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From Truthdig

By Robert Scheer

This week’s proposals by the Obama administration to deal with the persistent economic crisis will be, as with previous plans that involved trillions of taxpayer dollars, little more than salt in the wounds. Once again the strategy is to stimulate the economy by funding projects and tax cuts while ignoring the root cause of the problem: a housing foreclosure meltdown that has chilled the spending of a majority of American consumers.

With 11 million homeowners underwater on their mortgages and 3 million more already foreclosed, we have to assume, given the average household size, that some 40 million Americans are feeling mighty strapped. The numbers grow to an overwhelming majority when you take into account the distress of all homeowners, who have watched the value of the family nest egg dwindle even if they substantially paid down or paid off their mortgage debt. And this very widespread feeling of being suddenly much poorer is a nationwide scourge that has dramatically cut the appetite for consumption that drives the economy.

That fact is recognized even by the very business people who are supposed to be inspired to new investment and hiring by Barack Obama’s proposal on Wednesday of an accelerated tax break on business investments. As William Dunkelberg, chief economist for the National Federation of Independent Business, told The Wall Street Journal, “If you give a small business guy $20,000 he’ll say, ‘I could buy a delivery truck but I have nobody to deliver to.’ ” Although Dunkelberg’s members would be happy with a tax cut, he said the most important help would be to “finally address the most important person in the economy—the consumer.”

The anger of wannabe consumers who no longer feel they have the wherewithal to feed that most important of American passions is what is fueling the widespread rage against elected officials. The Democrats, being the party in power, are the most popular target, but they are in deep denial when they blame their pending electoral plight on the demagoguery of their Republican opponents.

Of course the Republicans and their deep-pocket sponsors are being outrageous hypocrites when they blame others for the horrid consequences of their decades of lobbying for radical financial deregulation. Ever since the “Reagan Revolution,” their mantra has been “get government off the back of big business,” and once that was accomplished and Wall Street crumbled under the weight of its own greed, they supported George W. Bush in bailing out the knaves.

But the fault is clearly bipartisan. It was Bill Clinton who signed off on the radical deregulation legislation, and it is Obama who continued Bush’s practice of bailing out the bankers while ignoring the anguish their toxic mortgage packages caused the rest of us. That is why the Fed has gifted the banks with interest-free money to finance their new acquisitions while making them whole again by purchasing more than $2 trillion in toxic mortgage-backed securities and other dubious assets. Not surprisingly, the bankers pocketed that enormous gift from the taxpayers but did precious little in return by way of lending and investment that would bring down unemployment.

Which brings us to the current disastrous moment. The president who inherited a deep recession that began 13 months before he took office is now viewed as a big “socialist” spender because he followed in Bush’s footsteps, blackmailed by the notion that the entire system would go kaput if the bankers were not accommodated. The amount of money now available for him to spend without freaking everyone out about an increase in the debt is paltry. The commitment of $50 billion to a national infrastructure program to be phased in over the next decade would prove to be too little too late. It is chump change compared with the $350 billion in loans and guarantees to one bank alone, Citigroup, which still cannot stand steadily on its own feet.

There is only one course left for Obama, and it is to do now what he should have done at the start of his term: abandon the hope that banks will voluntarily aid desperate homeowners and instead push for new government regulations and changes in the bankruptcy law to force the banks to make deals to keep people in their homes. There is precious little else to talk about, for if the housing market—the bedrock of not only the American dream but, more important, the financial security of a nation of consumers—is not restored, we are in for one long, dreary period of economic stagnation at best, or a severe downturn and a society in dangerous turmoil.

An appeals court refused to reconsider a decision compelling the Federal Reserve Board to release documents identifying banks that might have failed without the U.S. government bailout.

The full U.S. Court of Appeals in New York, in a docket entry dated Aug. 20, denied a May 4 request by the Fed to review a three-judge panel’s unanimous March 19 decision requiring the agency to release records of the unprecedented $2 trillion U.S. loan program begun primarily after the 2008 collapse of Bear Stearns Cos.

Unless the court stays its decision, the Fed will have seven days to disclose the documents. In the event of a stay, the central bank and the Clearing House Association LLC, an organization of 20 commercial banks that joined the Fed in defense of the lawsuit, will have 90 days to petition the Supreme Court to consider their appeal. The Clearing House has already said it will ask the high court to rule on the case.

“We are reviewing the decision and considering our options for appeal,” David Skidmore, a Fed spokesman, said.

