Confirmed: Official Administration Policy Is to Continue Foreclosures

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The Federal Housing Administration Commissioner, David Stevens, has joined David Axelrod in stating that the Administration sees no reason to halt all foreclosures. That’s not a surprise in itself–it was pretty clear that Axe’s statement reflected official Administration policy.

But I’m particularly interested in how Stevens justified this position in an email sent to the WaPo.

“We believe freezing foreclosures for all banks in all states, whether we have reason to believe them to be in error or not, is simply not the prudent step to take in this fragile housing market,” he said.

With approximately one in four homes sold in the second quarter in foreclosure, administration officials worry that a moratorium could have a significant impact on the economic recovery.

“While we understand the eagerness to make sure that no American is foreclosed upon in error, we must be careful not to over-reach and apply a remedy that will make the underlying problem of foreclosures worse,” he added.

First, note where Stevens places the benefit of the doubt. If the Administration has no reason to believe foreclosures to be in error, then it will assume they are not. That, in spite of the mounting evidence that the paperwork problem for homes sold during the bubble is systemic.

Foreclosures have been halted in places where there is an easy means (judicial foreclosures) to expose the fraud underlying the bubble era housing sales, or for companies (like Bank of America) that were pressured to vouch for the whole system. But there is no reason to believe the loans Wells Fargo acquired from Wachovia are any more sound than what BoA has on its books; on the contrary, they’re probably worse. But the Administration position is that we should just carry on with the foreclosures, ignoring the evidence of systemic fraud.

Which is probably, itself, just an effort to avoid admitting to the evidence of systemic fraud.

While the interim paragraph in Stevens’ response to the WaPo is not a direct quote, it seems that he is saying the Administration doesn’t want to halt all foreclosures because they don’t want the housing market to lose a quarter of its sales. That is, they seem to believe that the housing market will freeze up if it doesn’t have a ready supply of below market properties to entice buyers who otherwise would be unable or uninterested in buying.

Now, first of all, it’s not entirely clear that the housing market hasn’t effectively frozen up in any case. Things are so volatile it’s not clear that this quarter would resemble the second quarter in any case.

But given everything else, is it really a good idea to encourage reluctant buyers to buy now? (I say that with a house on the market.)

Read more →

The Obama Administration Wants to Ruin Your Neighborhood

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According to this story, the Administration (in the voice of David Axelrod) sees no need to halt foreclosures while the authorities sort out the mess caused by the fraud committed by loan servicers.

“It is a serious problem,” said David Axelrod, who contended that the flawed paperwork is hurting the nation’s housing market as well as lending institutions. But he added, “I’m not sure about a national moratorium because there are in fact valid foreclosures that probably should go forward” because their documents are accurate.

So Axe says “valid foreclosures” should go forward even while he admits that the servicers’ fraud is affecting the housing market.

Think about what that means. He says that foreclosures that are “valid” should go forward even as we learn more and more news about the huge numbers of foreclosures for which there may be no valid paperwork.

So the bank gets a house in foreclosure with purportedly valid paperwork. And then what?

Particularly in non-judicial states, where no one really reviews the paperwork, who is going to reassure potential buyers for that property that the title is valid?

Frankly, as someone in the market right now, I’ve begun looking critically at properties that were sold at any point during the housing boom–particularly those houses built and sold during the bubble. Because nobody knows whether that house has a clean title. And I’m not even shopping foreclosures.

In other words, until someone can do something to distinguish the clean titles from the crappy ones, savvy home buyers aren’t going to–and shouldn’t–be buying foreclosures.

But Axe says it’s a good idea to continue to force homeowners out of their home, even as the market for those homes will disintegrate until the title problem is fixed (and in his comment, he concedes the market is already being affected by this). It’s going to be harder and harder for banks–never enthusiastic property owners–to find buyers to take those homes off their hands. So those lawns will go unmowed, the houses will get vandalized, property tax won’t get paid, and–voila!–all of a sudden your home value is declining, too, making it much more likely you’ll walk away or do something to get out of the dead weight caused by the festering foreclosure problem.

