Mandelman’s Monthly Museletter – Version 12.0

Okay, well I’m back from my Spring vacation, a tradition I started only last year but plan to maintain, and I’m fresh off a wonderful week of watching Hawaii beat the feathers out of the banking lobby and pass the toughest foreclosure prevention bill in the nation, hands down.

So, now it’s time for another edition of Mandelman’s Monthly Museletter that is still not quite making it out monthly, but I’m working on that.  At least there’s one thing you can count on though, it’ll be packed with insight into things about the financial and foreclosure crisis that matter.  (By the way… all the stories that follow are actual stories although I my have embellished a bit to make a point.)

1. Treasury Reports 84% of Permanent HAMP Modifications Still Current After 12 Months!

As my mother used to say… will wonders never cease!  Why, I just don’t understand it… how in the world can it be?  What happened to the “60% re-default rate” on loan modifications that we’ve been hearing about ad nauseam since 2009?

It’s not just me, right?  I’m not imagining things, am I? That is what we’ve been told these last couple of years, haven’t we?  The answer is YES… that is what they’ve been saying… but it turns out they were full of beans.

And not only that, but the geniuses at the Treasury Department have also studied the data and guess what?  You’ll never believe it… are you sitting down?  There’s a relationship between the amount of the reduction in a borrower’s payment and the future performance of the loan!

Well shave my head and call me Baldy!

Turns out… and I know you’re going to find this hard pill to swallow… if you reduce someone’s payment by 50 percent, the loan performs better than if you only reduce it by 20 percent or less.  I swear… it’s true!  For the loans that had payments reduced by 50 percent, fewer than 12 percent are 60 days or more delinquent.  You’re darn tootin’.

According to Treasury’s latest HAMP report, there are currently close to 600,000 borrowers in permanent HAMP modifications, and something like 36,000 new permanent modifications were reported in March of this year, and 36,000 borrowers began trial modifications in that same month.

And the government says that the median payment reduction in a permanent HAMP modification is 37 percent, which is about $500 a month in American money.

The Republicans, you may recall, wanted to kill HAMP just a little while ago, because they say that it costs even more than NPR or keeping Planned Parenthood open for a year in Washington D.C. But as you might also recall, and I hate to toot my own horn, but I did say back then that HAMP was finally starting to work after two years of wholesale ineptitude… so why would we kill it now?

When I said it wasn’t working everyone else said it was… and they turned out to be wrong.  When I said it was starting to work, everyone said it wasn’t… and they were wrong again.  Go figure.

2. Surprise, surprise, surprise… Falling Home Values… Look Out Below!

Home values fell in the first quarter of this year at the fastest rate since 2008 according to Zillow Inc. on Monday of this week.  Now, I wonder why that would be?  All this economic stuff is hard to figure out, don’t you think?  I wonder where the home values are headed next… if I only knew…

Here’s the funny part, Zillow now says that this new data means that we won’t see a bottom until 2012 at the earliest.  I’ve fallen in love with the guys over at Zillow… they just keep moving that bottom forecast out one year at a time and eventually they figure they’ll get it right.  It’s one heck of a plan, I tell you what.

Zillow’s Home Value Index fell 3 percent in the first three months of 2011 and was down 8.2 percent year over year.  Not that any of this stuff means anything since there’s no real estate market, no lending, a shadow inventory so big it could block out the sun and cause the next ice age, to say nothing of the gazillions of loans over 90-days delinquent and the people living in homes that they haven’t paid for since Bush was sitting in the Oval Office.

Underwater homeowners reached a record 28.4 percent of single-family homes, so if you’re not yet underwater, but you start to feel that moist feeling lapping at your toes, you’ll know what it is, and should have plenty of time to run out and get yourself a snorkel.

Here’s an adorable little quote from Zillow chief economist, and I use that term very loosely, Stan Humphries:

“Home value declines are currently equal to those we experienced during the darkest days of the housing recession. With accelerating declines during the first quarter, it is unreasonable to expect home values to return to stability by the end of 2011.”

I agree, Stan… and with the way we’re handling this foreclosure crisis, I’d say it’s damn unreasonable at that.

