The case for a foreclosure moratorium

From Ezra Klein:

EK: And you don’t worry about an intervention like this freezing the market? Insofar as we're inching back to normalcy, that’s at least partly because markets are working normally. If I understand what you’re saying correctly, it’s that a moratorium makes sense not just due to paperwork problems but as a housing policy. But if the government freezes these contracts in order to open them up, that’ll be a whole new ballgame for everyone invested in, or connected with, these industries, both now and in the future.

JT: No, I don’t. We’re not out of the woods with this economy. We’re deep in the jungle. We’re still looking at twice as many foreclosures as we’ve already experienced, and if unemployment gets worse, those numbers will go higher. Unless this situation gets managed, properly, we’re going to continue to have foreclosures dragging down our economy. Things may be going well on Wall Street, but it’s really not going well on Main Street. If people think we’ve gotten through this, they’re really misguided.

This is beyond just the robo-signing and the paperwork. This is a continuing continuum of bad practices and fraudulent lending that got us into this situation. And yes, some of those institutions that did the worst of it are gone, but other institutions have purchased them -- and that means they purchased their responsibilities, too. These homeowners were thinking that the bank wouldn’t be making them a loan if they couldn’t pay it back. They were told interest rates were going down, that they could do this, and they believed it. The responsibility began with the lenders, and it still lies with them. Dodd-Frank actually had to legislate that you can’t make a loan to anyone who doesn’t have the ability to pay. The fact that we had to legislate that tells you how far our financial-services sector fell.

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Mortgage problems could cost banks billions

It's anyone's guess how much but the consensus now is that it will not be cheap. (One industry analyst says it could be over $80 billion.) The longer it takes the banks to clean up their mess the more expensive it will be for the banks. The Obama administration is not interested in pursuing the banks or helping consumers beyond gentle requests but the state attorney generals are much more serious about this problem. Despite the "blame the buyers" approach by the banks, many see this as a serious legal issue for the banks. Time is money and there is a lot of time ahead before this is cleaned up.

Wall Street initially hoped the banks would do just that but as the political furor grew, a quick end to the crisis was looking less and less likely. On Wednesday, 50 state attorneys general announced they were investigating the practices of the mortgage servicing industry, while Florida’s attorney general subpoenaed the nation’s largest mortgage processor, L.P.S., as part of a broader investigation.

In some cases, officials at mortgage servicers signed hundreds of documents a day with barely a chance to review them — the so-called robo-signers — while doubts have arisen about the veracity of the original documents compiled as part of the foreclosure process.

“I don’t see how it can be cleared up in a short period of time,” said Richard X. Bove, an analyst with Rochdale Securities. “The moratorium won’t last that long but the problem will last at least four or five years, maybe a decade.” In the short term, he said, “it could easily cost $1.5 billion per quarter.”

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Reid calls on lenders to halt foreclosures in all states

Wash Post:

Senate Majority Leader Harry Reid (D-Nev.) called on major lenders to halt foreclosures across the country Friday following Bank of America's announcement that it will suspend all such proceedings until a review of possible paperwork problems is completed.

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Obama pocket vetoes bill that would make foreclosures easier

Very good news, and some rare quick (and good) action from the White House. Chris wrote about this topic this morning. And KagroX, aka David Waldman, has some interesting analysis of the pocket veto that borders on being over this lawyer's - see if it rises above yours. Read More......

New round of foreclosures threatens housing market

Wash Post:

The housing market is facing swelling ranks of homeowners who are seriously delinquent but have yet to lose their homes, and this is threatening a new wave of foreclosures that could hit just as the real estate market has begun to stabilize.

About 5 million to 7 million properties are potentially eligible for foreclosure but have not yet been repossessed and put up for sale. Some economists project it could take nearly three years before all these homes have been put on the market and purchased by new owners. And the number of pending foreclosures could grow much bigger over the coming year as more distressed borrowers become delinquent and then, if they can't obtain mortgage relief, wade through the foreclosure process, which often takes more than a year to complete.