This is just more of the same extend and pretend: put American homebuyers at risk while pretending that the banks did nothing legally inadequate or (more likely) fraudulent during the housing bubble, all in an effort to enable them to avoid paying any consequences for their mistakes during the bubble.

Greg Mankiw Proves Raising Taxes Is a Win Win

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Oh sure, in this NYT op-ed, Greg Mankiw shamelessly fiddles with numbers to try to show that raising taxes on rich people like him will be bad for the economy. But you don’t even have to point out the obvious flaws in his math [Update: Kevin Drum shows some of those flaws here] to read this op-ed as an unrestrained argument in favor of raising taxes on the rich.

For starters, Mankiw claims he’ll stop writing NYT op-eds if his federal taxes go up.

I am regularly offered opportunities to earn extra money. It could be by talking to a business group, consulting on a legal case, giving a guest lecture, teaching summer school or writing an article. I turn down most but accept a few.

[snip]

HERE’S the bottom line: Without any taxes, accepting that editor’s assignment would have yielded my children an extra $10,000. With taxes, it yields only $1,000. In effect, once the entire tax system is taken into account, my family’s marginal tax rate is about 90 percent. Is it any wonder that I turn down most of the money-making opportunities I am offered?

So if we raise taxes, less of this kind of transparent bullshit with numbers will appear on the NYT op-ed page.

WIN!

Moreover, if Mankiw stops writing these crappy op-eds, it’ll open up an opportunity for someone else to write op-eds for the NYT. That person, according to Mankiw’s logic, would have to be someone less wealthy than him (because Mankiw shows no sane rich person would write an NYT op-ed for only $523 of savings). And since that person is by definition not rich, she will probably spend more of the $1000 the NYT would pay her right away, rather than pass it on to her kids as Mankiw says he will do with his pay for writing this NYT op-ed.

WIN!

I’ve seen no more compelling, succinct argument for why we should raise taxes. Not only will it result in more money flowing through the economy immediately, but it’ll save us from having to read the ramblings of rich people like Mankiw, David Broder, and Tom Friedman.

Remember Cramdown?

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Remember cramdown? It was a proposed change to bankruptcy law that would have allowed judges to modify the mortgages on primary homes for people entering bankruptcy. Supporters of the change argued that cramdown would provide an important stick to force lenders into modifying loans–and in so doing help millions of people stay in their homes. Here’s how DDay described the thinking behind the House cramdown legislation that passed in March 2009.

Under the proposal, the banks would be allowed to work out their terms with borrowers first, before resorting to a bankruptcy judge. This is how it worked in the House version of cramdown, which passed in March 2009; the homeowner had to negotiate a voluntary loan mod with the lender before going to the bankruptcy judge. And this may have worked, but only because, for the servicers, cramdown would have loomed in the background as a big stick, forcing a negotiation with a level playing field for the borrower.

In other words, cramdown was meant to give homeowners and the government leverage over servicers and lenders to voluntarily modify mortgages.

I ask whether you remember cramdown, because it doesn’t show up in this WaPo story at all. The WaPo allows some anonymous administration officials to claim they couldn’t do anything about the abuses now being exposed in the foreclosure process because they wanted servicers’ voluntary help on modification programs (basically, the famously unsuccessful HAMP).

In an interview this week, a senior administration official confirmed that the White House and Treasury Department had received warnings that the mortgage industry employed inexperienced staffers to oversee foreclosures, had problems handling documents and communicating with borrowers, and often failed to comply with regulations.

But the government had struggled to address shortcomings in the industry, the official said, because the administration was also seeking the servicers’ help with modifying the home loans of millions of borrowers to help them avoid foreclosure.

In addition, a Treasury official said the federal government’s power to tackle problems in the servicer industry is limited because foreclosure law is largely the domain of states.

Both officials, who were not authorized to speak on the record but were providing the administration’s views on the matter, said problems in the foreclosure process were largely the result of mortgage servicers being overwhelmed.