At issue are 231 “term sheets” documenting Fed loans to financial firms during 2008. The records, which include the banks’ names, the amounts borrowed and the collateral posted in return, were originally requested by late Bloomberg News reporter Mark Pittman through the Freedom of Information Act, which allows citizens access to government papers.

The March appeals court ruling upheld a decision of a lower-court judge in Manhattan who in August 2009 ordered that the information be released.

‘Competitive Injury’

The Fed argued in the case, which was brought by Bloomberg LP, the parent of Bloomberg News, that disclosure of the documents threatens to stigmatize borrowers and cause them “severe and irreparable competitive injury,” discouraging banks in distress from seeking help. The appeals court panel rejected that argument.

“The decision is of exceptional importance,” the Fed’s lawyers wrote in a legal brief on May 4 in which they asked the circuit court to reconsider the decision. “The real-world consequence of the panel’s decision will be serious, perhaps irreparable harm to the institutional borrowers whose information will be revealed.”

The 157-year-old New York-based Clearing House Payments Co., which processes transactions among banks, is owned by its 20 members. They include JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Bank of New York Mellon Corp., Deutsche Bank AG, HSBC Holdings Plc, PNC Financial Services Group Inc., UBS AG, U.S. Bancorp and Wells Fargo & Co.

Clearing House Action

The Clearing House Association, a lobbying group with the same members, joined the lawsuit in September 2009, after the initial ruling against the central bank in federal court in Manhattan.

Iya Davidson, a spokeswoman for the Clearing House, didn’t return calls seeking comment.

The amount the Fed and the U.S. government lent, spent and guaranteed to stem the recession and rescue the banking system peaked in March 2009 at $12.8 trillion, most of it following the September 2008 bankruptcy of Lehman Brothers Holdings Inc.

Fox News, a unit of New York-based News Corp., also sued the Fed to force the release of loan documents for transactions in 2008 and 2009.

The New York Times Co., the Associated Press and Dow Jones & Co., publisher of the Wall Street Journal, are among media companies that have signed up as friends of the court in support of Bloomberg.

Argument for Disclosure

“The public interest in disclosure in this case could hardly be greater,” the friends of the court said in their letter. Despite the Fed’s “massive outlay, the public knows little about who has received these funds or the terms of their loans. Without this information, it is impossible to monitor the Board’s actions, and FOIA’s core purpose is defeated.”

The case is Bloomberg LP v. Board of Governors of the Federal Reserve System, 09-04083, U.S. Court of Appeals for the Second Circuit (New York).

To contact the reporter on this story: Bob Ivry in New York at bivry@bloomberg.net.

Originally Posted by Bloomberg.

Barney Frank Comes Home to the Facts.

By Larry Kudlow

When I asked Frank about a long-term phase-out plan that would shrink Fannie and Freddie portfolios and mortgage-purchase limits, and merge the agencies into the Federal Housing Administration (FHA) for a separate low-income program that would get government out of middle-income housing subsidies, he replied: “Larry, that, I think, is exactly what we should be doing.”

Frank also said that any federal housing guarantees should be transparently priced and put on budget. But he added that the private sector must be encouraged to re-enter housing finance just as the government gradually withdraws from it.

Some would say Frank’s mea culpa is politically motivated in advance of an election where bailout nation and big government are public enemies number one and two. Of course, poll after poll shows that the $150 billion Fan-Fred bailout, which the Congressional Budget Office estimates could rise to $400 billion, is detested by voters and taxpayers everywhere.

In fact, these failed government agencies are in such bad shape that they can’t even pay Uncle Sam the dividends owed under the conservatorship deal reached two years ago. That’s right. In order to pay a $1.8 billion dividend on Treasury department stock, Fan and Fred had to borrow $1.5 billion from - you guessed it - the Treasury.

Then there’s this head-scratching detail: In an absolutely outrageous move last Christmas Eve, President Obama signed off on $42 million in bonuses for the top twelve Fannie and Freddie executives, including $6 million apiece for the two CEOs. (Hat tip to attorney Stephen B. Meister.)

Voters are on to all this. So politics may indeed be motivating Barney Frank’s turnaround. But I’m going to credit him with more than that.

I think Chairman Frank watched these government behemoths descend into hell and then witnessed the financial catastrophe that ensued. And I think he has come to realize that the whole system of federal affordable-housing mandates that was central to the real-estate collapse - including the mandates on Fannie and Freddie and the myriad bad decisions made by private banks and other lenders in response to the government’s overreach - simply needs to be abolished.

