Who is Freddie Mac to Strategic Defaulters? Well, I Have a Message for Freddie Mac.
Who is Freddie Mac to strategic defaulters?
Well, another mortgage banking-type, this time by the name of Donald Bisenius, Executive Vice President in charge of Freddie Mac‚Äôs Single Family Credit Guarantee Business, on May 3rd, apparently felt compelled to share his words of wisdom on the topic of ‚Äústrategic default,‚ÄĚ the term used to describe homeowners deciding to walk away from their mortgages even though, by some indications, they seem to be able to afford the payments at the time, because‚Ä¶ well, because they decide it‚Äôs the right decision for them, that‚Äôs why.
The core message in his article, titled ‚ÄúA Perspective on Strategic Defaults,‚ÄĚ as described in the Wall Street Journal, is ‚ÄúPlease Don‚Äôt Do It,‚ÄĚ and after reading it on Freddie Mac‚Äôs Website just this morning‚Ä¶ Yowza!¬† Now, I‚Äôm head over heels in love with the idea of strategically defaulting!¬† Thanks Donald!
Okay guys, if you haven‚Äôt already realized that this is going to be one of those Mandelman smack-downs, I can absolutely assure you that it is, so if you don‚Äôt like that sort of thing‚Ä¶ well, it‚Äôs time to say ‚ÄúCheck please,‚ÄĚ and head for the door, ‚Äėcause I have lost the modicum of patience I normally have with clowns like Donald, and so many others in the mortgage banking industry, and if I don‚Äôt say anything about good old Donny-boy, I‚Äôll probably wake up with some fatal disease that eats away at one‚Äôs intestinal tract.¬† Fair warning, right?¬† Okay then.
Donald Bisenius, you are an unfeeling, officious, witless, wholly incompetent jackass.¬† And I tried my best to delete one of those terms and couldn‚Äôt even decide which one applied to you less.¬† How dare you, sir?¬† There are but two possibilities here.¬† Either you‚Äôre actually that obtuse that you don‚Äôt see anything wrong with your little love note to homeowners, or you know better and wrote it anyway, which makes you a bad guy.
Before I go on, here‚Äôs Mr. Bisenius‚Äô bio, on Bloomberg.com:
He joined the firm in 1992 as a Director of Portfolio Quality in the mortgage credit policy department. In this position, Dr. Bisenius and his group were responsible for analyzing and reporting on portfolio and industry statistics, identifying credit risk exposures, and recommending corrective actions.
And this guy is still employed?¬† Honest to Pete?¬† Which part of that job description did he get right? Unfrigginbelievable. ¬†And ‚ÄúDr.‚ÄĚ Bisenius?¬† What‚Ä¶ a botanist, right?
Alliterative memo to the Obama Administration: Fire fool at Freddie and fast.¬† What does it say on Don‚Äôs last couple of employee reviews, I can‚Äôt help but wonder?¬† Please tell me there‚Äôs at least a ‚ÄúNeeds improvement?‚ÄĚ or maybe a¬† ‚ÄúLacks initiative?‚ÄĚ¬† But it doesn‚Äôt say anything like that, does it?
No, because Donny-boy was recently PROMOTED from Senior Vice President to Executive VP.¬† And that‚Äôs just awe inspiringly incongruous.¬† Like in a take-your-breath-away, One Flew Over the Cuckoo‚Äôs Nest sort of way.¬† Like, if Enron‚Äôs CEO, Ken Lay had not died of a heart attack a few years back, and then been named Energy Secretary.
Here‚Äôs more from Bloomberg:
Since 1998, Dr. Bisenius served as a Senior Vice President of Risk Assessment and Model Development, Mortgage Offerings, Risk and Capital Management, and most recently Mortgage Credit Risk Management in the Single Family Capital Deployment Division. In these roles, he managed the overall credit risk exposure of the single-family business, including establishing the firm’s single-family credit policies.
Okay, fine.¬† So, what‚Äôs he really been doing since 1998?¬† Not working at that job, right?¬† You‚Äôre not asking me to believe that he‚Äôs been ‚Äúmanaging Freddie‚Äôs overall credit risk exposure of the single-family business,‚ÄĚ or ‚Äúestablishing the firm’s single-family credit policies,‚ÄĚ are you?¬† Come on‚Ä¶ seriously?