The massive foreclosure fraud that is about to seize up the economy again wasn’t the Administration’s fault, these anonymous sources want you to know, because they couldn’t do anything about it when they first got warning of it. Oh, and the servicers aren’t engaged in fraud, these anonymous sources want you to know, they’re just overwhelmed (never mind that if they’re overwhelmed, it’s partly because they refuse to hire enough people to do foreclosures right, presumably because that would hurt profitability).

Key to this story of the Administration’s helplessness is the claim that the only tool they had to get servicers to modify loans was the servicers’ good will. Basically, they’re saying that they had to let the servicers (who are also some of the biggest banks) engage in what amounts to fraud, because it was the only way they had to get servicers to participate in HAMP.

Setting aside the fact that a relative handful of people have actually gotten modifications under HAMP (which suggests the Administration was willing to overlook the problems they knew existed in the foreclosure process in exchange for helping just a few people), the claim that allowing those problems to remain was the only way to get banks to participate in HAMP is simply not true.

Or it didn’t have to be.

Back in July 2009, when the Administration was sitting on its hands as cramdown failed in the Senate and as Dick Durbin was observing that the banks own the Senate, the Treasury Department’s Assistant Secretary for Financial Stability, Herb Allison, testified to Congress that the Administration had all the tools it needed to slow the flood of foreclosures.

As housing foreclosures top the 1.5-million mark this year, the Obama administration has openly abandoned cramdown as a strategy for tackling the crisis.

That approach — which would empower homeowners to avoid foreclosure through bankruptcy — was once a central element of the administration’s plans to stabilize the volatile housing market. Some financial analysts say the strategy would prevent 20 percent of all foreclosures. But, appearing before a Senate panel Thursday, two White House officials said that current policies are enough to address the problem.

“We have enough tools,” Herbert Allison, the Treasury Department’s assistant secretary for financial stability, told members of the Senate Banking Committee. “The challenge is to roll them out.” The tools Allison invoked are several federal programs that offer financial incentives to mortgage lenders and servicers — the companies that buy the rights to manage loans — to modify the terms of mortgages in efforts to help homeowners escape foreclosure.

Fifteen months ago, according to the Assistant Treasury Secretary, the Administration had all the tools it needed. Now, as the problem of foreclosure fraud is about to explode, a Treasury official and a senior Administration official claim they didn’t have the right tools, they were helpless.

Now, you can argue whether the Administration would have ever been able to get Bad Nelson and Mary Landrieu to vote for cramdown (me, I sort of think comments like Allison’s and Obama’s silence gave the Senators cover to screw homeowners).

But you can’t argue one point: after fifteen months of trusting banksters to do the right thing for homeowners hasn’t worked out so well, the Administration is changing its story about whether it needed more tools to motivate those banksters.

Obama Has Made Civil Liberties AND Foreclosures Worse

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Greg Sargent and Steve Benen have interesting taxonomies of the Democrats who should buck up and clap louder. I think both bring some needed nuance to the discussion. As part of that, both include some kind of category of lefties who oppose Obama to defend important principles. Sargent doesn’t limit that category to any one policy issue.

The second group on the left constitutes high-profile commentators, such as Rachel Maddow and Glenn Greenwald, who are mounting a detailed, substantive policy critique of the Obama administration on issues that are important to them. These folks see their role as advocates for a particular policy agenda, and they don’t hesitate to whack the White House when it commits what they see as grave policy missteps. For them to hold their fire because the White House wants them to would be an unthinkable betrayal of the role they’ve carved out for themselves. This is the “professional left” Robert Gibbs sneeringly alluded to — even though Obama himself has said he craves such criticism.

But Benen does (and he cites a Kevin Drum post in the same vein):

Kevin Drum notes, “If you’re, say, Glenn Greenwald, I wouldn’t expect you to buy Obama’s defense at all. All of us have multiple interests, but if your primary concern is with civil liberties and the national security state, then the problem isn’t that Obama hasn’t done enough, it’s that his policies have been actively damaging. There’s just no reason why you should be especially excited about either his administration or the continuation of the Democratic Party in power.”

