I’m Sorry Mr. President That’s Just Not Enough

This is the very first article that I published on Mandelman Matters on ML-Implode… February 20th of 2009.  Before then, I was blogging on MSNBC’s Newsvine.   I was talking to Kevin Hardin in Arizona last night and he asked me about how I’d come to write about the foreclosure crisis, and I explained that when I started, it was 2007 and I was writing about Wall Street and their masterful handling of the credit markets that led to my home’s value dropping by 50 percent.

Anyway… the walk down memory lane made me want to look at what I was writing at the beginning of 2009, so I went to my archives… found this first piece… and read it… and it made me LMAO to see what my perspective was back then… so I thought others might enjoy reading it too.

I wrote the article below just hours after President Obama’s speech introducing his Homeowner Affordability & Stability Plan, which was supposed to “fix” the foreclosure crisis.  And I apologize for the PG-13 language…

President Barack Obama traveled to Mesa Arizona this week to tell the country about his Homeowner Affordability & Stability Plan to fix the housing market. I didn’t watch his speech. I didn’t listen to it on the radio. I didn’t read a transcript, or an article, pro or con. I waited to get a copy of the White House Fact Sheet itself, which is four pages long, and, well… I don’t like it.

I probably shouldn’t hate it. Perhaps I should only dislike it, or not care for it… or find it inadequate; or maybe I should pretend to like it.

I don’t care… I don’t like it. And at the risk of sounding like a right-wing Republican talking about the economic stimulus package: It’s NOT going to work, if by “work” we mean fixing a housing market where one out of ten homes is at risk of default over the next three years. It’s another example of the too-little-too-late policy on housing that the Bush administration had such success with in 2007 and 2008. Perhaps it’s all the president thinks he can do at the moment, but if that’s the case… Mr. President, we need more.

Let me ask you a serious question for a moment, because I want to make one thing clear right up front about the Obama plan:

Obama’s plan is made up of a $75 billion part that’s direct spending, and a $200 billion part that’s money invested in Freddie & Fannie so they can buy the loans that result from the plan. Do the math… seven plus zero, minus two, carry the three… that’s $275 billion, and it makes me absolutely sick to my stomach and I get a strong urge to shut my eyes tight.

Is anyone else reacting the way I am? I may need to lie down.

What was the number again? Oh, that’s right… $275 billion. Well, let me say something here… it God damn BETTER cost a damn sight more than $275 billion to fix the housing crisis or I don’t think I’ll be able to have normal conversations, or possibly even leave my house for at least a year. The only thing that seems to be working in terms of controlling my urge to rage uncontrollably, is when I put my finger tips in the way and slam a drawer on them.

How in Sam Hill can we possibly even come close to solving our housing crisis for $275 billion? Please… I once went to the bathroom and Citigroup lost like $300 billion before I finished drying my hands.

We’ve spent trillions and trillions… and trillions… (now there’s a sentence I never thought I’d write).  And now we think we can fix it for $275 billion? I’m sorry, but I’m going to have to see the math on this on… and not just the answer page… but the scratch paper used to come up with the answer.

If it turns out that our housing crisis can be fixed for $275 billion, I want to yell at someone… scream my head off… I may even be willing to spend a week in jail over it… I’m not sure.  Not saying I will, not saying I won’t.  But, I’m all kinds of pissed off.

Now would not be a good time for me to have to talk with anyone stupid. We spent $700 billion twice already. And we can’t even find a bunch of it. Why the f#@k didn’t they just write the check, if they thought $275 billion would have covered it? I think I may have just left the building.

Am I to understand that we dicked around for weeks having a discussion about whether to re-seed the grass on the National Mall or buy condoms for High School kids when we could have saved millions of people from foreclosure with $275 billion… less than half of the amount we just approved for the economic stimulus bill? Is that what I’m to understand? Well, I’m not understanding it, and I’m not going to understand it.