‚ÄúThe Donald‚ÄĚ begins his quaint little front page article by explaining what ‚Äústrategic defaults‚ÄĚ are, thus demonstrating right off the bat that he has no idea what‚Äôs going on in real life in this country.¬† From there he proceeds to shovel insult upon insult until he slams his creation into injury with the force of a high-speed bullet train hitting a kid on a tricycle.¬† Here‚Äôs how he describes strategic defaults:
‚Äú‚Ä¶a new and growing concern has emerged: strategic defaults. In other words, borrowers who have the financial means to make monthly mortgage payments, but choose not to do so and, instead, purposely default on their loans.‚ÄĚ
Yep, that‚Äôs exactly what‚Äôs happening in this country today.¬† In fact, the entire foreclosure crisis is nothing more than a bunch of aging boomers deciding that it‚Äôs so much hipper to rent.
I‚Äôve personally spoken with several thousand homeowners from all over the country, hundreds that have considered walking away from their mortgages, or are now in the process of doing so, and let me assure you, Don-O, your description bears no resemblance to anything that‚Äôs actually happening.¬† And a strategic default isn‚Äôt a new, growing investment strategy, DB, it‚Äôs still someone losing their home.
Not one of the homeowners that I‚Äôve heard from describes their situation in such happy-Sunday-in-the-suburbs type terms.¬† The homeowners I know are undergoing the worst turmoil of their lives, and having exhausted every other avenue (supposedly) available to them, have come to the inescapable conclusion that walking away is their best‚Ä¶ no, their only option.¬† Don-Don makes it sound like they reached the decision over highballs at the 19th hole after wrapping up an afternoon on the links.¬† Did I already call him a jackass?¬† Rats.
Ding-Don‚Äôs on-line editorial manages to offend right from the start and right up to its end, such as:
‚ÄúKnowing the costs and factoring in the time horizon, some borrowers have made the calculation that it is better to purposely default on the mortgage. While I understand how that might well be a good decision for certain borrowers, that doesn’t make it good social policy. That’s because strategic defaults affect many other families and communities. And these costs ‚Äď or as they are known in economic jargon, externalities ‚Äď are not factored into the individual borrower’s calculations.‚ÄĚ
What in the Sam Hill did he just say?¬† Something about my walking away from a toxic, spring loaded, snapping turtle of a mortgage not being ‚Äúgood social policy‚ÄĚ?¬† I‚Äôm in charge of social policy all of a sudden?¬† I‚Äôm should be factoring ‚Äúexternalities‚ÄĚ into my decisions.¬† No one mentioned that before‚Ä¶ I was only concentrating on my family‚Äôs life circling the drain.
Listen up, Donald Duck‚Ä¶ I‚Äôm not the least bit concerned with what you think of as being good or bad social policy, and neither should any other homeowner who is fighting to keep his or her head above water, because it‚Äôs you, and people like you that allowed the financial sector to steer our nation‚Äôs economy off a cliff.¬† Here‚Äôs a social policy I think you should consider:
How about you start by telling the truth about what happened here.¬† Perhaps you could then acknowledge how unregulated markets and inconceivably unsupervised and greedy sociopaths misused their positions, lied to investors around the world, and bankrupted our financial institutions, while lining their own pockets.¬† Maybe wrap it up by telling folks about how your lobbyists pumped hundreds of millions, or perhaps billions into lobbying efforts in an effort to cover up your crimes and ineptitude so as to go forward without any accountability, as you lay the blame for the crisis on homeowners who you say, borrowed too much.
That would be good social policy, at least as far as the people of this country are concerned.¬† You come clean on any of that, and then we‚Äôll talk about what you think the rest of us should do, okay? ¬†Because you‚Äôve got a lot of nerve to write something that has the very definite potential to take someone who already feels ashamed, and make them feel that much worse.
Morgan Stanley strategically defaulted a couple of months back, and that was a loan for many hundreds of millions of dollars, or was it billions?¬† The Mortgage Bankers Association did some walking away from mortgaged real estate this year too, right?¬† Did you write letters to either of them, or any of other the big corporations that are ditching whatever they‚Äôve decided makes no sense for them to pay for, even though they signed the mortgage?¬† Were you concerned about how Morgan was executing social policy, or criticize them for failing to consider externalities?
