foreclosure crisis coming to an end.  Foreclosures destroy property values… everyone’s property values.  And they breed more foreclosures, because people spend less… corporate profits drop, prices begin to fall… companies layoff workers, unemployment rises and foreclosures increase.  Today, more than 40% of foreclosures are being caused by unemployment.

There’s no such thing as a jobless recovery, and even if by someone’s definition there is, it’s not something anyone would enjoy.  Bernanke’s latest proclamation that the recession is “probably over,” which was largely based on a recent increase in retail sales, failed to mention that the “Cash for Clunkers” program, higher oil prices, and the seasonal impact of back-to-school shopping fueled that rise.  Remove those factors and retail sales fell that month by more than they have since my mother was listening to the Andrew Sisters performing live at Atlantic City’s Steel Pier.

Unemployment continues to rise, property values continue to fall, and if it weren’t for the $8,000 real estate tax credit, it’s highly unlikely that home sales would be having their fleeting moment in the sun.  I know… the stock market has been going up, but one would be wise to remember that markets that go up without fundamental basis have the very definite tendency to reverse their course abruptly, and often in mid-autumn.  I’m not giving advice, by any means, I’m just saying.

All of that notwithstanding, the simple fact is that foreclosures are continuing to destroy the value of the mortgage backed securities that are still right where they were last fall… on the balance sheets of our nation’s banks.  At some point, we the taxpayers are going to have to buy those assets so our nation’s banks can begin returning to some semblance of normalcy, and the lower the value of those assets, the higher the hit will be to taxpayers.

To-date, servicers and most investors have refused to take any losses whatsoever, which is why principal reductions are as rare as Sarah Palin supporters at MoveOn.org, or union leaders at the RNC.  And even though most lenders and servicers are participating in the president’s Making Home Affordable program, the decision as to whether a given loan will be modified or its principal reduced, is still voluntary, which is a euphemism for “you’ve got to be kidding”.

Judgment Day

As of July’s end, when the administration published the “report cards” showing how each servicer was doing related to their efforts to modify loans, everyone on the list was shown to be an underachiever.  And we’re not just talking about ‘C’ students here, we’re talking 9% of an eligible 2.7 million homeowners who had received loan modifications; Bank of America, the “Bank of Opportunity,” as I recall, and one of the country’s largest mortgage holders, came in dead last at 4%.

We gave the banks a chance to volunteer, we gave them so much money it’s impossible to fathom, and they basically said… “Yawn”… and continued to foreclose at will.

The Obama Administration’s plan was to involve a carrot and a stick.  The stick was judicial foreclosures; bankruptcy judges being allowed to write down loans on primary residence mortgages for borrowers filing bankruptcy so they could remain in their homes.  Candidate Obama promised that he would support this legislation, and President Obama, as recently as last February when he introduced his foreclosure rescue plan, said that it was a crucial component of his new plan as well.

But that’s the last anyone has heard from the President on the matter.  He didn’t allow its inclusion in the economic stimulus bill, and now it seems that he doesn’t even allow it to come up at press conferences.  He said the proposal would have to stand alone, which was another way of saying that it would be doomed to failure.  And in case that wasn’t enough, the banking lobby was standing by prepared to spend tens of millions to defeat it.

In the second quarter of this year alone, the powerful Mortgage Bankers Association spent $761,000 on lobbying efforts.  And that’s when the United States Senate defeated the legislation that would have saved hundreds of thousands of homeowners from foreclosure by allowing judges to modify mortgages.  The lending industry saw it as a major victory,

A victory?  For whom?  I’m not sure these guys understand what “victory” means, or at the very least, they appear to have trouble distinguishing between “battle” and “war”.

The bankers say that allowing judges to modify mortgages will increase the number of bankruptcy filings and cause interests rates to rise, but these are two of the weakest arguments ever put forth because the alternative, which is what we’re all living through now, is a deflationary spiral that continues to drag our economy down and lasts for perhaps a decade or longer.

Just imagine what this country will look like, if for the next two years things just get progressively worse… and then it really gets bad.  Don’t kid yourself… if we don’t stop the foreclosure crisis and soon, that’s exactly where we’re headed.  A recent research report published by Deutsche Bank estimated that something like half of all the homeowners in the United States are going to find themselves underwater by 2011, so woo-hoo!

Stan Lockhart, an experienced real estate attorney who has represented homeowners trying to obtain loan modifications and also handles bankruptcies, commented:

“Bankruptcy reform can’t harm investors because they have nothing now.  The market is where the market is.  And if homeowners have no hope, if there’s no hope of equity in the future, then homeownership in this country is on borrowed time and perhaps for en entire generation.  Can our economy survive under those circumstances… I don’t think it can and that can’t be very attractive to investors, can it?”

Judging the Political Climate

Sen. Richard Durbin (D-IL), along with New York’s Sen. Chuck Schumer, have been championing the bill through both of its defeats.  The last time it sailed through the House… Citigroup even crossed banking lines to support the bill, and then it died in the Senate at the hands of the banking lobby.

To get Citigroup to support the bill, Sen. Durbin agreed to three… um… modifications, pun intended.

One: It would apply only to mortgages already in existence at the time the bill passes, and not to loans made after that date.  One would think that this compromise would put an end to the objection voiced by lenders that applying it prospectively would result in higher borrowing costs for all homebuyers.

Two:  In order to qualify for a judicial loan modification, homeowners would be required to contact their lender or servicer at least 10 days before filing for bankruptcy, which would give that lender or servicer one final chance to be, in a word, a Mensch.

Three: Violations of the Truth in Lending Act, or TILA, wouldn’t allow for the debt to be wiped out, as was the case in the original bill.  Instead, such violations would result in a fine, which is how the statute already works outside bankruptcy court.

The response by the banking industry?  “Thank you for playing, but sorry… no.”  And the arguments behind the industry’s latest objections make even less sense than their earlier smokescreen.  Try this one: The bill would even apply to million dollar homes, or homes where the homeowner isn’t behind on their payments.  This makes me wonder whether perhaps they’ve forgotten that the bill has to do with bankruptcy, and is not simply a way to shop for a lower payment.

Or how about: The bill imposes no time limit, so lenders are worried that they could still be dealing with this issue 30 years from now.  My personal response would be to say… fine, and give them a 10-year window, if that will make them feel better, but that’s just me.  And the industry’s third latest objection?  Under certain circumstances related to TILA violations, the entire debt could be forgiven.  Supporters point out that this provision only mirrors the penalties for abusive lending that exist outside bankruptcy court.  And I would like to add… have these people ever met a judge?  And if so, did that judge seem like the kind of guy who’s prone to giving away houses willy nilly?  I met a pretty nice judge in traffic court once, but even he only reduced my fine from $280 to $160.

Norma Hammes, a bankruptcy attorney who’s practiced for 31 years and now helps homeowners obtain loan modifications, is more than familiar with how lenders and servicers are handling homeowners at risk of foreclosure.  According to Hammes: “They (lenders and servicers) are trying to separate the attorneys from their clients.  It’s clear that the banks and servicers don’t want homeowners to be represented by counsel.  If they were really serious about loan modifications, they’d put the actual contact information of the HAMP Modification Department on their Websites.  As it stands, you have to call and call and then wait on the phone for hours before talking to anyone.”

“And that’s just the tip of the iceberg,” explains Hammes.  “In the Treasury Department’s FAQs, which seem to be the closest thing to published rules, there seems to be a requirement that the lender postpone a foreclosure while a homeowner is under consideration for a HAMP modification, but that’s far from being something on which a homeowner can count.  It happens far too often.”

Even HUD-approved housing counselors, who the government has consistently praised as being the frontline professionals trying to modify mortgages for distressed homeowners, express high levels of frustration at the number of brick walls, bureaucratic incompetence, and seemingly unending bewilderment about the program’s rules that they say are all ubiquitous at lenders and servicers.

The Obama Surprise

I have to say that most of what I’ve learned about bankruptcy reform and judicial loan modifications, on one side has seemed like common sense, and on the other, predictable resistance.  It’s obvious that the lenders and servicers aren’t going to act in anyone’s interests but their own, no matter what they’re asked nicely to do.  And it should come as absolutely no surprise that if they’re not threatened by what a judge might do, then there’s no consequence to their actions.