Right. Glenn not only has a legitimate beef, I honestly can’t think of anyone who’s offered a persuasive argument to counter Glenn’s criticism. I don’t know, however, how large a group of voters we’re talking about that disapproves of the president based primarily (but not exclusively) on concerns over the national security state.

I’d argue that if Glenn’s contingent represents one group of the disaffected, the other two general groups of center-left critics are (2) those who believe the president’s accomplishments have been inadequate; and (3) those who are struggling badly in this economy, and expected conditions to be better than they are under Obama.

And note that both Benen and Drum make a clear distinction between those (like Glenn, and I assume they’d include me in that camp) have a legitimate gripe, and those who are unhappy with the state of the economy.

I disagree with their argument–that Obama could not really have done much more with the economy–but I think they present it in good faith.

But on one area, their claim that Obama couldn’t do more is absolutely false: on foreclosures.

The Administration has had no requirement to get Congress’ approval for their HAMP program. They have the money sitting, unused, at Treasury. Yet long after it became clear that HAMP was not only not helping, but was actually making things worse, after it became clear that other restructuring programs were much more successful, the Administration made little more than tweaks to the program. And then, as the number of people actually harmed by HAMP piled up, they claimed that the program had succeeded because it helped them get away (thus far) with the Extend and Pretend strategy.

But that introduces another problem with the taxonomies that make a distinction between those with a real gripe and those unfairly holding Obama responsible because the economy has not gotten better.

The failure to do something effective to prevent foreclosures–that is, being satisfied that HAMP helped Extend and Pretend rather than making a sustained effort to help actual homeowners stay in their homes–has made the economy worse. That’s by no means the biggest cause of the ongoing crappiness of the economy. But it is one cause.

So even if you buy the argument that Obama couldn’t have gotten more stimulus passed, even if you forgive Larry Summers for his “insurance policy,” and even if you ignore Obama’s decision to renominate Helicopter Ben in spite of his unwillingness to do anything about the full employment part of his job description, you still have to give Obama some of the blame for the economy. Middle class homeowners all over the country are seeing their home values continue to fall, and that’s something that the Administration could have at least tried to alleviate.

But they didn’t.

Foreclosures Are Driving Up Unemployment

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I’ve written several times about how lucky I feel that I can move. We’re going to take an absolute bath on selling our house (a 30% drop in value for a house bought 8 years ago). But at least we have enough money to get out of that house and move to a new job.

Many people in the states worst hit by the foreclosure crisis–FL, NV, AZ, CA–can’t do that. Which means they have to stick with crappy jobs because there’s no way they can move to where people are hiring.

Which is what Rortybomb explains this IMF paper shows.

This paper looks to analyze structural unemployment by regressing a “skills-mismatch index” (SMI), which quantifies mismatches on education level. as well as regressing foreclosure rates on unemployment rates.They find that structural unemployment is 1%-1.75%, with skills being 0.5%. That means housing hurdles run from 0.5% to 1.25% of unemployment.   So that means the large majority of structural unemployment is housing related.

[snip]

This paper shows that a large majority of structural unemployment is the result of underwater mortgages and foreclosures. In addition, when foreclosures are added into the regression alongside [skills-mismatch index], SMI loses some of  its value, and when a cross term is added skills loses a bit more. Right now, the story is one of foreclosures.So groups that fight foreclosures, say what many over-worked and under-paid community organizers do now, are groups that fight to reduce structural unemployment for everyone. Same with those trying to get cramdown and right-to-rent and better short sales. Which is a worthwhile thing to be doing.

And it’s not just that being in a house that has lost value makes it harder for an individual to move to a job (or a better job). It’s that the crappy housing market is bringing everyone down in areas worst hit by it.

Rortybomb analogizes what the banksters (and, I would add, Treasury) have done by letting the housing crisis fester like it has to a corporation coming into a town and releasing burning chemicals.