Here’s the deal. I’m sending a message to everyone I know and you, the reader, are included on that list. Here’s my final word on this:

Memo to The United States Government:

You are not to spend one more dime bailing out a single Wall St. bank until you’ve bailed out American homeowners. Not a God damned dime. If you do, then we will take to the streets. We’ll stop making even more payments. And every time someone loses a house, we’ll strip it down to the wiring, but only before we burn it to the ground and poison the earth below. You think the God damned banks and insurance companies have losses now? Well, let me assure you… you sanctimonious, blathering pricks… you haven’t seen sh#t in the way of losses yet. Oh, and as far as paying taxes this year… I think we’ll all file extensions… ALL OF US… ALL AT ONCE.

And let me just address the moral hazard crowd, lest they think I’m buying into their line of crap for even a millisecond:

The moral hazard argument is over… done. Take it down the street, pal. I’ve got no time for you or your idiotic concerns about “moral hazards,” and unintended consequences. Any moral hazard argument went out the window the day they bailed out Bear Stearns. Moral hazard? F#@k you. I’ve got your moral hazard hanging. You don’t want to bail anyone out of anything… fine and dandy. But you’ve shoveled trillions into the banks over the last year, God damn trillions… so you can take your $275 billion worth of moral hazard concerns and do something unseemly with them… twice.

(Was that being too subtle?)

So, I suppose you want to know what Obama has thrown on the table? Fair enough, that’s what the article is about, and I’m certainly not one to disappoint, at least not intentionally. Here goes:

1. First of all, Obama’s plan only addresses “conforming” mortgages that are held or securitized by Fannie Mae or Freddie Mac, and “conforming” means the mortgage is less than $417,000 for most areas of the United States, and $625,500 for what they call “high cost” areas.

For anyone whose loan is not part of this group, well… I’m sorry… you apparently didn’t choose the right securitization?  Or maybe you forgot to instruct your mortgage company or bank that when they packaged your loan to re-sell it, to be sure it went to Fannie or Freddie, because you wouldn’t like it if it went to a hedge fund’s CDO?  Okay, so you’ll remember next time, right?

2. Next, the Obama plan is voluntary. VOLUNTARY. That means that your bank or lender doesn’t have to participate in it at all. Look… Bush tried a voluntary loan modification program a year ago… it was called Help for Homeowners, or some such ironic crap. Have you even heard of it? Probably not. You want to know why? Because no meaningful number of banks volunteered to participate in it, that’s why.

Oh, I know… Obama’s plan is better than the voluntary one Bush tried, but I’ll just say this:

The word “bank” and “volunteer” go together like oil and water to my ears. Banks… volunteer? Maybe if there’s a blood drive or a bake sale, but the rest of the time… banks get paid to do everything they do.

3. This next one really knocked me out: “Eligible loans will now include those where the new first mortgage (including costs of refinancing) will not exceed 105% of the current market value of the property.”

Is that right? So, that means if your house appraises for $200,000, you can’t owe more than $210,000? Just in case you’re not one for numbers, let me illustrate this for you, because it’s important.

You bought your home for $300,000 two years ago. You put $60,000, or 20% down like everyone says you’re supposed to, and today your mortgage balance is roughly $240,000 give or take a couple of bucks. But your home’s value has dropped by a third, and it now appraises for $200,000. You’ve lost your job and it sure would help if you could refinance at today’s low rates, because your mortgage is at 7½%. Ooops, sorry… no help in the Obama plan for you, at this point anyway.

You were irresponsible. You bought more home than you could afford. Bad homeowner. Bad homeowner.

4. And try this one on for size… Assuming you’re current on your mortgage payments, Obama’s plan will not reduce the amount you owe on your mortgage, in fact because of refinancing costs you’ll probably end up owing a few thousand dollars more. BUT, if you’re behind on your mortgage payments you may qualify for a principal reduction, but only if your monthly mortgage payment is more than 31% of your monthly pre-tax income… and… you bought it on a Thursday and are under 5’11”. (Okay, I made that last part up.)

That bears repeating: If you’re current you don’t qualify for a principal reduction, but if you’re late on your payments, then we might reduce the amount of your loan? What’s that supposed to do? Punish people who are current on their mortgages? Stop making your payments and we might reduce the amount you owe. Keep making them and we won’t. Well, alrighty then, guess I better stop making my payments. Who would have ever thought the government would reward me for NOT making my mortgage payments. Go figure.