Our country is in crisis, and we can’t expect the banks to act for the overall good of our society… that’s not their role… that’s the role of the elected representatives who serve in our government.  No surprises there, right?

What’s incredibly surprising, to me anyway, is who has aligned themselves with the banking lobby in opposing judicial loan modifications: Ladies and Gentlemen introducing the Obama administration.

In late September, Assistant Treasury Secretary Michael Barr, speaking to reporters, said that, “Bankruptcy reform is an additional tool, but it’s not the focus of our efforts to keep people in their homes.”  The Wall Street Journal interpreted Barr’s comment as meaning that proponents of the reform should forget about it, because it ain’t happening.  The administration talks tough about stopping foreclosures, but then all it does is talk.  Now, instead of picking up the stick, all it’s going to try is increasing the number of carrots, and embracing short sales, which has about the same chance of working as the Hope-for-Homeowners program implemented by President Bush that has modified about the same number of mortgages as exist on my block.

Short sales are always a problem, because the lender or servicer has to agree that a borrower can sell the home for less than owed, and forgive the difference.  If that sounds a lot like getting a bank to agree to a principal reduction or loan modification, you’re right.  So, why would offering lenders or servicers a financial incentive that amounts to little more than a couple of sheckles for agreeing to do what they’re not doing now be effective?  Well, it wouldn’t silly.

I do have some sympathy for the Obama administration.  They don’t have an easy job, and Secretary Geithner unquestionably has his hands full trying to deal with bankers that are acting like spoiled children in oh, so many ways.  But he’s creating some of that by not taking a tougher stance, and it could be that the reason for this is that the Democrats don’t want to ruffle any of Wall Street’s financial feathers before the midterm elections in 2010.  They remember what happened to Bill Clinton in 1994, and they don’t want to see that happen again.

Geithner’s allowing the banks to ignore the accounting rules that forced banks to mark their assets to the market value, and FDIC Chair, Sheila Bair has said that forcing them to comply with FASB’s rules at this point makes little sense.  That’s laugh out loud funny… to me anyway.  I guess it makes more sense to allow the banks to have balance sheets that are pure fiction.  Well, alrighty then.  I suppose that is better, especially when you consider that the alternative is National Socialism… I mean nationalization.

I understand the nature of the problems faced by the administration, but I have to say that the way they’re handling it does bother me.  If a bank can foreclose on a home, and accounting regulations allow that bank to keep that mortgage on their books at its original, albeit now fictional value until the home is actually sold, then you’re allowing the bank to benefit from the foreclosure for some time, anyway.  But if, at the same time, you’re telling the country that you’re encouraging loan modifications, well… it seems disingenuous… to me, anyway.

In essence, you’re allowing that bank to temporarily re-capitalize itself on the backs of foreclosed homes, and that may be a preferable alternative to going back to congress for more money for banks in advance of the midterms, and I may even understand that political reality.  But I’m pretty sure that the families losing their homes won’t be nearly as understanding once inside the voting booth next fall.

It may not be something that shows up in the polls today, but the Obama administration, while it won’t be held accountable for everything that happened before, will absolutely be held accountable for fixing the foreclosure crisis.

In that regard they have thus far failed, and I think they’re likely to continue to fail unless they change their tune on judicial loan modifications.

Of course, I’m just thinking out loud over here.  Usually, I’m not one to judge.

Mandelman out.

The subject of why mortgage servicers foreclose when it appears that they should modify is one that has been written about extensively at this point, both by me and countless others.  Frankly, the whole thing is not only bringing me to tears, but it’s starting to bore me to tears, as well.

I’ve certainly read much of what’s been written about the behavior of servicers and have drawn my own conclusions as a result… they make more money foreclosing, they’re set up to foreclose as opposed to modify loans, and most of all, because they can and nobody does much about it… although I readily admit that attorney Diane Thompson of the National Consumer Law Center is not someone to be overlooked.  Her report on the subject can be found here:

Why Servicers Foreclose When They Should Modify

You see, the thing is… this situation has long since gotten way out of control, and anyone who doesn’t see that at this point simply isn’t paying attention.  Our economy is in a vice grip caused by the fraudulent and I would think criminal acts of our too-big-to-fail bankers, and our government that has failed to understand the situation’s dynamics from the very beginning, and therefore has failed to mitigate the damage as a result.

In fact, best that I can tell from listening to President Obama… his view is that some 20+ million Americans, inexplicably all became irresponsible at the same time, all bought homes they couldn’t afford, and now deserve to lose their homes to foreclosure… because losing 20 million homes to foreclosure will HELP our economy.

Do I have that about right?  I mean, please… I don’t want to put words into anyone’s mouth here, am I being unfair?  The White House even admitted publicly this past year that they underestimated the severity of the housing crisis.  In 2007  or maybe 2008, Bernanke said on television that it was unlikely that the sub-prime crisis would spill over into the larger economy.  I mean, what more do we need in terms of evidence that these guys don’t know what they’re doing as far as this meltdown is concerned.

Last week, and I’m writing a separate piece about this now, Bernanke printed up $600 billion so he could use it to buy our own Treasury bills… our own National Debt.  It’s called “Quantitative Easing,” and it’s NOT a Marvin Gaye song… like the flip side to “Sexual Healing,” or anything like that.  It’s nuts… that’s what it is.

I don’t care what your opinions are about out economy, just consider this… WE’VE NEVER DONE ANYTHING LIKE WHAT BERNANKE IS DOING NOW, AND HE WOULDN’T BE DOING IT IF WE WERE RECOVERING.  GET IT?

Ben thinks… and this is according to him, himself… that by injecting this paper currency into our economy two things will happen: 1. Interest rates will come down… ’cause they’re so friggin’ high now we really need that… and 2. The stock market will go up… which, if investors are the morons they’ve proven to be thus far probably will happen.  Are you thinking: So what and who cares?  Good for you.

Bernanke actually thinks the stock market going up with create the “wealth effect,” which means that we’ll feel wealthier and therefore spend more, and anyone who agrees with that position lives in some other America because where I live, people haven’t stopped spending because of the stock market, it’s housing prices falling through the floor and no or low paying jobs that are putting a major crimp in spending.  Well, that and the fact that we’d rather save now that we know what’s ahead and behind us, if you follow my meaning.

No matter… Ben’s quantitative easing has no shot at fixing either of those things, housing prices or jobs, so woohoo!  I’ll be sure to stay tuned to developments on that one… someone do me a favor and wake me when China says they’re cutting us off.

And here are a few additional fast facts:

… The lawsuits are coming and coming fast.  Investors who purchased mortgage backed securities are starting to file lawsuits against our banksters, and they want the banks to buy them back at their original valus, plus damages.

… The cost to bail out Fannie Mae & Freddie Mac will top $1 trillion.  I know, the government is saying it’ll be half that amount, but they’re just lying or wrong.  Oh, and Fannie & Freddie want the banks to buy back billions in in bad mortgages too.

… Homeowners who may have been improperly evicted from their homes are looking for any legal basis to sue the bankers, as are those that haven’t lost their homes yet, but are now at risk.

… The State Attorneys General, from all 50 States are just starting their investigations into the foreclosure practices of the bankers, and with 50 AGs looking my bet is they’ll find something.  If everything was fine, as I’ve pointed out before, the bankers wouldn’t have people called “robo-signers” signing their names 10,000 times a month on affidavits they don’t read.

… The banks currently hold millions of homes in their foreclosure inventory… and when I say millions, I’ve heard numbers like 7 million… so figure 10 million… to account for the “they’re always lying factor”.  PLUS, another 10 million homes are forecasted to be lost to foreclosure in the next few years.  Can you imagine what this country will look like and feel like when things are two or three times as bad as they are now?

… Strategic Defaults are rising… and I love that.  Currently, 70% of Nevada homeowners are underwater, 50% in Arizona & Florida and in California 35% of homeowners are underwater.

But everyone is a lot worse off than any of those numbers show because there is no “real” real estate market.  The demand for loans is lower than anyone can remember, the availability of loans is abysmal, and credit will remain tight for the foreseeable future.