Zillow also said that it saw home prices decline in almost every single market… they track 132 markets, so that’s a lot of markets.  The only ones that didn’t decline were Ft. Meyers, if you were there last Thursday…. Champaign-Urbana in Illinois during the 3^rd week of February, and… Honolulu, Hawaii… for three days in March, the 12^th, 17^th, and in the afternoon of the 23^rd.

So, after what would have to be the most embarrassing months in the lives of every one of the state AG’s, the group of 50 state Attorneys General has taken a shot at turning their proposal into milk-toast in an effort to plant a big wet one on the collective buttocks of the top five mortgage servicers in the hopes that the bankers will let them go back home and crawl into their respective holes.

You remember the 5o State AGs that came roaring out of each of their states yelling things like “principal reductions,” and the like.  Yes, well principal reductions, as it turns out , were such a red hot idea so they’ve been dropped from the proposal.

But principal reductions were replaced with the right of a borrower whose been tortured in a prolonged trial modification but then denied a permanent modification to go through the excruciating experience AGAIN.  The AGs’ proposal says the outcome won’t change the second time around, which they hope will be reassuring to the borrowers.

There’s also talk of the servicers being limited to only losing a borrower’s paperwork a maximum of five times in any given month, after which the servicer would have to agree to not return a borrower’s calls for at least 14 business days.

The big question is how much the AGs will seek in monetary penalties from the servicers, who say they won’t borrow a nickel more than a $10 billion from the Fed at 0% to pay the AGs’ fines.  A spokesperson for the servicers said that anything over $10 billion just isn’t fair to the taxpayers who will ultimately be paying the fine.

Fed Chair Ben Bernanke has already said he will quietly forgive the loans as a holiday gift for the servicers at the end of this year, but Treasury Secretary Tim Geithner said that it was his turn to forgive a loan to the servicers and that it wasn’t fair that the Fed get the credit for the whole $10 billion.  “At the very least we’ll split it,” Geithner said.

The servicers are arguing that regulators have not provided evidence that servicing problems led to wrongful foreclosures and that the government has failed to prove that anything has been even slightly inconvenient about the way servicers have handled foreclosures during the crisis.

The AGs are considering using whatever money the servicers let them have to start a “Cash for Free” program to help fund annoyed bankers who will need to have a few drinks after work as a result of speeding up the foreclosure process. The funds will also be used to promote mortgage counseling.  Borrowers will be able to call a dedicated line where bank employees will yell at them to “Get the Hell Out” after chastising them for living beyond their means.

The state AGs are also asking servicers stop pursuing loan modifications and foreclosures at the same time, a process known as dual tracking.  Under the AGs’ proposal, servicers would start a loan modification at the same time they start the trustee sale process thereby skipping the whole foreclosure mess in its entirety.

But one thing the AGs are asking for has caused several of the servicers to become quite cross and may threaten the entire process.  Apparently, the AGs are wondering if the servicers would mind if they just asked them about some sort of proof that they own the home prior to taking it back as an REO.  The AGs were thinking about maybe a forged note, endorsement or even an unattached allonge would be fine… whatever is most convenient for the servicers.

Lastly, the AGs have agreed to drop the requirement that servicers provide the Consumer Financial Protection Bureau with the secret NPV formulas used to arbitrarily disqualify borrowers for loan modifications.  One of the servicers was quoted as saying, “Tell Liz Warren to go f#@k herself.”

4. Iowa’s AG, Tom Miller to Servicers: STUDY THIS!

Miller called the study paid for by the banking industry, “grossly inaccurate,” and noted it was paid for by some of the servicers involved in negotiations with the 50 state AGs.

Miller’s press release said:

“This is a flawed study based on inaccurate assumptions, and it reaches grossly inaccurate conclusions.  This study was bought and paid for by the industry, and that fact is reflected throughout.”

Servicers all look sincerely confused by Miller’s reaction and response to the study.  They said there’s nothing unusual about the financial services industry funding their own research, in fact the servicers spokesliar said it’s been done that way for the last 35 years and the industry sees no reason to change the system now.

The study found that the proposed settlement with the top five mortgage servicers will prolong the foreclosure crisis until 2050, drive up mortgage interest rates above 20%, slow new home construction to the slowest pace since 1864, and cost $70 trillion to $100 trillion a year.