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Fannie Mae's 2nd-quarter losses triple what was expected

As Chris has written many a time, tell me again how this crisis is now over? Read More......

Extreme Home Makeover to Foreclosure in Three Short Years

I'm not entirely sure what to make of this story to be honest. From AP:

More than 1,800 people showed up to help ABC's "Extreme Makeover" team demolish a family's decrepit home and replace it with a sparkling, four-bedroom mini-mansion in 2005.

Three years later, the reality TV show's most ambitious project at the time has become the latest victim of the foreclosure crisis.

After the Harper family used the two-story home as collateral for a $450,000 loan, it's set to go to auction on the steps of the Clayton County Courthouse Aug. 5. The couple did not return phone calls Monday, but told WSB-TV they received the loan for a construction business that failed.

When you get into the details, it's really hard to understand:

Materials and labor were donated for the home, which would have cost about $450,000 to build. Beazer Homes' employees and company partners also raised $250,000 in contributions for the family, including scholarships for the couple's three children and a home maintenance fund.

So a bunch of people volunteer their time, give these folks a free house, and they go off and take a loan out for the value of a house they would never have had if people hadn't given it to them? That's unconscionable to me. They didn't receive a $450,000 cash gift, they got a home for their family.

You see signs of this everywhere - Americans don't have a clear enough understanding of the fundamentals of money. The Harper family had access to a $450,000 home that was completely paid off. Taking out a loan against a home puts the home at risk if you can't pay the bills. Instead of long term security for their family, the Harpers saw a $450,000 ATM. Most Americans would kill for the Harper's American dream - a completely paid off home.

Just because a bank will give you the money doesn't mean that you should take the loan. These people, clearly, would never have been in a $450,000 home as they didn't have the income prior to the show to support that loan. Now I'm not in the category of those who believe that everyone who is in financial trouble right now got there because of lack of understanding money - there were many examples of just plain false and illegal practices (This American Life did a great show on this). What I am saying is that fundamentals of money would suggest that one not put their primary asset, their home, into jeopardy to start a business. A portion of it? Maybe, but in this circumstance I don't think it's justified.

Do I blame the Harpers? I'm not sure. They're just following the lead of the President - borrowing without thought as to the risk to the future. Our adventure in Iraq is costing America billions of dollars - dollars that we are borrowing and now owe interest on. I don't know that most Americans fully understand the long term implications of this policy. But in simpler terms than long-bond maturity dates, it works the same way anyone who has a credit card knows - if you let the debts pile up, it can take years to work them off. For a nation, it means transferring the debts of one generation on another. The Harpers lost their home as a result of their over-extending their assets, and it's a good lesson for us not just as individuals, but a nation as well. Sometimes if you don't have the money, you can't afford it. Read More......

Nobel-prize-winning economist Joseph Stiglitz talks to me about the true cost of the war in Iraq, high oil prices, and the mortgage crisis

While attending the Symi Symposium in Greece last week, I was able to spend some time with Joseph Stiglitz, a Nobel-prize-winning economist from Columbia University. Stiglitz not only won the Nobel prize in Economics a few years back, but he also served as the chair of President Clinton's Council of Economic Advisers. Stiglitz is an amazing man. He kind of reminds you of your favorite college professor. The one who took the time to explain things to you, and who actually seemed to enjoy doing it. I can't say enough about the guy (and his wife, who was a real gem as well) - it was just a pleasure and honor to be able to sit down with someone like this.

So... I was able to pigeon-hole Stiglitz for about 25 minutes and interview him on a variety of topics. I've split the interview in to three portions.