Don‚Äôt ask me why, but the man goes on:
‚ÄúLet’s start with the neighbors. When strategic defaults occur, homes go into foreclosure and sit vacant for some period of time. We know from experience that foreclosures and vacancies drive down the property values of everyone else in the neighborhood. Thus, strategic defaulters, in effect, deplete the personal wealth of their neighbors. Get a critical mass of strategic defaults, and broader communities and regions become affected. Indeed, Economy.com, the analytic firm recently said that more strategic defaults could tip a fragile housing market back into one of further price declines. Even more families harmed.‚ÄĚ
You know what‚Ä¶ this really isn‚Äôt funny anymore.¬† Mr. Bisenius, are you seriously blaming this on the homeowners who are losing homes to foreclosure?¬† Do you also blame the businesses that file for bankruptcy?¬† And the brokers, right?¬† Regulators?¬† Why not?¬† It‚Äôs everyone‚Äôs fault but the bankers, is that about right?¬† The strategic defaulters deplete the personal wealth of their neighbors?¬†¬† No they do not.¬† What is wrong with you?
Are you‚Äôre actually trying to make the case that strategic defaulters are, again as the WSJ article phrased it, ‚Äúundermining their own neighborhoods?‚ÄĚ¬† I wouldn‚Äôt care if that were even a little bit true, because the more salient question to ask is how could anyone possibly undermine a neighborhood beyond what you and your brethren have already done?
If you and your bankster buddies were so damn concerned about driving down property values, much less depleting the wealth of homeowners, quite a few things come to mind that you might have done to-date.¬† You could push lenders and servicers, for example, to modify a few more loans, and by modify I mean the kind where the payments actually go down more then 3.5%, or maybe you could have led the charge for a principal reduction or two, like it says you‚Äôre supposed to do in the HAMP guidelines.¬† Just thinking out loud over here‚Ä¶ but you haven‚Äôt done too much along any of those lines, now have you?
In fact, truth be told, you‚Äôve done almost nothing in terms of contributing to solutions to the financial crisis, isn‚Äôt that right? All you‚Äôve done is contribute to the creation of the problem, while continuing to lose breathtaking sums of money.¬† Here‚Äôs a little snippet from the news, just a week back:
Freddie Mac said it would need $10.6 billion in government funds after losing $8 billion in the first quarter (of 2010).
And in case everyone doesn‚Äôt remember just what‚Äôs going on with the GSEs, Fannie and Freddie, this from the Washington Post:
Under the terms of the government’s 2008 emergency takeover of Fannie and Freddie, the Treasury must pump money into either firm whenever its worth, as measured by assets minus liabilities, goes into the red. Late last year, the Obama administration pledged unlimited backing.
Yes, Donald‚Ä¶ you guys over at Freddie are clearly doing crackerjack work.¬† I can absolutely understand why you‚Äôd want to take time out of your busy day to write something telling distressed homeowners that they aren‚Äôt helping the situation by helping themselves.¬† Thanks for that.¬† You‚Äôre a real peach, you know that, Don?
Then, three quarters of the way into his piece-of-trash‚Äôs treatise, his true colors begin to show:
Should strategic defaults become more common, mortgage guarantors and investors, including Freddie Mac, would need to factor this risk more prominently into their credit policies and prices. The likely impact on future homebuyers: the cost of a mortgage will go up and credit terms will be less flexible. Thus, the impact of strategic defaulters on still more families might be more expensive mortgages and loans that are more difficult to obtain.
Ahhh, there it is!¬† The banking lobby‚Äôs favorite scary bedtime story.¬† Are you threatening us, Mr. Bisenius?¬† Or, are you trying to divide people against each other?¬† Trying to make it so I get mad at someone who strategically defaults for causing my costs to go up in the future. Is that your game, you insolent prick?
Hey Don‚Ä¶ I don‚Äôt suppose that you‚Äôd care to quantify what ‚Äúfactor this risk more prominently into credit policies and prices‚ÄĚ converts to in American money?
Let me ask you a question.¬† If I get foreclosed on, you guys get the house back and then you sell it at whatever the market price brings, right?¬† And so, if I strategically default what happens?¬† Same thing, or do you sell it for less than market because it was strategically defaulted on?¬† And what about if you ever granted a reduction in the principal amount owed?¬† Wouldn‚Äôt you, worst case, write down the amount of the loan to the market price too?¬† Hmmm‚Ä¶ market price, market price, or market price?
But wait‚Ä¶ you say.¬† That‚Äôs not right because the house might sell for a few dollars difference, or might have a slightly different cost, one way or the other?¬† Yeah, so what?¬† It‚Äôs both insignificant and beside the point.¬† The point is that people that strategically default do so because they either already are, are about to be, or don‚Äôt want to be in trouble financially.
A strategic default is really just a homeowner granting his or her own principal reduction.