Noteworthy is the fact that Treasury Secretary Tim Geithner has come to a similar conclusion. Geithner told a recent Washington conference on the future of housing finance that the system needs fundamental change. He said, “We will not support a return to the system where private gains are subsidized by taxpayer losses.”

Of course, the withdrawal of housing markets from government programs, and the onset of a reinvigorated private sector for providing mortgages, must be done gradually over a period of years. But it is possible that the federal mortgage madness is coming to an end.

We will have to see if Congress really does say good-bye to Fan and Fred, as Republicans like Jeb Hensarling are advocating. Equally important, we will have to see if the federal affordable-housing mandates created by Congress and implemented by HUD and banking regulators are similarly repealed.

And then we will have to see if reformed federally guaranteed housing insurance includes larger down-payments, stricter underwriting standards, and greater reliance on private capital markets, lenders, and insurers. In other words, we need to see if housing will be restored to a market-based system and removed from the government-backed system that has proved so disastrous.

The broader lesson here is that government planning doesn’t work. And if left to their own devices, market processes will work. I don’t know if President Obama gets this. But my hat goes off to a man who does, Chairman Barney Frank.

By DAVID STREITFELD

August 17, 2010, 1:56 am

The Federal Reserve on Monday moved to end a controversial lending practice that had helped propel the housing boom to unsustainable heights and then accelerated its collapse, David Streitfeld reports in The New York Times.

The Fed announced that it was adopting new rules banning yield spread premiums, which allowed mortgage brokers and lenders to gain additional profit from loans by charging borrowers higher-than-market interest rates.

Reaction to the change was muted. For one thing, the recent package of financial reforms passed by Congress this summer already addressed the issue. And some thought a ban should have been imposed long ago, at a time when it could have directly affected loan quality.

Michael D. Calhoun, president of the Center for Responsible Lending, described the action as “a real milestone,” but he said that he had been trying to convince regulators for at least 15 years that yield spread premiums were no more than illegal kickbacks.

Many borrowers had little idea of what a yield spread premium was, even when it was costing them money.

Traditionally, mortgage brokers were paid directly by the home buyer. The rise of the premium allowed the brokers to be compensated by the lender as well. Lenders in effect started paying bonuses to brokers who brought them high-interest loans that were naturally coveted by mortgage investors.

From there, critics said, it was a short step for some brokers to put unsuspecting buyers into these loans and tell them it was the best deal they could get. Subprime lenders in particular often used yield spread premiums.

Go to Article from The New York Times »
Go to Federal Reserve Press Release »

Fannie Mae allegedly turned down an offer in July 2009 that would have allowed borrowers and counselors participating in the Home Affordable Modification Program (HAMP) to use a web-based portal for uploading and downloading financial documents for free, said Joseph Smith, CEO of Default Mitigation Management (DMM), the company that designed the portal and made the offer.

Smith tells HousingWire that Fannie allegedly turned down the DMM offer that would have streamlined and solved early documentation and communication problems, a sign of its lack of commitment to HAMP, the same claim held by the first whistleblower.

A source following the story told HousingWire that if pressed, Fannie Mae would likely deny that DMM ever submitted its pitch to use its portal, thereby showing that Smith’s claim has no merit, the same position the government-sponsored enterprise (GSE) is taking with the first whistleblower.

Fannie Mae has been under scrutiny this week after Caroline Herron filed a suit against the company, alleging the GSE fired her for pushing HAMP reform. According to the suit, Fannie, which was hired by the Treasury Department to administer HAMP for $113m, allegedly ran the program poorly, putting more of an emphasis on bettering its own balance sheet than helping homeowners.

Fannie Mae conducted a private investigation that found no merit in the allegations, according a spokesperson at the company. Rep. Spencer Bachus (R-Ala.), the ranking Republican on the Financial Services Committee, sent a letter to committee chairman Barney Frank (D-Mass.) requesting their own investigation.

According to a string of emails between Herron at Fannie, the Treasury, and HOPE NOW, DMM made its initial pitch to Fannie to use its web-based portal in June 2009 and another in November. Then, its software was fully capable to allow borrowers to upload financial documents and communicate with servicers electronically.