1. The first deals with Stiglitz's new book, "The Three Trillion Dollar War." Stiglitz argues that the Bush administration lied to us about the true cost of the Iraq war, and then when all is said and done, it will be costing us around $3 trillion dollars - and that's being conservative. (9 minutes)

2. The second portion of the interview deals with the physical cost of the war on our troops, and then we delve into the issue of oil prices. A really fascinating discussion about whether or not OPEC can produce more oil, how the dollar is affecting the price of gas at home, and how speculators are impacting the market. (8 minutes)

3. And finally, in the third part of our interview we talk about how increased US domestic production of oil won't help lower oil prices, and about the mismanagement of the US mortgage crisis by the Bush administration. (5 minutes)

This is the first part of the interview, below. The other two parts you can watch via the links above. Part 1 is okay, but it's in parts 2 and 3 that Stiglitz really gets going and the interview takes off. Altogether it's probably 23 minutes or so of video. I highly recommend it. I learned a ton, and hope you will as well.

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Home loan rates rise even after rate cuts

Sound familiar? The UK is seeing the same situation as the US, that despite rate cuts by the central bank to banks, rates to customers have stayed high. In the US there has been some movement down though nothing in comparison to the rate drops that banks have received. A few stories have popped up in the US media, one of which went as far as to say there really isn't any connection since the rates are out in an open market, blah, blah, blah. That spin reminded me of the administration spinning the oil increases after the invasion of Iraq. In the case of the banks, if the government - meaning us - is lending banks extraordinary sums of money, shouldn't the government - again, that is us - be able to dictate a few terms such as lower rates? But that might make too much sense and go against the long standing tradition of banks screwing customers.

Britain's largest mortgage lenders were last night accused of fattening their profits at the expense of increasingly stretched homeowners as two leading firms ignored the third interest rate cut from the Bank of England in five months and pushed through price increases on some of their most popular home loan offers.

The moves are part of an increasingly rapid withdrawal by lenders from the most competitive mortgage deals as the credit crunch continues to bite and house prices fall. The Bank's three rate cuts since December have failed to halt the retreat.

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Does this guy really deserve the government's help?

The NYT has an article today about how the mortgage 'crisis' has spread to even people with good credit and prime loans. This is an example of one of the 'innocent' people caught up in the mortgage mess:

An example of the spreading credit crisis is seen in Don Doyle, a computer engineer at Lockheed Martin who makes a six-figure income and had a stellar credit score in 2004, when he refinanced his home in Northern California to take cash out to pay for his daughter’s college tuition.

Mr. Doyle, 52, is now worried that he will have to file for bankruptcy, because he cannot afford to make the higher variable payments on his mortgage, and he cannot sell his home for more than his $740,000 mortgage.

“The whole plan was to get out” before his rate reset, he said. “Now I am caught. I can’t sell my house. I’m having a hard time refinancing. I’ve avoided bankruptcy for months trying to pull this out of my savings.”

My take on this, after the jump...

He took a loan that he knew he couldn't afford because he planned on selling and making a profit before he had to pay what he knowingly agreed to pay. How is that worthy of our sympathy?

I've been looking for a condo for years and refused to buy because prices were too high and I was most certainly not going to get an ARM. I pity this guy, sure, but I don't think the government (i.e., you and I) should bail him out. He gambled and lost. He didn't have to get an ARM. He didn't have to buy such an expensive house. And from all accounts, he wasn't cheated or lied to. He knew that his rates were going to go up, he knew that when they went up they'd be more than he could afford, he just figured he'd cash in before his obligation to pay more kicked in. He knowingly gambled and lost. Not our fault. But clearly his. Read More......

G7 finance ministers told of "prolonged adjustment" in economies

Losing hundreds of billions is not something any economy can shake off right away. Wall Street is also afraid to lose the great stars of big finance so no only did they pay them handsomely for the subprime junk, they're still throwing money around in order to keep everyone from jumping to the next company. Throwing more money, a lot of money, at these people isn't going to help get beyond this self made problem any faster.

Somehow missing in this review is the complete failure by all of the G7 governments in regulation. They all knew what was going on and none took any action. Money was flowing and life was good. Thanks in for the great leadership and I guess we'll find the bill is in the mail.

One culprit was the lavish performance-pay regime on Wall Street and in the City, which, they say, 'encouraged disproportionate risk-taking with insufficient regard to longer-term risks'. The secretive 'off balance sheet' accounting used by many banks to hide their borrowing was also criticised.