Don’t believe me, mortgage people?  Well, wake up and smell the coffee my lender friends… here’s a link to the Federal Reserve’s latest study in that regard… go ahead, take a gander… you can’t handle the truth… (Sorry, maybe you can… I was just feeling very much like Jack Nicholson there for a moment.)

Lending to Remain Tight for Foreseeable Future

The worst of it all is that the government and the Federal Reserve continue to deal with the crisis as if it’s a “liquidity crisis,” and it’s simply NOT.  I’ve come to realize that Ben Bernanke couldn’t keep a hot dog stand open for the summer.  It’s not a liquidity crisis, otherwise injecting $3.7 trillion last year would have solved something and if definitely did not.

This crisis is the same one we faced two years ago… the banks broke the financial system… their balance sheets are packed with assets they cannot sell, and no one knows what their worth.

CDOs, CDSs, RMBSs and CMBSs… “Toxic assets,” I believe was what we were calling them, right?  Well, they are still there… right where they’ve been since the beginning, on bank balance sheets… and the only thing different is that Geithner and Bair aren’t making the banks write them down, which may fool us, but isn’t fooling them.  Banks don’t loan to banks when they don’t who is solvent and who isn’t.  The system is grinding to a halt, no matter how the Fed and Obama try to stop it by printing money and sending to Wall Street.

Now Obama and the Dems have lost control of the House and Senate, not that they had control of anything before, for all intents and purposes. But not we have gridlock and nothingness.  And Obama has said clearly that there will be no more help for homeowners… because they’re all irresponsible, remember?  Unlike our bankers who are pillars of responsibility, don’t you know.

So, I have bad news… help is not on its way.  No one is going to do anything to make this situation better.  It’s up to us and us alone.  In my mind this is war, people, and America is at stake.

In my mind, the country I grew up in will not survive as a two class society made up of rich and working poor… divided we will fall… and divided is where we are headed, if we’re not already there.

My America is the America of “Saving Private Ryan”… where we go back for every last soldier… we leave no one behind.  Our government is of the people, by the people and for the people.  Any time it hasn’t been the case it has almost broke us in two, and this time will be no different.

With liberty and justice for all… damn it… it has to be that way… we won’t make it under different terms.  Why my president doesn’t seem to realize that, I cannot tell you, because I know it to the core of my being.

So, you want to know why mortgage servicers are foreclosing when they should be modifying, do you?  Because we’re letting them, that’s why.

Because we’re letting them…

And we can stop them too.

Mandelman out.

]]> http://mandelman.ml-implode.com/2010/11/why-servicers-foreclose-when-they-should-modify-yawn/feed/ 0 http://mandelman.ml-implode.com/2010/08/bringing-up-the-rear-me-martin-andelman/ http://mandelman.ml-implode.com/2010/08/bringing-up-the-rear-me-martin-andelman/#comments Wed, 04 Aug 2010 11:38:54 +0000 Mandelman http://mandelman.ml-implode.com/?p=4027

It was one year ago that The Niche Report magazine’s publishers, Robert and David Pegg, offered me my very own monthly column. Feeling a little taken with myself at the time, I demanded the very last page in the magazine, right before the inside back cover… mostly because I’ve always fancied myself the “While You Were Out by Stanley Bing” type… and “Bringing Up the Rear” was born.  (Actually, by “demanded,” I meant that I asked nicely, and since they’re two of the nicest guys on the planet, they said sure.  I think I replaced the Index.)

Every month, I’d bring up a new REAR, at the END of the magazine, pointing out who was underwhelming me for one reason or another.  Hey, you gotta’ have a hobby.  And besides, with the year we were having I figured the darn thing would practically write itself.

I want to tell everyone that has read me throughout the year how much I appreciate them… their comments and emails… they’ve all been wonderful, for the most part… LOL… Your response to my column has made this past year one that I’ll remember fondly for the rest of my life.  Really, thank you all very much.

And I’d also like to most sincerely thank Robert and David Pegg, the two brothers that publish The Niche Report magazine, for putting up with me when I was pushing the deadline, and they were holding the presses, and because they never edited me once… that’s right, they never once told me that I couldn’t write what I wanted to write, and that takes a lot of guts in this day and age.

Throughout the year, I’ve chastised Fed Chair Ben Bernanke, Edward Yingling, the President of the American Bankers Association, John Coursen, the President of the Mortgage Bankers Association, FDIC Chair Sheila Bair, although I keep flip-flopping on whether I like her or not, Treasury Secretary Tim “Transparency” Geithner, Lord Blankcheck/Lloyd Blankfein, CEO of Goldman Sachs, Howard Miller, President of the California Bar Association, Assistant Treasury Secretary Michael Barr, FTC Chair Jon Leibowitz, Ex-Chief Credit Officer Ed Pinto, The Banksters, all of them, and even President Barack Obama to kick off 2010… for which some jackass actually accused me of being a racist.

So, since this is my 1 Year Anniversary of Bringing Up the Rear, I thought it only fitting that this month’s REAR would be… ME!  So… here’s to hoping that you’ll keep reading me this next year.  There are so many REARS that I haven’t touched yet… actually, that didn’t come out exactly right.  Maybe I should just shut up and get to this month’s column…

Bringing Up the Rear: Starring This Month’s Rear: Me, Martin Andelman

You know, I’ve spent a lot of time this past year darn near speechless at what’s been happening in this country.  I don’t know whether you’ve realized it or not, but we’ve blown right through whatever tipping point there was, and we are going down where we’ll stay for some time.  In fact, the next time this country feels anything like what I’ve seen over the last 30 years could very well be after I’m gone… and I just turned 49 years old.

All the stupid talk about “double dips” was starting to get to me anyway.  Does anyone actually buy any of that garbage?  Like the recession ended sometime this past year, but I’m just not able to tell, is that what I’m supposed to believe Professor Bernanke?  Yeah, it’s weird because I had no trouble discerning when it started.  You guys inside the Beltway may be so insulated that you need to check with your mega-computer to figure out such things, but me… no problem.  So in case of a power failure, feel free.  I’m here for you.

The thing is, I’ve had some time to really think about this meltdown and I’ve got to say… this one has made me a lot smarter.  All I learned from the last bubble popping was not to buy a stock with a 400 P/E whose business model involves shipping 50 pounds of kibble across the country overnight for free.  Not all that handy for anything I’ve seen since, so it’s not exactly knowledge I expect to put to work anytime soon.

And the bubble before that?  I believe the key learning there involved not banking at an S&L owned by Charlie Keating.  Oh, and something about Michael Milken, but he’s sort of like eating eggs every morning for breakfast… I can never remember for sure whether he’s good or bad for me.

Ah, but this bubble, my friends… this bubble’s an educational marvel.  And, just like emotional baggage, it’s the gift that keeps on giving.  I’ve always thought that there were only two things in life that led to real learning: age and pain.  Everything else is forgotten a week after you take the test.  But, this meltdown… it’s one of the true wonders of the world… this one has it all.

It’s a credit crisis, a global financial crisis, a foreclosure crisis, an economic catastrophe, the total destruction of the secondary mortgage market, the end of pension plan investing and Wall Street’s investment banks, and an ongoing example of why derivatives should be regulated until they’re no fun to play with anymore.

This bubble’s got its own lexicon… like tranches… something that should be served at brunch; “did you get the tranches, try the sauce.”  And the bottom tranche, called the “mez,” which sounds so much more valuable once you re-securitize it into yet another triple A rated bond.  Then there’s CDOs and CDOs squared, CDSs, and counter-parties where there’s no counter, and the only person thinking ‘party’ is the banker picking up his check from Treasury when the music stopped.

This bubble’s got securitized trusts that were supposed to taste great with mortgages inside, but instead are much less filling without.  And let’s not forget the certificate holders that basically are the “investors” that get blamed when Chase doesn’t feel like modifying a loan.

Yep, this deepening recession is a teaching machine, let me tell you.  And, do you want to know what I learned more than anything else?

That I’m a real idiot, that’s what.

And that I have been one for something like the last 30 years.