Smith said HOPE LoanPort, the portal Fannie chose to use or support, at the time did not offer all of the features the DMM web-based platform did. DMM’s portal had been in existence for over a year and was used with a number of servicers, several counseling agencies and more than 1,500 debtor attorneys at the time. Smith is not pursuing his claim in court.

HOPE LoanPort is now its own nonprofit group. It began as a technology committee within the private mortgage industry membership of HOPE NOW and its technology partner Indisoft, but has since split off.

“We were already up and running,” Smith said, “and we said, ‘Here it is free.’”

Borrowers, counselors, attorneys and government administrators participating in HAMP would have been able to use it for free. Servicers would have paid for it just as they do now, Smith said.

HAMP struggled early on. The Treasury reported in December, eight months into the program, that 31,382 trial modifications had been converted into permanent status. The blame landed on the documentation process.

In order for a borrower to receive a permanent modification, they have to make all three monthly payments in the trial stage. At the start of the program, the borrower did not have to submit all of the necessary documents to the servicer before entering the trial. Some spent more than a year in the trial process, while the servicer gathered documents for the conversion or denial.

Bank of America in December reported 98 permanent HAMP modifications, causing the bank to shift its focus from getting more borrowers into trials and start processing more documents. When the Treasury released that initial permanent modification report in December, more than 16,000 borrowers with an active HAMP trial under BofA had no documentation into the bank.

In May 2010, HOPE NOW announced that its web-based tool was fully operational, and that it would streamline the submission process of completed loan modification applications by allowing the counselors to send them electronically to servicers.

“We did previews with Fannie and Treasury in November,” Smith said. “The people at the Treasury loved it. I just could not understand why Fannie turned their back on us.”

Emails in August 2009 from HOPE NOW to Smith show that there was an interest in the DMM portal, though the correspondence indicates Smith’s program was not the only one under consideration:

“We are looking at actual modifications (hamp) and it seems your system would likely marry well into the concept. As you know, there are so many competing ideas and we are doing our best to stay abreast.”

According to a November email sent from Smith to the Treasury:

“Thank you very much for arranging our demo this morning with Caroline Herron and Tom MacDonald. I think it went very well and I hope that both Caroline and Tom see the benefit of adopting a portal. I’m obviously a little biased, but I think our Portal is an excellent solution to help solve many of the administrative issues confronting the HAMP program. Moreover, the Portal is already built, tested and can be implemented quickly.”

“Part of their consternation seemed to be that they didn’t want to work with a for-profit company, but we weren’t charging them anything,” Smith said.

The Treasury did not have a comment on the story, and Fannie Mae did not respond to requests for one. It should be noted that the emails were provided to HousingWire from Smith, and the Treasury and Fannie Mae have not acknowledged the exchange.

Written by Jon Prior.

by Paul Kiel ProPublica, Tuesday, August 10, 3:17 p.m.

Last month, the Treasury Department released its latest numbers on the current status of homeowners who’d managed to receive a permanent modification through the government’s foreclosure prevention program. The results suggested homeowners were doing miraculously well. But it turns out, the numbers were too good to be true.

On Friday, the Treasury released revised numbers that still show a relatively low level of default, but one significantly higher than the earlier estimate. For instance, Treasury had estimated that less than 3 percent of homeowners who began a permanent modification last summer had fallen more than three payments behind. That number turned out to be about 15 percent.

So how did the government get such an important metric for the program so wrong? All that’s clear is that Fannie Mae, which works under a $113 million contract to administer the program for the Treasury Department, made mistakes when crunching the numbers. In a statement, Treasury spokesman Mark Paustenbach said the mistakes had been fixed, and both Fannie and Treasury had hired outside consultants to verify the new results.

The newly published default rate does remain encouraging. Modifications under the program’s rules reduce homeowner payments on average far more than modifications offered outside of the program by banks, and as a result, a higher proportion of homeowners are expected to be able to maintain the payments. Early indications support that. For example, a recent regulatory report on mortgages shows that modifications begun in the second quarter of 2009 (all done outside of the government program) had defaulted in about 33 percent of cases after nine months. That’s about twice the default rate the government program has shown so far.

Of course, it’s worth keeping in mind that relatively few homeowners have actually emerged with permanent modifications through the program. Though about 1.3 million homeowners have begun the three-month trial period, fewer than 400,000 have emerged with permanent modifications. Far more have either been booted from the program or left waiting more than half a year for a final answer.

by Paul Kiel ProPublica, Yesterday, 8:57 a.m.