But the investors who bought securities backed by the shaky American mortgages did not escape blame either: the report identified 'poor investor practices, including excessive, too often mechanical, reliance on credit rating agencies'.

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Bond insurers now seeking billions to cover losses

No wonder the US markets were flat yesterday despite another half point cut by Bernanke. The folks who helped prop up the subprime loans are now being scorched themselves. Reagan's trickle down may have never worked but in this case, it's working. The big question is where is this going and who will be next? Even with countless financial wizards and number crunchers, Wall Street has no idea. That's why they make the big bucks and dictate policy, including the Fed.

Like other bond insurers, FGIC initially focused on municipal bond deals but ventured into riskier debt securities to boost returns. Massive defaults on U.S. subprime mortgages battered the credit quality of these products, increasing the capital bond insurers needed for an ``AAA'' rating.

Losing a Triple A rating could be devastating for the bond insurers, preventing them from drumming up new clients -- and possibly forcing them out of business.

Ambac has already received a downgrade from rating agency Fitch, but has so far been spared by Standard & Poor's and Moody's. MBIA hasn't been downgraded.

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Ralph Nader is bored again, may decide to put John McCain in the White House to relieve his ennui

Seriously, who is funding this guy? What organizations is he still affiliated with, and who is funding them? He needs to be put to pasture once and for all (what's that slaughterhouse in California, again?) From ABC:

Ralph Nader has formed a presidential exploratory committee, and said in an interview Wednesday that he will launch another presidential bid if he's convinced he can raise enough money to appear on the vast majority of state ballots this fall.

Nader, who ran as an independent candidate in each of the past three presidential elections, told ABCNews.com that he will run in 2008 if he is convinced over the next month that he would be able to raise $10 million over the course of the campaign — and attract enough lawyers willing to work free of charge to get his name on state ballots.

So, are we better off now than we were before Ralph Nader helped throw the 2000 and 2004 elections to George Bush? How has his grand plan helped our country? There has been NO positive change, whatsoever, from Nader having entered either race. The only possible impact anyone can point to is that Nader may have handed the presidency to George Bush, twice. That's all Nader has going for him - the possibility that he's responsible for giving the country waterboarding, the Iraq war, the mortgage mess, skyrocketing oil prices, massive budget deficits, signing statements, Alito and Roberts, Gitmo... Read More......

FBI investigating subprime business

UBS just announced another ugly write-down, $14 billion and a $4 billion loss for 2008, and that won't be the last of it for the industry. How can the former CEOs continue to hold their millions when it was based on such bogus business? Now that the investigation is moving, will anything come of it?

The Federal Bureau of Investigation has opened criminal inquiries into 14 companies as part of a wide-ranging investigation of the troubled mortgage industry, F.B.I. officials said Tuesday.

The F.B.I. said it was looking into possible accounting fraud, insider trading or other violations in connection with loans made to borrowers with weak, or subprime, credit.

The agency declined to identify the companies under investigation but said the inquiry, which began last spring, involves companies across the financial industry, including mortgage lenders, loan brokers and Wall Street banks that packaged home loans into securities.

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Bush on economy and home ownership

Bush took all of the credit for policies that led to the booming CEO economy (that never trickled down beyond CEOs) and record rates of home ownership. Is he still a stand up guy now or will he run from his words and his record?

Bush in 2004: "Thanks to being the most productive workforce in America, and I might say, thanks to good policies, this economy is strong and it's getting stronger," Bush told supporters.

Noting that 68 percent of Americans own their own homes, Bush said, "Home sales were the highest ever recently. That's exciting news for the country."

Fast-forward to 2008: The housing and mortgage meltdown caused the biggest one-year drop in the rate of homeownership on record, according to government figures released Tuesday.

The Census Bureau report showed that home owners accounted for 67.8% of occupied homes in the fourth quarter, down 1.1 points from a year earlier. It's the largest year-over-year drop recorded in the report. The ownership rate was also well below the 68.2% ownership rate in the third quarter of 2007.