Let’s say that Bank of America and drove a truck full of chemicals into a town square and proceeded to burn the chemicals. The toxic fumes of these chemicals caused a statistically significant number of workers to be so sick that they ended up not able to work and detached from the labor force and forced major costs onto municipalities. We’d tax the hell out of BoA for burning those chemicals, right? Externalities and all that.So let’s replace “burning toxic chemicals” with “foreclosures.” It’s the same story. Especially foreclosures that haven’t been reviewed by a judge, or foreclosures where there wasn’t proper representation or where a right-to-rent or modification was available. So why aren’t we taxing the hell out of foreclosures?

The foreclosure crisis is killing entire states. And yet the priority still seems to be focused on rescuing the banksters, not the homeowners.

Top Culprits for Income Inequality? Exec Pay and Educational Failures

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Tim Noah’s great series on the causes of income inequality got a lot less attention during its second week than its first week. So I thought it worthwhile to focus on what he concluded was causing the dangerous new income inequality in America.

Here’s how he described the relative importance of each of the causes of income inequality he looked at:

Here is a back-of-the-envelope calculation, an admittedly crude composite of my discussions with and reading of the various economists and political scientists cited thus far:

  • Race and gender are responsible for none of it, and single parenthood is responsible for virtually none of it.
  • Immigration is responsible for 5 percent.
  • The imagined uniqueness of computers as a transformative technology is responsible for none of it.
  • Tax policy is responsible for 5 percent.
  • The decline of labor is responsible for 20 percent.
  • Trade is responsible for 10 percent.
  • Wall Street and corporate boards’ pampering of the Stinking Rich is responsible for 30 percent.
  • Various failures in our education system are responsible for 30 percent.

Most of these factors reflect at least in part things the federal government did or failed to do. Immigration is regulated, at least in theory, by the federal government. Tax policy is determined by the federal government. The decline of labor is in large part the doing of the federal government. Trade levels are regulated by the federal government. Government rules concerning finance and executive compensation help determine the quantity of cash that the Stinking Rich take home. Education is affected by government at the local, state, and (increasingly) federal levels. In a broad sense, then, we all created the Great Divergence, because in a democracy, the government is us.

Here’s Noah’s installment on executive pay, in which he argues that things like technology make it easier for entertainers and top execs to maximize their pay, while deregulation allowed the banksters to command huge salaries.

And here’s the one on educational problems. Largely, Noah describes, the problem is that K-12 education isn’t preparing students as well for today’s job market as it used to. In addition, between college costs and the removal of incentives (like the draft) to stay in school, educational attainment stalled for a number of years. As a result, the value of a college education is much greater, so those without a degree do worse by comparison.

Elizabeth Warren’s Soapbox

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Two weeks ago, I suggested Obama would do well to hire the woman who wrote the book on the struggles of the middle class.

Today, he did that.

This afternoon, I suggested that the White House needed to get their newest employee out on teevee, talking to the middle class.

For the White House, not only do they need to fulfill whatever promises they made to Warren. Just as importantly, though, if they don’t actually use the fact that they finally have someone who can speak for and to the middle class (without the kind of gaffes that Joe Biden inevitably makes) to their advantage they will be really hurting themselves. Is Warren booked for the Sunday shows this weekend? If not, why not?

Either the White House or Warren herself made sure she did the round of news shows to talk about her appointment.

As I said earlier, it pays to be cautious about such things.

But–as Rachel Maddow pointed out–at the very least the White House now has a person who can and will, relentlessly, speak about the concerns and challenges of the middle class.

And that–all by itself–is a vast improvement on what the Administration had yesterday.

Congratulations and Good Luck to Elizabeth Warren

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I’m cautiously optimistic with the dual appointment of Elizabeth Warren to be Assistant to the President to work at Treasury to set up the Consumer Financial Protection Board.

Frankly, no one knows what this appointment will mean in practice except perhaps Obama, Warren, and Timmeh Geithner. And no one knows how well Warren will negotiate the inevitable bureaucratic battles ahead, particularly with whoever replaces Rahm.