The Obama plan addresses this insanity by offering what the plan calls “incentives”. Borrowers that remain current throughout the time it takes to process their loan modification will receive a $1500 “incentive payment,” for having done so, and in addition they’ll receive an annual bonus of $1,000 for the first five years, assuming payments are made as agreed.

So, I get an annual bonus of $1,000 for making my mortgage payments on time? From who? Why? Does everyone in the country get that bonus? No… just the people who were already current on their mortgage payments?

Just stop it, God damn it… stop it right now. Obama you’re about to do what I would have thought was impossible: You’re about to make the Republicans in congress look smart.

And I’m not done… not even close.

5. Mortgage lenders that do participate are supposed to lower interest rates so a borrower’s monthly payment does not exceed 38% of pretax monthly income. Once a lender agrees to that, then the U.S. Treasury Department will contribute taxpayer dollars to bring the payments down to 31% of income, but that interest rate will only last for five years, after which time Treasury has only said that the “mortgage payment will adjust upward at a moderate, phased-in level.”

What was that? Did I hear that correctly? This plan offers homeowners an adjustable rate loan that will “adjust upward at a moderate, phased-in level”? How much would that “phased in moderateness” be in American money? And why would we be replacing adjustable rate mortgages with adjustable rate mortgages? Gee… I sure do hope interest rates aren’t higher five years from now.

So, you DO NOT qualify for this program if your mortgage payment is less than 31% of your pretax monthly income, and/or you owe quite a bit more than the house is worth today. But, if you’re behind on payments or can prove that your default is imminent, you may qualify even if your payment is less than 31% of your income, but the Treasury says the only way to know is to check with your lender this coming April. Thanks, Mr. Geithner… that’s very helpful… I’ll make a note.

And, if your mortgage payment is greater than 31%, and you’re behind on your payments, your lender may choose to lower interest rates or even the amount owed, but they are NOT legally obligated to do either. Who designed this plan? The same people who came up with that delegate counting system the Democrats used during the primaries last year? You know the one where Hillary wins Texas and only gains two delegates.

Look… in fairness to Obama… I guess he’s trying, the problem is not an easy one to solve, and the American people and Republicans in congress aren’t making things any easier. People have to come to terms with the fact that this is not a “sub-prime borrower” problem… never was, truth be told.

Calling this a sub-prime borrower problem is like calling something a pimple when under the skin is a tumor the size of a watermelon.

The banks caused so much of this mess all by themselves with their improperly rated “securitizations,” use of derivatives like credit default swaps and leverage of 40:1 and then some… that any other contributing factors are barely worth talking about at this point.

Want to know something else? Something the news just doesn’t cover… something that’s being hidden from the American people… completely HIDDEN.

The banks are playing chicken with the U.S. Treasury. Hank Paulson didn’t end up using the TARP funds to buy bad loans from the banks as he wanted to… and guess why? Because the banks wouldn’t agree to sell the assets at a discount, that’s why. And why should they have, if they were going to get the money anyway?

If I own a car. And you offer to buy it from me. And I say I want $10,000. And you say it’s only worth $7,000. Why would I agree to sell it for $7,000 when you’re going to give me the $10,000 anyway? You wouldn’t, and just the fact that I have to explain this scenario is enough to make me want to drink Draino.

The banks and investors holding mortgage related securities are basically saying that they won’t take losses as a result of their unconscionable behavior or uncontrollable gambling problem. Really? Well, I’m saying that the homeowners and taxpayers aren’t interested in taking losses either. And we may not have any choice as individuals, after all what can any individual hope to do to the remaining titans of Wall Street? Not much, I suppose. But, we’re not going to be individuals soon, we’re going to be a giant angry mob of voters who have very little to lose. Do you remember the Viet Nam War? A picnic. That’s going to look like a picnic in comparison.

Last thing… if you’re one of those reading the Wall Street Journal and saying that you don’t want to make your neighbor’s mortgage payment… put a lid on it, because it’s not the point.

You’re paying bonuses at Citigroup and Chase, and if you can do that, you can help stop your neighbor from being put out on the street. Because you don’t want to see a “tent city” spring up down the street. Because you’re being hurt by what’s hurting them, whether you’ve figured that out yet or not. And, because there but for the grace of God go you.

Stay tuned, because the fun is assured to just keep coming…

Mandelman out.

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