I was thinking about the 1970s the other day.  A kinder and gentler time.  Union strikes, dirty politicians, inflation, stagflation, 18% interest rates, the gas crisis, disco music, the hostage crisis… you know… the good old days.  I was remembering my family, while I was growing up, when we used to go on vacation.  Before leaving town, my father would walk down to the bank to buy traveler’s checks.  Then every day or two on our vacation, when he needed cash, he’d cash a traveler’s check.

I remember our family car back then too.  Dad would read Consumer Reports for maybe a year… finally buy one and then drive it until it had rusted out and needed to be towed away from the front of our house… then he’d repeat the process and buy another.  I remember one year he was debating whether to get our new car with an AM and FM radio, or whether AM alone was really enough.  Hey, it was important, every option cost money.  And then there was filling up with gas at Esso.  He’d pay for it with his Esso card, a “charge card” with a bill you paid at the end of every month.

We had some wonderful family vacations in the 70s, back before our family took all the fun out of dysfunction, as families so often do.  The thing is, there’s one component I don’t recall being in the mix… Gold Visa Cards, car payments, or stupid frivolous spending on absolutely nothing.

Since then, however, look what the guys on Wall Street have done to improve our lives.  It’s not bad enough that they’ve run non-stop ads my entire adult life to convince me that I should be investing with Paine, Merrill, Smith or Barney.  It wasn’t enough to sweep up my portfolio’s losses every seven years like locusts.  No, they also had to come at me with a more subtle, even hypnotic message: Debt is good, my boy.  No, it’s better than good… it’s the coolest thing going.  You want as much debt as we’ll give you.

Debt is how you let the world know you’ve arrived.  Debt comes in precious gems and shiny metals.  Hi, I’m a gold debtor… no look at me… I’m a platinum debtor.  Maybe you’d like to be a sapphire debtor?  Just think how good you’ll look and feel when you show the world that you’re a sapphire debtor.

Yes, Wall Street’s finest hired the guys from Mad Men, and worked us over pretty good.  They actually convinced me that these plastic cards of gold and platinum were status symbols.  Pulled out my American Express Platinum card, because membership had its privileges.  I paid $300 a year to carry that stupid grey colored piece of plastic around, and I think the only privilege I ever got was a late check out from a hotel on Sunday that I’m sure could have been had by anyone who asked.

Wall Street has been selling us on how cool and good looking being a debtor really was, because they were making a fortune on that debt, securitizing it, and packing it up to be shipped to investors all over the world.  And they sure got me; I think for a while there in my early thirties, I can remember charging a new wallet just so I could sit atop an entire deck of VISA and MasterCard playing cards, and I’ve got the back problems to prove it.

What’s the difference between those ads that make debtors look so successful, and cigarette ads that show beautiful people smoking their way to the beauty of lung cancer and heart disease?  We got rid of those ads pretty darn quick, didn’t we?  I wonder which actually kills more Americans each year: smoking cigarettes or the mountains of debt under which we’re constantly told we should bury ourselves.

And I remember now, that look on my father’s face.  He must have been wondering why in the world his son would choose to walk around showing the world what a debtor he really was, when in his day, that was something of which people were ashamed.  Yeah, that must have looked pretty darn weird all right.

Yes, there’s no question that this recession is going to be around for quite a while.  But you know why, right?  Because we’re not going to borrow our way to feeling prosperous again.

We’ve fallen for three bubbles in my lifetime and I for one am not going down for a fourth.  Next time I’m going to be asking about the price of the car I’m buying because I’ll be paying cash, and before I go on vacation, I’ll be stopping to pick up some traveler’s checks… or using my debit card, I suppose.  Unless fees for those get too high as well, in which case I’ll just carry cash, thank you very much.

I know what you’re thinking… carrying cash is dangerous… you might get robbed.  Really?  Well, at 49 years old, I’ve never been robbed of my cash by a street thug, but I’ve sure as heck been robbed every single day that I’ve carried around those credit cards that were supposed to keep me so much safer.

That’s what happens when our government encourages Wall Street to run ads 24/7 everywhere we turn telling us how wonderful life as a debtor can be.  As long as you don’t smoke, of course.

Yes, no question about it… this time around there’s been a whole lot of learning going on over here in Mandelman-land.  I’ve learned what a jackass I’ve been all these years… and that you were right, Dad.

I guess what they say is true… it costs money to go to school.

Mandelman out.

The Federal Deposit Insurance Corp. (“FDIC”) has started laying a foundation for lawsuits against the senior executives and directors that the agency claims were responsible for their bank failing.  Apparently, the FDIC has already sent out hundreds of demand letters that warn officers and directors about the possibility of civil charges, and announce formal investigations into individuals and subpoenaed directors’ financial statements, among other documents.

Shiela!  There you are!  Where the heck have you been girl?  Last I heard, Hank Paulson sent you for coffee, and you’ve been standing in Geithner’s shadow ever since.  It’s about damn time, girl!

FDIC says they want to assess accountability for the multitude of bank failures and perhaps take shot at replenishing the Deposit Insurance Fund while they’re at it, and the letters set the stage for civil lawsuits and monetary settlements, if appropriate.  Some industry people say the FDIC is only targeting the bankers with the most money, including those with insurance policies that will pay damages, but I couldn’t figure out for sure if they meant that doing so was a bad thing.  Because as far as I’m concerned, that’s exactly what the FDIC should do… target away, Ms. Bair.

One of those lawyers that everyone wishes they could toss into the octagon, David Baris, a partner at law firm, Buckley Sandler LLP and the executive director of the American Association of Bank Directors said:

“If there’s insurance and there’s money to go after, I believe that the inclination of the FDIC is to try to go after it, whether there is a good case or not.”

Dave, Dave, Dave… why are you such a spineless sycophant?  You believe that’s the FDIC’s inclination?  Who gives a rat’s behind what you believe, Dave?  I believe that you’re inclination is to shamelessly defend bankers who bankrupted their banks and took home generational wealth as a result, even before you know any of the facts of the case.  How close am I, Dave?  Shut up, Dave.

Besides, officials say such accusations are nonsense, explaining that no one receives a demand letter without cause.

FDIC Deputy General Counsel Richard Osterman was recently quoted as saying:

“Everybody thinks that they’re being pursued because they have money or there is some other reason, but in reviewing the claims, we’re looking at whether we have a meritorious and a cost-effective claim. How far we go will depend on the facts and circumstances in each case. We send in investigators and attorneys to look at the facts. If they find on the face of it there’s nothing there, then we close out the investigation.”

That sounds damn reasonable, Dave, my morally bankrupt friend.

Typically the FDIC begins gathering information that could be useful in a suit the day it takes over a failed bank.  If an insurance policy exists, and they suspect officers or directors were responsible for the failure, the agency issues a demand letter. The letters outline the allegations board members or officers could face.  The strongly worded letters, required by insurance carriers as the first step in the process, describe potential damages, and must be issued before a policy expires.

A March 26th letter to board members of BankFirst in Sioux Falls, S.D., for example, which failed in July 2009, is said to have listed everything from poor risk management to violating loan approval policies, explaining that if the agency decides to pursue the case, a director or officer may settle or face civil litigation.  The letter then demanded payment of over $77 million for “Director and Officer Wrongful Acts.”

Sounds pretty straight forward, right Dave?  I mean, you know those guys in Sioux Falls are guilty of poor risk management, because they had to be taken over by the FDIC.  I mean, how hard could it be to avoid risk running a bank in Sioux Falls, South Dakota, Dave?  You’d have to violate something to fall apart in Sioux Falls, I would think.  I mean, how much competition could there possibly be in Sioux Falls?

I can’t believe I’m saying this, but now I’m kind of happy that FDIC is broke, because they’re obviously motivated to recoup funds where possible, and that means no free passes for bankers who captained their ships directly into the rocks, but failed to go down with them.  For example, on July 2^nd, the FDIC filed a $300 million lawsuit in Federal Court against four former executives from IndyMac’s homebuilding division, and that’s got to put a spring in someone’s step all by itself.