Look at it this way, Don, every strategic default saves one family from throwing their money away needlessly on lost equity, which means they can still pay for their kid‚Äôs college education, buy that new car, or‚Ä¶ perish the thought‚Ä¶ buy one of the millions of homes that some bank has foreclosed on, but has yet to put on the market‚Ä¶ you know‚Ä¶ the ‚Äúshadow inventory‚ÄĚ.
See, strategic defaulters are actually helping to pull this country out of the recession that you‚Ä¶ yes Don, you‚Ä¶ helped push us into!¬† You should be cheering their decision not to go down with the ship!¬† Thank you strategic defaulters‚Ä¶ go pick up a vacation condo in Miami or Las Vegas for $25k.¬† Without you, those places would likely still be sitting empty 25 years from now.
But Don wants us to know that we all have options, and wait till you get a load of this pant-load‚Äôs idea of what those options include.¬† Make sure you‚Äôre sitting down for this:
Do borrowers considering strategic defaults have other options?¬† They do.¬† For those who have not suffered any disruption in income and have a longer time horizon, simply continuing to pay the bills might be best.¬† Over time, recovering house prices and declining mortgage balances likely will close some, if not all, of the equity gap.¬† According to the Federal Reserve, while the housing bust wiped out $8 trillion in home equity, $1 trillion came back in 2009. The point here: time might be your best ally.
This guy may just win my Dick-of-the-Year Award hands down.¬† Did he just say: ‚Äúsimply continuing to pay the bills might be best?‚ÄĚ¬† I can‚Äôt be sure because there‚Äôs no way that my heart could stand reading that paragraph again.¬† Best for whom, Donald?¬† You are such a‚Ä¶ I cannot believe what a‚Ä¶ wait, no.¬† I‚Äôm not going to do it; my health has to come first.
And yes Don, over time the housing market will come back‚Ä¶ as will the market for dot-com IPOs.¬† Everything comes back‚Ä¶ eventually‚Ä¶ that‚Äôs why I‚Äôm still holding onto my skinny ties.¬† I even imagine that perhaps one day‚Ä¶ Freddie Mac will be profitable again?¬† But when, Don‚Ä¶ when?¬† I‚Äôm 48 years old and in pretty good health‚Ä¶ will I live to see that day?
Historically, as in over the last 100 years, housing prices rose about 4% a year on average.¬† So, if I‚Äôm down by 50% now, how much does my home have to go up for me to be back to breakeven?¬† Not 50%, right Don?¬† Closer to 100%, isn‚Äôt that right?¬† So, if the next 100 years looks anything like the last hundred, in terms of price appreciation, how long will I have to wait for that 100% jump to put me at breakeven again?
I‚Äôm not that good with numbers Don‚Ä¶ what do you figure‚Ä¶ about 20 years sound right?¬† In the ballpark?¬† I guess that‚Äôs not that bad‚Ä¶ to breakeven.¬† Better than I‚Äôve done in the stock market over the last quarter century, all things considered, I suppose.
Don offered other choices too:
‚ÄúAnother alternative: if Freddie Mac owns the loan, a family might be able to refinance up to 125 percent of the current property value. In other words, if a family’s home equity has been completely wiped out and the mortgage balance is as much as 25 percent more than the home is worth‚Ä¶‚ÄĚ
That‚Äôs nice of you, Don.¬† So, if I owe $600,000, but my house is now worth $300,000‚Ä¶ you might let me refinance it for $375,000?¬† Cool.¬† That means all I have to come up with is $225,000?¬† Awesome, let me get my checkbook, I‚Äôll just write you a check from my asshole account.
Let me get this straight, the bankers of this country destroyed the financial markets for their own personal gain resulting in the most severe economic meltdown since the last time the bankers of this country destroyed the financial markets for their own personal gain, about 70 years back.¬† This is not a market correction, Don.¬† Homeowners at risk of foreclosure today are not where they are because they made irresponsible decisions.¬† And banks aren‚Äôt lending today because people aren‚Äôt making their payments.
Banks aren‚Äôt lending today because the people that worked, and except for those who retired mega-rich, still work within them, bankrupted them through a mind-boggling number of the most irresponsible, unconscionable, uncaring, and obviously unregulated behaviors the world has ever seen.¬† They abused and took advantage of everything that wasn‚Äôt under lock and key, demonstrating beyond any doubt that they are of an ilk that cannot be trusted.