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Who will prop up the bond insurers during the meltdown?

Who needs regulation and oversight anyway? Surely there are billions of extra cash just laying around to bail out this next group, right? If these cowboys weren't dragging us all down, it would be easier to let them lose so much money, but because of their own failures, we're all having to pay the price for greed and incompetence.

Regulators fear a possible chain of events in which the troubled bond insurers, MBIA and Ambac, might be unable to keep their promise to pay investors if borrowers default on their debt.

That could leave the buyers of the bonds — including many banks and pension funds — on the hook for untold billions of dollars in losses, shaking confidence in the financial system.

To avoid a possible crisis, insurance regulators met with representatives of about a dozen banks on Wednesday to discuss ways to shore up the insurers by injecting fresh capital, much as Wall Street firms have turned to outside investors recently after suffering steep losses related to subprime mortgages.

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Letter to the editor: Where's my reward for being cautious?

An AMERICAblog reader writes:

I'm one of those "lucky" ones who did the right thing when I bought my home back in the fall of 1999. I was just about to get married and just kind of went with it, got a fixed rate mortgage because that seemed prudent. I agree with the opinion that if someone can prove that they were suckered into something then they have just cause for anger and possibly damages. But if it's someone who thought they'd take a chance in order to make a quick buck, especially after seeing how easy it can be done via all those home makeover shows such as "Flip This House," then that's too bad. You gambled, you lost. And while I may feel bad for your situation, why should I be bailing out someone for doing something similar to a guy who starts his own restaurant? That person took a chance and the customers didn't show and the restaurant went belly up. Well so did the gamble on your house or houses. Where's my "reward" for being cautious?

John Patrick Gatta
Niles, Ohio

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Recession already hitting key states

The GOP is not going to like hearing this news. They might actually have to defend their disastrous economic policies to voters.

The US as a whole may yet escape a recession. But important individual states – some with upcoming primaries – may already be mired in a slump.

"California, Arizona, Florida, Michigan, Wisconsin: they're in recession. [And] they account for 25 to 30 percent of the nation's GDP," said Mark Zandi, chief economist for Moody's Economy.com, at a Brookings Institution seminar last week.

Compounding the problem will be the massive increase in mortgage problems hitting the traditional swing state of Ohio. Mortgage-aid hotlines have been flooded with calls, with ten times the number of calls in the fourth quarter compared to the first quarter of 2007. There's a lot of explaining to do out there by the GOP and it ain't going to be pretty. Read More......

Guess who is going to help fund the Countrywide bailout?

Of course...taxpayers. The middle class. Hell, let's just round up all of the bad debt from the war, the fools that tried get rich quick schemes with subprime mortgages, Wall Street executive payouts and then just send the bill to regular folks. Oh sorry, it's already happening. Naturally options for writing off losses by individuals is slightly more limited, with limits of only a few thousand dollars per year.

A $270 million annual deduction would save Bank of America something more than $100 million a year in federal and state income taxes. The long-term tax-exempt rate, which is based on Treasury rates and other things so complicated that they make my teeth hurt. The rate changes each year, Willens says, but not by much. When I asked how it's calculated, Willens, a master of tax arcana, threw up his hands. (Metaphorically, of course.) "It's like the formula for Coca-Cola," he said, "no one outside the circle knows it" and it's so complicated that, "no one else wants to find out."

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Now it's Obama's turn to suck up to homeowners who gambled and lost

Seriously, any plan to bail these people out had better include a test to prove that they were hoodwinked by their mortgage broker. Otherwise, they gambled and they lost. Lots of people bought homes and did what it took to make their payments, and did make their payments, and others opted not to buy at all until the market settled down. We should not be bailing people out for being idiots, or for trying to make a fast buck, especially when it means the rest of us will now have to pay more for OUR next home as a result of this bail out. Where's the plan to reimburse the rest of us for not being idiots? Once again, always have a plan to help the rich, the poor, or the stupid. Never a plan to help the rest of us. Read More......