The FDIC can also issue a “Notice of Investigation,” when a formal probe into specific individuals is the next step, and documents related to an officer’s or director’s personal wealth may also be subpoenaed.  And, I didn’t know this, but the FDIC apparently has a three-year statute of limitations from the date of a bank’s failure to sue management and board members, so that could certainly explain why these sorts of actions have seemed slow in coming.

And there are challenges when going after officers and directors, however, and they’re not insignificant.  Different state laws impose different standards as far as proving responsibility for wrongdoing goes, and not surprisingly, insurance companies are increasingly not covering claims for civil damages arising from a failure of bank policies.  A former FDIC Chief Financial Officer, William Longbrake, says that insurance companies are seeing the number of banks closing their doors and inserting clauses to prevent the FDIC from going after an insurance payout.

FDIC officials say that although they will send demand letters when negligence is suspected, in order to set up for an insurance claim, they are unlikely to go after executives that are unable to pay damages, which is fine by me, as long as they go after the guys that got away with zillions.

Apparently, in the banking crises of the 1980s and 1990s, the FDIC brought or settled professional liability cases in about 30% of 2,000 failures.  Now that more than 250 banks have failed since 2008, it’ll be interesting to see how aggressive the FDIC is this time around, especially when you consider that some number of banks have been failing on a weekly basis making the prospect list longer by the day.

Honestly, I had given up on Shiela Bair.  She was the first to advocate loan modifications for homeowners, which I thought was good coming out of the last year of the Bush Administration, but then she seemed to fit really nicely into Tim Geithner’s pocket, and that was the end of that.

Okay, so I guess Shiela Bair has another chance with me.  I’m willing to believe… not that my government will do things right, but that they’ll go after ill-gotten booty when it’s in their own best interests to do so.  But I suppose, we’ll just have to see.

Okay, so if your response to reading this is to say: “file under Giant Federal Band-Aid,” then fair enough.  I understand how you feel and you’re certainly right.  But, in terms of federal responses to the foreclosure crisis, and considering the rich tradition of meaningless blathering and epic failure that has come before, I’d have to call this one a winner, even though admittedly it’s potential to create anything even remotely sustainable is essentially nil.

Apparently, unemployed homeowners struggling to make their mortgage payments may very soon be able to access $1 billion in federal bridge loans, accordording to a deal negotiated in congress and included in the financial-overhaul legislation.  In simple terms, if you’re unable to make your mortgage payment because of being out of work or illness, you may soon be able to get a stopgap loan from Uncle Sam.

Some in the House wanted a $3 billion fund for such loans, but in the end settled for $1 billion as negotiations between the two sides ground to a halt in what I imagine was the typical flurry of partisan immaturity over a subject not well understood by either side.  Both chambers of Congress now have to approve the deal that was worked out by negotiators, but it appears that it’s really going to happen at this point, so I figured I’d go ahead and cover it.

The House and Senate negotiators also agreed to a $1 billion fund that’ll be available to cities and towns so they can buy and rehabilitate foreclosed properties that are litering some areas and making the communitie’s pillars uncomfortable.

Personally, I think they should have given this $1 billion to the unemployed, making their fund $2 billion.  I mean, for one thing, what’s the point in giving a billion dollars to cities to buy up dilapidated foreclosures, while leaving plenty of other in the unemployed class to lose another billion dollars in soon to be dilapated foreclosures.  It’s like cutting off the end of a blanket and then sewing it onto the other end in order to make it longer.

For another, this is like spending a billion dollars to sweep up the homeless people, moving them a few blocks away so they won’t be “in the shot” during some foreign dignatory’s arrival.  As far as I’m concerned, if we’re going to turn America’s economy into a third world mess, then let’s open up the curtains and let the blight shine in.

Now, I’m all done being even the least bit mature about this subject, I’m not interested in running for office, and I’d rather live under a bridge or more likely a palm tree that rejoin politically correct, ladder climbing corporate America, so let me address those of you tempted to say something predictable about how this doesn’t solve anything, won’t stabilize the housing market, and is just wasted spending.

My response to this group?  Hmmm… what would be the right words?  Damn. I hate it when I can’t think of the right way to say what I want to say.  Oh wait, I think I’ve got it!  Here goes: Shut up, shut up, good Lord would you please shut up.

First of all, I don’t give a rat’s petute what isn’t sustainable about this program, and secondly, it’s not “spending dumbass,” it’s a loan.

You remember loans, right?  I realize we haven’t any in some time, but if it will cheer you up, maybe you can find someone to securitize these, package them up, get them some triple A ratings, and sell them as bonds to some foreign country that doesn’t know that you’re the credit default swap counter party who’ll be cashing in at 50:1 when the bonds you just sold them default, which should be by next spring.  Aren’t you glad we didn’t bother making any of that stuff illegal when we put together the financial reform legislation?  See, I knew that would make you feel better.

Now why don’t you go back to ruining someone’s life for fun and profit and let those that can’t find work have a few months peace at least as far as their mortgage payments are concerned, would you please?

If you’re part of our federal government, and through two administrations you haven’t come close to getting anything having to do with the foreclosure crisis even remotely right, so much so that there are now millions of people who consider you so unfailingly incompetent that they wouldn’t be surprised to learn that you need help crossing streets and ordering grilled cheese from the kid’s menu, well… now you’ve at least created something that will do something to help someone struggling in the morass you’ve created.

Will it fix the problem?  Of course not, but you guys in government even talking about fixing the foreclosure crisis is about as productive as my wife and I discussing how NASA should go about building the next space shuttle.  We don’t have a clue, and neither do you.

It’s simple really, my expectations for government have been so diminished that I can become happy when I turn on C-SPAN and don’t find one or more of my elected representatives drooling on themselves.

So, good… out of work or knocked down by illness and can’t swing the mortgage payments, take the loan from Uncle Sam… why the hell not.  It’s only a billion dollars, so it’s not even one percent of last year’s bonuses at Goldman Sachs.  And at least you won’t have to think about pouring cement down all the drains and removing all of the copper wiring in the house before giving it back when the bank finally forecloses, assuming you can’t get back to work on time for insolvent asshats at Fannie Mae or Bank of America, or wherever.

Don’t agree with me?  That’s okay.  I think of you as pretty much a worthless moron anyway, and I don’t need nearly as many friends as I’ve got now, so… SCAT!  Before I take after you with a broom.  I’m tired of having to spend time making my metaphors monosyllabic for your ilk anyway.

Plus, if I was at all unsure of my position on this program, the clincher was finding out that the cost of both programs is being covered by a tax on large banks and hedge funds contained in the bill.  Oh come on… I don’t know about you, but I think I might even vote to fund Al Queda if I knew that’s how it was going to be funded.  Well, maybe not… unless of course they’d promise to blow up IndyMac/One West, or something similar.  It wouldn’t have to be Goldman… I’d be flexible.

There were a couple of additional unbelievably stupid statements made in the press about this program.  A couple of reporters repeated the ignorant drivel about how unemployment is now the primary driver of foreclosures.  Saying stuff like that a year ago might have merely shown one’s ignorance, but today it’s just sad.

Then there was the newspaper, covering this new funding, that wrote this little gem:

“The rules of the Obama administration’s foreclosure-prevention effort make it difficult for the unemployed to get loan modifications under the program.”

Actually, I don’t think you can be mad at whoever wrote that sentence.  Down syndrome is a serious disease and it certainly doesn’t help to be unkind to those afflicted by it.  My mother had a way of talking about people who would say something that out-of-touch with reality.  She’d just nod her head and say: “Why, bless his heart.”  And we all knew to be nice to that person, you know… give them a nice slow pitch up the middle, ‘cause they had been touched, and all the help they could get in this world would never be enough.

Oh, and by the way… Republicans, the “other white meat,” during the two-week-long debates over the bill, reportedly tried to kill the program in its entirety, saying that the country couldn’t afford to spend more money on homeowner help.

Ladies and gentlemen, and there you have it… a message that should have been paid for by the Obama in 2012 campaign.  I swear… I don’t know what it is that makes today’s Republicans so stupid, but it really works.

BTW: A READER WROTE IN REGARDING THIS ARTICLE AND OUR CONVERSATION, WHICH IS WORTH READING, CAN BE FOUND HERE.