5. Shockingly, Banks Seek to Take Unfair Advantage of Distressed Homeowners

Co-published by ProPublica with Slate

Bank of America is slipping some fine print into their loan modification contracts and forcing borrowers to either sign or lose their home to foreclosure, according to a story co-published by ProPublica and Slate.

If borrowers want their loan modified by BofA, they’ll have to agree never to sue the bank for anything again for the rest of their lives, to work for the bank as an indentured servant for a period of not less than seven years, and to deliver the to the bank the second son born by the homeowner before his reaches the age of four.

Jane Azia, director of consumer protection for the New York State Banking Department says “It’s just unfair. It puts borrowers in a very vulnerable situation.”

But Bank of America disagrees.  BofA Vice President, Simon Legree said: “We really don’t think we’re asking too much, and remember, just like their mortgage, no one is forcing them to sign the agreement.  It’s entirely up to them.  If they don’t want to sign, we spray paint “˜LOSER’ and “˜DEADBEAT’ on the front of their home and post an armed guard who will allow them 72 hours to vacate the premises, so we really feel like we’re doing more than the law would require.”

“You want a chance at saving your home? Then you’ll have to waive your rights, or at least allow 8-10 of our executives to gang rape your wife,” explains Bill Sikes from the Financial Roundtable.  “We really think homeowners are making too much of this.  Just make your damn payments and we wouldn’t be having this discussion.

At least one homeowner, George “Limpy” Jetson says he didn’t want to sign the agreement that cost him his left leg and his wife’s kidney, but he says he felt like he had a gun to his head.  “I wasn’t going to sign it.  I told the man from Well Fargo the answer was no.  But then he pulled out a loaded gun and put against my right temple, and well… what could I do?”

“I guess at the end of the day, at least we have our home, and we’ll gladly pay the $600,000 for the home even though it appraised for $129,500… as long as I get to keep both of my testicles and my daughter isn’t forced to carry one of the bank branch manager’s babies when she turns 18,” the man says.

Consumer advocacy groups are advising homeowners to do whatever the bank asks of them, except take a shower in a large room with others, and then get the hell out of the country as fast as possible.

6. Mish Shedlock Digs Deeper into Unemployment Hoo-Hah

Mish is the best at the unemployment numbers, so I thought I’d just give you the highlights and you can do more digging on his site if that'[s your thing:

A. The unemployment rate comes from a “Household Survey,” which is a phone survey.

B. The official definition of unemployed is you do not have a job, you want a job, and crucially, you have looked for a job in the last 4 weeks.

C. Every month the media focuses on the headline number, ignoring millions who have “dropped out of the labor force” simply because they stopped looking for work.

D. And the millions more in “forced retirement”, which Mish defines as someone over 60 whose unemployment benefits ran out so they retired to collect Social Security even though they really want a job.

E. Last month many were surprised to see the jobs report claim 244,000 jobs were added yet the unemployment rate ticked up 2 tenths from 8.8% to 9.0%.

F. The fact is, employment fell by 190,000 according to the Household Survey and another 131,000 people dropped out of the labor force last month or the unemployment would have been even higher. Fewer people (131,000 to be precise) wanted a lob and looked for jobs in April than in March.

G. Regardless, close scrutiny of the details in the report shows the headline numbers were far worse than they looked.

H. In the last year, the civilian population rose by 1,817,000. Yet the labor force dropped by 1,099,000. Those not in the labor force rose by 2,916,000.

• In January alone, a whopping 319,000 people dropped out of the workforce.
• In February another 87,000 people dropped out of the labor force.
• In March 11,000 people dropped out of the labor force.
• In April, 131,000 dropped out of the labor force.
• The 4-month total for 2011 is 548,000 people dropped out of the labor force.

I. Were it not for people dropping out of the labor force, the headline unemployment rate RIGHT NOW in this country would be well over 11%.

J. Unemployment Math Since April 2008

Those not in the labor force as noted in the April 2008 Employment Report = 79,241,000
Those not in the labor force today = 85,725,000
So, Since April 2008 6,484,000 dropped out of the labor force.

If we add those back into the labor force and to the unemployed, the math look likes this:

Civilian Labor Force: 159,905,000
Unemployed: 20,231,000
Revised Unemployment Rate = 20,231/159,905 = 12.7%!

Not 9%… 12.7%.  (And that’s U3, not U6)

~~~

Mandelman out.