New York regulators have crafted new laws to give the state authority to punish mortgage servicers — something the Treasury Department, in administering its struggling mortgage modification program, has so far failed to do. The new rules set clear standards for how servicers must handle homeowners seeking a modification.

“We will not hesitate to bring an enforcement action or to refer an enforcement action,” said Richard Neiman, the New York superintendent of banks. “In fact, we’ll be looking for that case in the event of any wrongdoing, because we know the message it will send to the entire industry.”

The delays that hundreds of thousands of homeowners have encountered in the administration’s mortgage modification program have highlighted the poor performance by many mortgage servicers — the companies that process mortgage payments and foreclosures — particularly the largest: Bank of America, JPMorgan Chase, Wells Fargo and Citigroup. Struggling homeowners seeking a modification frequently wait months, even years, for an answer.

The New York laws, which go into effect Oct. 1, lay out how servicers should handle homeowners in danger of foreclosure. Within 10 days of a homeowner’s applying for a modification, for example, the servicer is required to acknowledge the request and specify what additional information is needed. Within 30 days of receiving all of the required information, the servicer is required to render its decision and respond with either a written offer or a denial in writing.

Those rules are precisely the same as those for the administration’s modification program, but as we’ve reported, servicers often break the rules. New York’s Neiman, who also sits on the Congressional Oversight Panel for the TARP and has frequently been critical of the administration’s program, said some of the laws were consciously modeled on it, but with one crucial difference: “These are not guidelines, these are not voluntary programs, these are laws and regulations that are now enforceable by our department, by the state attorney general, and by federal supervisory agencies.”

Treasury has repeatedly threatened to punish servicers, but hasn’t yet followed through. One unanswered question is just what form that punishment might take, since Treasury’s authority is based on the contracts that servicers signed to join the program. Under those contracts, Treasury could withhold incentive payments from noncompliant servicers, but it has not said just how that might work. The servicers are paid incentives for completed modifications, of which there have been relatively few.

The New York laws will apply to all the major servicers doing business there, said Jane Azia, the state banking agency’s director of consumer protection. In the case of a major, national bank breaking the laws, New York’s banking agency would refer the matter to the state attorney general, she said. “The attorney general would have authority to prosecute any entity for repeated violations of the law.” Whatever penalties or fines might result would then be up to the attorney general.

The new laws also require servicers to have adequate staffing and systems to ensure that homeowners “are not required to submit multiple copies of required documents,” a frequent problem. In another section, they prohibit servicers from continuing foreclosure proceedings if the homeowner is being evaluated for a modification. As we’ve reported, foreclosures occurring during the modification process have been a persistent problem.

The regulations are an important step in bringing transparency and accountability to an industry that has long avoided regulation despite a history of abusive practices, said Josh Zinner, an attorney and co-director of the nonprofit Neighborhood Economic Development Advocacy Project in New York. “The regulations set important standards,” he said, adding that the Consumer Financial Protection Bureau, newly created by the financial regulation bill, will have jurisdiction over servicers and could set similar rules.

The chairman of California’s Assembly Committee on Consumer Financial Protection says the nation’s largest banks refused to testify at a hearing last week that was set to investigate the banks’ practice of suspending and reducing consumers’ home equity lines of credit (HELOCs).

Representatives from Chase, Citi, Wells Fargo and Bank of America were invited to speak about their HELOC practices in the state, according to Assemblyman Ted Lieu, D-Torrance. The hearing has since been canceled due to the banks’ unwillingness to participate, Lieu says.

http://democrats.assembly.ca.gov/members/a53/Pressroom/Press/20100805AD53PR01.aspx

Caroline Herron, a former Fannie vice president who worked for the mortgage giant in 2009 as a high-level consultant, claims that the homeowner-relief effort was marred by delays, missteps and executives preoccupied with their institution’s short-term financial interests.

http://www.npr.org/templates/story/story.php?storyId=129011474

Bank of America wants to be released from a confidential memorandum of understanding that was imposed by regulators during the financial crisis. Under the memorandum, Bank of America is subjected to intensified scrutiny from regulators and restraints on certain moves. The sanction is supposed to remain in place while regulators examine whether or not the bank has satisfied all of their requirements, however the release from the secret sanction is currently the subject of negotiations among bank officials, the Federal Reserve and the Office of the Comptroller of the Currency.

http://online.wsj.com/article/SB10001424052748704657504575411602370266826.html