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Who’s the moron in the Obama Administration? Someone needs to find out and let me know so I can name names, because the monumentally tragic absurdity known as the Making Home Affordable program, or the Home Affordable Modification Program, or any of the other wonky acronyms this administration has come up with, just went from ill-conceived to stupid. It jumped the shark, in a manner of speaking.

This past week, the administration announced, again with much fanfare, that they would be announcing some fabulous improvements to the absolute failure that is HAMP, the government’s answer to the ongoing foreclosure crisis that continues to fuel the freefall in housing prices that assures our recession’s future.

So, once again I waited to see what the smartest guys in the room would come up with, again feeling like Charlie Brown eyeing that football, and thinking to myself: If you pull that thing away at the last moment again… Lucy, you got some ‘splainin’ to do. (When I think things to myself, I often sound like Desi Arnaz in my head.)

So, they made the announcement and I wrote an article about it and I tried hard not to be a unqualified naysayer. I don’t like bashing the Obama Administration all the time. I’m even willing to wait longer to see my doctor or pay a tax on my health insurance if they’ll just stop the bloodletting in the housing market before it turns Somalia into a better place to own a home than Southern California. That’s not unreasonable, is it?

But they did it again, damn it. The Harvard contingent that’s packed in like sardines in this administration once again demonstrated that they have no idea what they’re doing when it comes to the foreclosure crisis. Their best idea to-date, no actually their only idea to-date, is to continually release questionable-at-best, manipulated economic data to tell us that the recession is over, as we struggle to stay afloat hoping to not be laid off, and wondering how much we could save each month by growing our own tomatoes after our bankruptcy has been discharged.

Well, there’s that and the giving of trillions to the banksters in one form or another.

The “new and improved” HAMP advertised “principal reductions” and “more help for the unemployed,” as it relates to loan modifications, which made for a fabulous sound bite, and predictably led the tribe of sycophant journalists to write about how the new plan would help stop more people from falling into the abyss.

So, here it is Saturday morning. I got up, poured my coffee and sat down to read the language of the new HAMP more carefully, and now all I want to do is beat someone or something with a baseball bat… or go take a nap. Because, I have to tell you… I’m getting real tired of stupid, and this is really stupid.

The new and improved HAMP caused Moody’s Economy.com to release revised forecasts for the new plan, saying that it could prevent nearly 1.5 million foreclosures from now through 2012, compared with an estimated 650,000 forecasted under the old plan.

Am I the only one that finds that hysterical, in addition to being interminably sad, of course? I mean, none of the forecasts for the old HAMP have come anywhere near close to accurate, so now Moody’s releases forecasts based on those hippy-dippy numbers? And that’s not funny? In addition to being stupid, of course? I‘m sorry, but I’m laughing my ass off over here.

So, here’s what the new and improved HAMP will… and more importantly will not do for homeowners:

1. Help for the Unemployed – For distressed homeowners receiving unemployment benefits at the time they apply for a loan modification under HAMP, lenders are now supposed to lower their payments to no more than 31% of their gross income for three months… as long as the homeowner is not more than 90 days in arrears at that time.

Then, as if it mattered one iota, the unpaid amounts are to be added to the loan’s principal so they can be defaulted on… I mean repaid… at a later date.

It appears that the administration is hoping that three months later the unemployed homeowner will have found gainful employment and therefore will qualify for a normal HAMP loan modification in which payments will stay at some reduced amount. Of course, if the borrower doesn’t manage to find a new job in 90 days… and not just a new job mind you, but one that adequately replaces his or her lost income… we’re not talking “would you like fries with that”… well, then it’s foreclosure time at the family ranch once again.

Okay, everybody stop. Whose idea was this? Find him… test him to make sure he’s not mentally challenged due to a metal plate in his head or by some sort of birth defect… and assuming that’s not the case, punish him severely and publicly in order to dissuade others from engaging in this level of thinking in the future. Clearly, we need to raise the bar here, and allowing this sort of thing to slip by as being in any way acceptable for adults will only perpetuate a race to the bottom in the idea generation department. Next thing you know you’ll be taxing health insurance benefits… oh wait… never mind, bad example.

Let’s look at this component of the new plan…

First of all… and the administration knows this all too well… we have a record number of people in this country that are unemployed for more than 26 weeks, a near record number of part-time workers for economic reasons, and a decline in average hourly wages across the board. And that’s according to the government’s own most recent report.

So, let’s see… how many weeks in three months? Hmmm… carry the 7… divide by 9… I don’t know… shall we call it 12? I wonder how many of the unemployed homeowners applying for a loan modification will replace their income to the level required in 12 weeks or less? And since lenders and mortgage servicers won’t even talk to anyone about a loan modification until they’re 60 days delinquent, and the new plan only applies to homeowners that are less than 90 days delinquent… so that leaves what… a thirty-day window?

The administration’s new plan will only apply to unemployed homeowners in that 30-day window?  Seriously?  And then they’ll get a lower payment for 90 days and unless they find a new job that replaces their old one in that time, they’re back to foreclosure? Wonderful, that just sounds positively wonderful.  Crackerjack work, wouldn’t you say?

Oh, and even in the best case scenario, the amounts that go unpaid get tacked onto the loan anyway? And just when do those get repaid? Come on… this is characterized as providing extra help for unemployed homeowners?  Really?

This is extra help, like a Dr. Scholl’s footpad helps 40 years of wandering in the desert.

2. Consider Principal Reductions for Underwater Homeowners – For homeowners behind in their payments and considered “deeply underwater,” the new and improved HAMP will “require lenders and servicers that decide to participate to consider” providing a reduction in the principal balances of mortgages. They will also be “encouraged” to reduce principal balances for underwater homeowners who are current on their payments.

First of all, the word “consider” comes from the Latin word “considerare,” which means: “to look at closely, observe”. And the word “considerate” means: “marked by deliberation, of persons deliberate and prudent, and circa 1700, meaning “showing consideration for others”.

So, before I say anything else, I’d like to propose that we pass a new law immediately that prohibits the use of either word in conjunction with anything having to do with banks. All those in favor? Yep, I thought so.

Getting back to the specific issues at hand… weren’t the banks already required to “consider” principal reductions in conjunction with granting loan modifications under the HAMP guidelines. Oh yes they were… or rather are. Look up the HAMP guidelines, you’ll see.

So what’s the deal now? Are the banks now being double-dared to consider writing down the loans?  Are they being told to think on it extra hard.

Why in the world, and especially at this stage of this tragedy, would our government even CONSIDER writing language like this into an already failed plan that’s continuing to publicly pull our nation’s economy towards an extended state of financial ruin?

And don’t even talk to me about banks being “encouraged” to write down mortgages for homeowners who are not delinquent on their mortgage payments, because not only do I not believe this will ever happen to any meaningful degree if at all, but I find the entire idea utterly preposterous. If you want to help those who are not (yet) delinquent on their mortgage payments, how about doing something to stop their neighbor’s home from being auctioned off at 60% of it’s market price. That might help, what do you think?

We certainly don’t need Bank of America devoting any of its obviously scarce resources to calling homeowners who aren’t delinquent and saying: “Hi, yes I’m calling from Bank of America. I realize you’re not delinquent on your mortgage payments, so we thought we’d give you a call and see if we can’t write down the principal balance for you.”

And all of this assumes that lenders and servicers will decide to participate in the first place, because like every other government program to-date, it’s all voluntary. The banks don’t have to do diddlysquat. And, as The New York Times pointed out in its editorial discussing the changes to HAMP:

“… lenders might wait to see if bigger incentives are offered later. They may also prefer foreclosure to modifications because the long foreclosure process lets them postpone taking losses.”

Both points are of course true, assuming that any lender’s internal discussions on the subject would even rise to the level at which either point might become relevant.

The administration must do more. They owe these homeowners… and the American people more.

There are quite a few people out there that feel that homeowners unable to make their mortgage payment deserve nothing more than foreclosure. Their thinking, in most instances, is that these homeowners have brought this on themselves and now it’s time to pay the proverbial piper. Their bad decisions have consequences and the government has no business “bailing them out”. Yada, yada, yada.