But I’m optimistic for two reasons. First, I have a lot of trust in Warren herself. She’s proven her ability to surprise her opponents in bureaucratic battles thus far. I also suspect (though don’t know for a fact) that she negotiated the Assistant to the President position as protection against anything Timmeh and Larry Summers might try. She seems to have demanded certain things with this nomination. And gotten them. And–as DDay linked earlier–she has expressed confidence that this is a win.

The President asked me, and I enthusiastically agreed, to serve as an Assistant to the President and Special Advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau. He has also asked me to take on the job to get the new CFPB started—right now. The President and I are committed to the same vision on CFPB, and I am confident that I will have the tools I need to get the job done. [my emphasis]

So given the respect I have for Warren, I take her at her word that she will have the power to make of CFPB what it needs to be.

The other reason I’m cautiously optimistic is because the Chamber of Commerce is screaming like a stuck pig over these developments. Which, in my book, is generally a sign that something good has happened.

All that said, the appointment of Warren just means that both the White House and activists have more work to do. For the White House, not only do they need to fulfill whatever promises they made to Warren. Just as importantly, though, if they don’t actually use the fact that they finally have someone who can speak for and to the middle class (without the kind of gaffes that Joe Biden inevitably makes) to their advantage they will be really hurting themselves. Is Warren booked for the Sunday shows this weekend? If not, why not?

As for the rest of us, one of the reasons I think Warren was successful in negotiating what she sees as a successful resolution to this position is because her broad support was very clear to the White House. A wide group of people made it clear that Warren was the only acceptable candidate for this position.

If we get complacent, it’ll be a lot harder for Warren to do what she’d like to do with the position.

Progressives finally won something from this Administration. Maybe. But we’re only going to be able to keep it if we continue to make noise.

As the White House Dithers on Warren, 525,000 Homes Have Been Foreclosed On

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TPM captures the current state of play of the rumors that the White House will appoint Elizabeth Warren as interim head of the Consumer Finance Protection Bureau:

Reports coming in that President Obama will name Elizabeth Warren as interim director of the consumer protection bureau created by the new financial regulatory law.

Late Update: Maybe not so fast. Fox was one of the outlets originally reporting this and has now retracted that report, saying they may have “misheard” White House spokesperson Bill Burton on board Air Force One. Reuters says Burton simply confirmed that Warren is “obviously in the mix.”

Later Update: The pool report from Air Force One reads as follows:

on Warren:no announcements but soon. no confirmation of interim appointment. essentially, nothing new

The Boy Who Cried Wolf Update: White House releases statement knocking down the reports:

Elizabeth Warren has been a stalwart voice for American consumers and families and she was the architect of the idea that became the Consumer Financial Protection Bureau. The President will have more to say about the agency and its mission soon.

Kicking Dead Horse Update: White House pool reporter sends supplement to pool report: “For emphasis: Burton did not say anything new about Warren.”

Now, when Obama was asked whether he was going to appoint Warren last week, in addition to talking about what a close friend Warren is of his, he also asserted that it has “only been a couple of months” since the CFPB was created (starting at 22:15).

Now, the idea for this agency was Elizabeth Warren’s.  She’s a dear friend of mine.  She’s somebody I’ve known since I was in law school.  And I have been in conversations with her.  She is a tremendous advocate for this idea.  It’s only been a couple of months, and this is a big task standing up this entire agency, so I’ll have an announcement soon about how we’re going to move forward. And I think what’s fair to say is, is that I have had conversations with Elizabeth over the course of these — over these last couple of months. But I’m not going to make an official announcement until it’s ready. [my emphasis]

That suggests the Administration feels little urgency about getting someone at Treasury who will speak for the needs of consumers as the rest of the agency caters to the needs of the banksters.

I wonder whether the roughly 525,000 homeowners who have lost their homes to foreclosure since the Financial Reform bill was signed think that there’s no urgency to having a consumer advocate at Treasury?