Dr. Bisenius, you speak of how a homeowner, acting in his or her own best financial interests, is actually harming our society when walking away from a mortgage.¬† You accuse those that decide to walk away, of harming others in their neighborhoods by their thoughtless and selfish acts.¬† You want them to give more consideration to how their behaviors impact the lives of those around them, and society as a whole.
I suppose the irony is lost on you, but those are the very same traits that the citizens of this country wanted‚Ä¶ and certainly expected‚Ä¶ from our nation‚Äôs bankers.¬† And tragically, those are the same type of behaviors that our bankers failed to deliver to the detriment of all.¬† It is specifically the complete absence of those traits and behaviors that caused our economic downfall, one that will continue to cause acute pain for many millions of Americans, to say nothing of people around the world, certainly for years, and perhaps decades to come.
Your own mega-mortgage bank, Freddie Mac, now a GOE, Government OWNED Enterprise, only exists today because of the taxpayers in this country, and that will likely be the case throughout my lifetime.
You and people like you broke it, Mr. Bisenius, and you own it.¬† How dare you, of all people, even have a personal opinion on optimal social policy, let alone feel you have the right, in your official capacity, to share such a view publicly.
Moreover, Mr. Bisenius, how dare you insult every homeowner in this country including me, by asking from us what you and your peers have never been willing to give to this country?¬† You want people to not be selfish, to not act in their own financial interests?¬† You want them to put the good of our society above their own financial gain?
Well, perhaps you should try talking into the mirror, sir.¬† Every single day now we see more of who you and others in the banking industry really are, and what you have done‚Ä¶ you are naked before us.¬† And, God damn you if your article caused even one person to feel even the slightest pangs of guilt for deciding to do what‚Äôs in their own best interest.
If you wanted to speak out publicly for the good of our society, as the person in charge of mortgage credit risk management at the world‚Äôs second largest mortgage company, you had years to stand up and say that what was happening was wrong.¬† Your silence on that particular subject was then, and is now deafening.
Here‚Äôs what you said back in June of 2004, however, when you testified in the U.S. House of Representatives, before the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises:
‚ÄúWe recognize our special responsibility to homebuyers, the public, the Congress and investors. Freddie Mac is a leader in developing and promoting responsible lending practices and we are a leader in combating mortgage fraud. We have instituted the secondary mortgage market‚Äôs most comprehensive set of measures designed to protect consumers from predatory lending practices. And, we have a comprehensive quality control program that helps Freddie Mac and lenders combat fraud associated with mortgage lending.‚ÄĚ
‚ÄúFraudulent mortgage originations have an adverse impact on America‚Äôs families and the communities in which they live. Our policies, procedures and programs are designed to help Freddie Mac and others in the mortgage finance system better detect fraudulent and suspicious activities. We are committed to working with participants in the mortgage finance system to help prevent fraudulent activities and to help more families realize the full benefits of long-term homeownership.‚ÄĚ
‚ÄúOur quality control program helps us identify loans with suspicious or fraudulent characteristics and helps lenders establish quality control practices that safeguard against fraud.‚ÄĚ
‚ÄúFreddie Mac is also firmly committed to helping participants in the mortgage finance industry establish comprehensive quality control practices that safeguard against fraud and improper business practices.‚ÄĚ
‚ÄúFreddie Mac has instituted the secondary mortgage market‚Äôs most comprehensive set of measures designed to protect consumers from predatory lending practices.‚ÄĚ
‚ÄúWe regularly introduce innovative loan products aimed at giving borrowers with impaired credit greater mortgage choices and initiatives that help borrowers avoid the pitfalls of predatory lending.‚ÄĚ
‚ÄúFreddie Mac has also taken a leadership role in the development of innovative outreach initiatives designed to provide consumers with information on the use of credit, to make them aware of their financial options and to help them avoid borrowing pitfalls. Our public education campaigns help potential borrowers better understand the mortgage lending process.‚ÄĚ
Dr. Bisenius, I read your entire testimony in front of Congress back in 2004, and I am unable to discern with any certainty which of your statements were lies and which subsequently became lies as a result of incompetence.
You owe homeowners in this country an apology, sir. ¬†And an explanation… why would we listen you now?
One last sentence from your posting on strategic defaults‚Ä¶
‚ÄúWhile a personal financial strategy might argue for a strategic default, entire communities and future homebuyers can be harmed as a result. And that is why our broader social and policy interests will be best served by discouraging strategic defaults.‚ÄĚ
Go to hell, Dr. Bisenius.¬† Go directly to hell.