I could not disagree more with this perspective and it’s important for me to state precisely why I think the way I do.

A. This is not 2006, 2007, 2008 or even 2009. This is 2010. The government has had several years and two administrations to do something about our downward spiral in the housing market and it has unquestionably failed at every single turn. Meanwhile, our government has bailed out the Wall Street banksters whose actions were the proximate cause of the crisis. It wasn’t today’s homeowners who thought housing prices would go up forever, and as a result leveraged themselves 40:1, it was the bankers who thought that way and did just that as a result.

B. Sub-prime loans are not the issue, and haven’t been for well over a year, maybe two. Today, more than half of the foreclosures are prime loans, so it’s not about people who shouldn’t have qualified for buying their home. People losing their home today have simply been caught up in the deflationary collapse that’s been allowed to go on almost unchecked for far too long.

C. Had the government stepped in sooner and more effectively, and there were plenty of opportunities for it to do so, we wouldn’t have (U3) unemployment hovering around 10% with no relief in sight, so many of these homeowners wouldn’t be unemployed and losing their home as a result. (U6 unemployment, the real unemployment number, is still north of 17%)

D. Had the government stepped in sooner and more effectively… and had the banks not shattered the credit markets by pushing AAA rated mortgage backed securities whose value was questionable at best… housing prices wouldn’t have fallen as far as they have and therefore many more people would be able to refinance as their loans adjust higher instead of the situation in which we find ourselves today.

E. The government’s failure to more effectively address the housing crisis has caused values to fall to the point where every homeowner in America has sustained enormous losses, to the point where even the most prudent of plans have gone awry. Retirements are being postponed, and all Americans are paying the price. Taking effective measures at this point to stop the carnage in the housing markets doesn’t represent a special interest bailout of irresponsible homeowners, it represents the only responsible path the government can possibly take to assure the future prosperity of its citizens and nation as a whole.

Hopefully, that made my position sufficiently clear.

This new and improved HAMP for the unemployed is not going to help 1.5 million homeowners instead of 650,000, as forecasted by Moody’s. In fact, with HAMP itself still languishing somewhere between total failure and abysmal failure,  in terms of its ability to help homeowners who are not unemployed, I’d be surprised if it helps anyone at all.

And the idea that anyone could possibly peg their hopes on banks “considering” anything, or acting in anyone’s best interests but their own, based on any level of encouragement, first makes me laugh… and then pity those willing to do so.

The entire idea is absurd, and whoever is responsible for authoring such enhancements to the HAMP program, deserves to be publicly ridiculed. They are obviously people whose intelligence is lacking to such a degree that they should not be allowed to drive a car, or even cross busy streets without assistance.

Here’s a thought… Perhaps the whole thing is just part of Obama’s plan to stop immigrants from coming into this country illegally by allowing the United States to become a nation whose economy provides less opportunity for prosperity than Mexico. ‘Cause you know… that just might work.

If that’s the case, however, then I’d like to reverse my position on the whole “build a fence” idea. Capisce?

Mandelman out.

Ergo bibamus.

SCROLL TO BOTTOM FOR BUTTON THAT MAKES IT SIMPLE TO CONTACT YOUR REPRESENTATIVE IN CONGRESS.  YOU DON’T EVEN NEED TO KNOW HIS OR HER NAME… JUST YOUR NAME, ADDRESS AND ZIP CODE.

In the next 2-3 years, it is estimated that there will be an additional 14 million foreclosures in this country.  That will make the total roughly 20 million homes lost in this catastrophic recession.

But it won’t stop there. Foreclosures breed foreclosures.  And 20 million foreclosures just means that millions more homeowners will find themselves seriously underwater… owing quite a bit more than their house is worth… and they’ll walk away… just like 18% are doing now.  And that will mean even more foreclosures after that.  And that will mean everyone’s property values continue to fall, which will bring even more foreclosures.

Both President Bush and President Obama have tried to put plans in place to stop the flood of foreclosures… BOTH HAVE FAILED.  Why?  Isn’t it obvious?

The banks cannot be trusted to act in anyone’s interest but their own.  The government has given them hundreds of billions of dollars, after they bankrupted themselves.  And yet, they act as if it’s business as usual.

This year alone, the major banks in this country are paying out $91 BILLION in BONUSES to their executives!

The only answer is to allow judges to modify mortgages for homeowners in bankruptcy court.  Here are a few facts that will show you why this is so important:

1. President Obama’s Making Home Affordable program was designed to work with “a carrot and a stick”.  The “carrot” is the money banks receive when they modify a loan, and the “stick” was supposed to be allowing judges to modify the loans.  Without the “stick,” the plan cannot work.

2. Banks don’t modify their behavior for the same reason I wouldn’t modify my driving habits if there weren’t Highway Patrol officers out there to give me a ticket or take me to jail if I drive 100 miles per hour.  No stick.

3. Allowing judges to modify mortgages in bankruptcy court WILL NOT increase borrowing costs in the future, which is what the banking lobby is saying and wants you to believe.  The amendment only allows judges to modify mortgages that are already in existence when the bill is signed.  It will have NO EFFECT on borrowing in the future whatsoever.  NONE.

4. If we allow judges to modify mortgages on primary residences, chances are they’ll never get the chance… because the banks will modify them… like they’re supposed to.

5. Judges can already modify every other type of loan in bankruptcy court, just not mortgages on primary residences.  Allowing them to do so will help stop the foreclosure crisis that is hurting every homeowner in America… AND IT WON’T COST THE TAXPAYERS A DIME!

Our economy cannot begin to recover until we stabilize the housing market.  We’ve tried letting the banks decide… and look where we are today.

The only people opposed to this amendment are the bankers and financial service companies.  We can’t turn our country over to them, can we?

Click the button below NOW, 24/7.  There is literally NO TIME TO SPARE… You don’t even need to know your representative’s name.  All you need to know is your own name, address, phone and zip code.  The letter is already written for you.  Just enter your information and click the button to send.  It’s that simple and takes less than a minute.  OR YOU CAN CALL 877.354.4958 DURING REGULAR BUSINESS HOURS.

DO IT NOW.  IF YOU DON’T, IT WILL ALL BE UP TO THE BANKS.

In case you missed last month’s issue of The Niche Report,

Here’s My Column That Appears on the Last Page Every Month…

Bringing Up the Rear:

Ex-Chief Economist David Lerah

OH YEAH… I FORGOT TO MENTION…

Have you subscribed to The Niche Report yet?

NO?

WHAT IN THE WORLD ARE YOU WAITING FOR?  IT’S STILL FREE,

BUT IT WON’T BE THAT WAY FOREVER.

Click Here… And Get it Over With in a Minute or Two…

The Niche Report

Okay, so I just got back from vacation… and I’m feeling particularly impish.  So, I thought it might be a good time to bring up a couple of things that have been swirling around in my overly active and slightly distorted grey matter ever since I launched the new Mandelman Matters site design.  There’s no point in beating around the bush here, as I know how much my readers love beating around bushes, so here goes:

1. The Subscribe Tab - You may not have noticed… or maybe you have, but included in my new blog design is a tab labeled “Subscribe”.  Now, perhaps the intent behind this highly technical terminology may have escaped many of you, but the idea is that you… the readers… are actually supposed to “subscribe”.  It’s free, by the way.

Subscribe to what?  I hear you cry.  Well, I don’t know exactly, but to start with there’s my Monthly Museletter, which is different from my other stuff in several ways.  For one thing it’s shorter than anything else I write, which I’m sure quite a few of you will appreciate, as I can tend to be on the long-winded side.  And for another, I’ve only just begun and since it’s a “Museletter” it’s meant to be inspiring, so who knows what I’ll be putting in there in the future.  And, yes… it’s free, just so you’re aware.

I know what you’re thinking… you can get my Monthly Museletter without subscribing.  Well, today you can. But soon, however, I’m only going to be sending it out to “subscribers,” so how’s that?

The thing is… it’s free and it only takes a couple of seconds to do it, and by “doing it” I mean actually subscribing… and I promise never to share your email address with anyone, unless of course someone offers me millions of dollars for it, in which case I’ll sell you down the river in a New York minute, but I’ll call you first and we can split 50/50. For that kind of dough you can just open a new gmail account, so get over it.

Okay, so what’s holding you back?  Is it the cost?

I’d subscribe to your Monthly Museletter if it were free… and if it was at least reasonably interesting… and funny… it’d have to be at least marginally funny. And it would be really good if it helped me make a living.  (Mine tries to do all of that, by the way.)

And did I mention that it’s free?  So, click this link and “Subscribe” already.

2. The Niche Report - Okay, so most of you know already that I write for a magazine called “The Niche Report”.  Just so you know, The Niche Report is a highly targeted mortgage finance trade magazine nationally circulated every month that reaches over 50,000 licensed mortgage brokers, loan officers and mortgage professionals.

Now, just like I might have mentioned in item #1 above, because it’s an actual  magazine it involves “subscribing,” but it’s free subscribing once again, so it’s priced right… and it makes a lovely gift, by the way.

Now, I know several thousand of you already have subscribed, and many of you wrote very, very nice comments in the “Comments” box on the subscription form, which makes me look good and helps me get more cover stories… which I like… a lot… in case you were wondering.

In May I wrote the cover story… “Pigs, Puppets & People in Peril – The Administration’s Curious Campaign Against Loan Modification Firms,” and it was such a huge hit that the magazine offered me a monthly column which I call “Bringing Up the Rear“.  It appears on the very last page each month… hence my use of the term “monthly” when describing the column, and each month I bring up a new “REAR”.

The first month’s REAR was Fed Chairman, Ben Bernanke.  Then in July the REAR in question was FDIC Chair, Sheila Bair.  And in August I couldn’t help but go after Edward L. Yingling, the President and CEO of the American Bankers Association, and a GIANT REAR in a world of fairly substantial sized REARS.

But wait… there’s even more.  In July I wrote the cover story again, “Cuomo’s Crossing – An Outsider’s Appraisal of the New HVCC Rules”.  HVCC stands for the Home Valuation Code of Conduct and among other things it cuts every appraiser’s pay in half, while it doubles the cost of appraisals for homebuyers.  Pretty nifty, huh?

In August, I wrote a piece on the new Web 2.0 technologies, which I was first introduced to during a conversation about pedophiles.  And in September I’m back for another cover story, this time on Bankruptcy Reform, which the banking lobby beat back twice, but is coming up in Congress again… and we really need to pass this time.  Because… Bankruptcy Reform Means Lender Reform.

I’m doing yet another cover story in October that’s going to be about the Yield Spread Premium and other stuff that’s important to the future of mortgage brokers.  And, if you can stand it… I’ve been offered the December cover story too!  And that’s where you’ll find my annual holiday poem, “Twas the Night Before Christmas – 2009, A Political Year in Review,” which has been an annual holiday favorite for years now.  (My wife’s a little tired of it, and my daughter rolls her eyes, but that’s another story and you shouldn’t let it spoil it for you.)

Okay, back to the whole subscribing thing… it’s easy… only takes a minute or two… and it’s free!  It’s the trifecta of closing arguments, don’t you think?

So, just click here: http://www.thenichereport.com. And before you know it the subscription form will pop up right in the middle of your screen… POP!  Then you just spend about a minute filling in your mailing address and bang-zoom… next thing you know you’ll be receiving your very own copy of The Niche Report in the mail each and every month!

And… although it’s certainly not required, while you’re filling out the subscription form… if the spirit moves you, you could consider mentioning how much you enjoy reading my columns… nothing too schmaltzy or over the top, mind you… maybe something like: “He’s the Hemingway of our age”.  You get the idea.

Don’t put it off… click the link above, damn it.

3. ML-Implode.com - I know most of my readers read ML-Implode, it’s the industry’s leading news site for the mortgage industry and much more.  The ML-Implode site has so much on it that if you started now, you’d get to all of it sometime in 2075, if you’re a zippy reader, that is.  I’m not kidding, ML-Implode has something north of 150,000 pages of really important and cutting edge content.

When it comes to the mortgage industry, the real estate industry, the banking industry, the appraisal industry… the economy in general… well, it makes Wikipedia look like an index card, for heaven’s sake.  Not only that, but the “Forums” by themselves are unbelievable.  If you want to watch or engage in discussions with some of the smartest people in the country, check out the forums on ML-Implode… if you can think of the subject, chances are they’ve already got a forum going about it.

Now, here’s the deal about ML-Implode that I think my readers should know and think about: ML-Implode has a Google page rank that’s so high that advertisers have been known to get nose bleeds. And as far as traffic goes, fuggetaboutit.  ML-Implode’s forgotten more about traffic than other sites have ever even thought about.  And did you mention “targeted”?  ML-Implode practically invented “targeted”.  Look up “targeted” in the dictionary, and there’s a picture of ML-Implode.

So, wait… what’s my point?  Oh yeah, I remember… if you want to make your advertising more effective, you should be advertising on ML-Implode… for sure.  And how’s this for a little icing on the cake: Since you’re reading this on Mandelman Matters, I could potentially even write your ad for you at no additional cost!  (Or at an exorbitant additional cost… if you’re A BANK.)

Okay, so click here and find out more about how you can use the power of ML-Implode to drive your marketing efforts… well no, not back there… I meant HERE on ML-Implode!

So, alrighty then… that about covers it.  And I don’t know about you, but I for one feel much better getting all that off my chest like that.  Thanks for reading it.  I owe you one.  So… call me if you ever want to talk about whatever.  I think I’ll go lie down now.

]]> http://mandelman.ml-implode.com/2009/08/pardon-me-can-we-talk/feed/ 0 http://mandelman.ml-implode.com/2009/07/julys-issue-of-the-niche-report-bringing-up-the-rear-fdic-chair-sheila-bair/ http://mandelman.ml-implode.com/2009/07/julys-issue-of-the-niche-report-bringing-up-the-rear-fdic-chair-sheila-bair/#comments Thu, 09 Jul 2009 20:42:50 +0000 Mandelman http://mandelman.ml-implode.com/?p=816

In case you don’t already know, I wrote the cover story for the May issue of The Niche Report magazine, titled “Pigs, Puppets & People in Peril – The Administration’s Curious Case Against Loan Modification Firms”.  And it was really popular.  REALLY, REALLY POPULAR.  In fact, for those in the loan modification field… it was basically Disneyland meets Law & Order.

As a result, the magazine decided that I should write four more cover stories this calendar year… and it should go without saying that I, of course, concurred.  And in addition, they asked me to write a monthly column, which I decided to call: Bringing Up the Rear, so that each month I could bring up a new REAR… the first month’s rear was Ben Bernanke of the Federal Reserve.

And this month… the REAR in question is FDIC Chair Sheila Bair.

The July issue will be out in a day or two, but the magazine sent me a link to the Sheila Bair as the REAR of the Month, and I thought I’d provide it here on my column, so that those of you who have not yet subscribed to The Niche Report… why, I do not know… could get a feel for what my monthly column will be like in the months ahead.  The link is below… and I hope you enjoy it… a lot.

Oh, and by the way… I also wrote the cover story for the July issue of The Niche Report… the one that’s coming out in a day or two.  Just look for the giant cartoon pig of a banker on the cover.  The title is: “Cuomo’s Crossing: An Outsider’s Appraisal of the NEW HVCC Rules.”  If you’re not a subscriber and want a copy send me an email and I’ll make sure you get one.

If you know an appraiser, it makes a lovely gift… perfect for any occasion… just thinking out loud over here.

But I forgot the best part… you can subscribe to The Niche Report… FREE!  Woohoo!  And I’m not talking Obama-FREE, I’m talking about free… like without cost.  And then you’ll never have to miss another cover story of mine, and you’ll know who the REAR of the month is… and you wouldn’t want to get caught with your pants down on something like that.

Bringing UP the REAR with FDIC Chair Sheila Bair…

Destroying Home Equity, One Neighborhood at a Time.

And, in case I convinced you that The Niche Report is really something you should not miss… by the way the rest of the magazine is great too… click here and get to subscribing…

SUBSCRIBE TO THE NICHE REPORT FREE!