If Voluntary Moratoria Mean Banks Are Solving the Problem, What about Wells Fargo?

/in /by

Elizabeth Warren, presumably laying the foundation for an Administration deal with banks to not unwind the entire securitization paperwork problem in exchange for loan modifications, points to banks’ voluntary foreclosure moratoria as proof the banksters are trying to solve this problem (presumably meaning the foreclosure fraud, but not the larger problems).

She additionally stated that major servicers’ voluntary foreclosure freezes mean two things. First, this problem “is big, and it is serious,” and second, the voluntary moratoria represent evidence that “the issuers themselves are trying to get this problem solved,” she said.

But only three of the top five servicers have issued moratoria of any sort (and some of those are limited to judicial states). Citi (with 6.3% of the market) and Wells Fargo (with 16.9%) have not issued moratoria at all.

And yesterday, an FT story reported that contrary to Wells’ claims, it too engages in foreclosure fraud.

In a sworn deposition on March 9 seen by the FT, Xee Moua, identified in court documents as a vice-president of loan documentation for Wells, said she signed as many as 500 foreclosure-related papers a day on behalf of the bank.

Ms Moua, who was deposed as part of a foreclosure lawsuit in Palm Beach County, Florida, said that the only information she verified was whether her name and title appeared correctly, according to the document.

Asked whether she checked the accuracy of the principal and interest that Wells claimed the borrower owed – a crucial step in banks’ legal actions to repossess homes – Ms Moua said: “I do not.”

Now, I’m all in favor of loan modifications. But Administration talk about deals for loan mods is far too early, not least because all the banks haven’t issued moratoria (not to mention the fact that banks with moratoria seem to be continuing the foreclosures).The banks aren’t yet ready to solve the problem.

One of Obama’s signature traits is conceding on the most critical issues at the start of any negotiation, thereby preventing him from crafting a really useful deal. I fear the Administration is about to do the same with foreclosure fraud, too.

Treasury Sez Banksters Are Lousy Neighbors Who Broke the Law

/in /by

The Treasury Department gave Felix Salmon’s response to Crusader against Injustice Timmeh Geithner’s statement on foreclosures more attention than it gave mine–they emailed a response to Salmon’s questions about why foreclosures would hurt property values. And their response is even more telling than Crusader against Injustice Timmeh Geithner’s original statement.

First, at least 40 % of all homes in foreclosure are vacant.  Delaying conveyance of title and resale has devastating impacts on neighborhood values and increases demand for municipal services.

Also, a blanket moratorium equally impacts the banks that are acting in accordance with the law increasing costs for servicers and investors. This threatens the safety and soundness of smaller community banks that are not part of the document problem and ultimately limits market liquidity preventing low and moderate income borrowers from refinancing or buying a house as investors are ever more hesitant to lend to all but the most pristine credit borrowers.

First, note this statement very closely: “a blanket moratorium equally impacts the banks that are acting in accordance with the law.” Treasury is arguing that a blanket foreclosure moratorium will also hurt banks that acted in accordance with the law. Necessarily meaning, of course, that Treasury believes that some banks acted in accordance with the law, but some didn’t.

The Treasury Department is logically stating that some banks–big ones–broke the law.

Last I checked, Treasury had a pretty big role to play in law enforcement (just ask the terrorists). So if Treasury is so certain big banks broke the law, has it made referrals to DOJ?

Also note this formulation:

First, at least 40 % of all homes in foreclosure are vacant.  Delaying conveyance of title and resale has devastating impacts on neighborhood values and increases demand for municipal services.

At least 40% of homes in foreclosure are vacant. So up to 60%–a majority–are not. So Salmon’s point–that pushing more people into foreclosure will result in more empty homes–still stands, as foreclosures will have the result that up to 60% of foreclosures not already vacant will become vacant.

But that’s not the part I found most interesting. We’ve got to rush conveyance of the title and resale to protect property values of neighborhood properties and limit demands on municipal services. The conveyance of title I get; until the bank officially owns the property, it can’t do anything about maintaining a house. But resale? Is Treasury saying that until the property is sold, it won’t be cared for? That banksters don’t care for the properties they get in foreclosure? Banksters don’t mow the lawn? Don’t keep up the houses? Rely on municipalities to do what homeowners are obligated to do? I mean, yeah, I realize that is, in fact, the case. But why is Treasury simply observing this, and not haranguing the big banksters–the ones who Treasury apparently believes have broken the law–for free-loading on municipalities rather than paying for the things they, as property owners, are obligated to do?

And on top of the fact that an official statement from Treasury admits that banksters are lousy neighbors and broke the law, the entire premise is still flawed. Yes, for the 40%+ of houses that are vacant by foreclosure, postponing the ultimate sale of foreclosures will affect the property values of neighborhood properties. But until someone verifies that foreclosures have clean paperwork, up to and including the note, won’t foreclosures have an even more diminished value on the housing market? If that’s true, rushing more foreclosures onto the market without first ensuring that those foreclosures come with proper paperwork will have an even greater depressive effect on home values (or they should, if people were honest about what was going on).

Finally, note the implicit endorsement. We’ve got to continue to let community banks operate normally so we don’t penalize the banks that played by the rules. Okay, finally something I’m very sympathetic with! But if Treasury knows that the big banks broke the law and the community banks have played by the rules, then why are we spending so much money bailing out the criminal banks? Why not just reward the community banks for doing it right?

JP Morgan Chase’s Several Week Timeline

/in /by

In addition to dropping MERS today, JP Morgan Chase had an earnings call at which Jamie Dimon was asked questions about JPMC’s foreclosure fraud. Calculated Risk has a transcription (both the AP and WSJ attribute these comments to Dimon, though CFO Douglas Braunstein made comments about the foreclosure fraud as well). But I just wanted to note the contradictory stories Dimon is telling about timing.

Analyst: I was wondering if you could give us any sense for timing of resolution in terms of reopening these 115,000 cases?

JPM: It’s going to take several weeks to go through the files and make sure and correct any errors that are in there. The underlying stuff is all accurate. So that’s the key substance. Obviously we know there’s a lot of state AGs and we have conversations with them. We’re hoping [to get back to] the normal process — for us, the sooner the better for everybody involved. We don’t think there are cases with people have been evicted out of homes where they shouldn’t have been. These foreclosures go through multiple process, so we’re hoping it will be sooner rather than later and those conversations are starting to take place.

[snip]

Analyst: And the foreclosure stuff, outside of how it directly may impact you or somebody else, how do you look at the drag it may have on the housing market, kind of the macro impact, what do you think about that?

JPM: Again, I hope — this is a hope. This is not a knowledge. Is that when people take a deep, sigh breath, go back to the right, look to the substance underlying the files and go back to modifying, foreclosing and doing the right thing, all told, it could be a blip. Talking about three or four weeks it will be a blip in the housing market. If it went on for a long period of time it will have a lot of consequences, most of which would be adverse on everybody.

Analyst: The foreclosure suspension, it’s a matter of weeks instead of months, did I hear you say that?

JPM: No. I didn’t say weeks to clean up the files. We actually have to have little in depth conversations with regulators and AGs and stuff like that. So I don’t know exactly when. I’m hopeful that it all starts to move at one point. I don’t know if it’s going to be three weeks or five. But I think it will be a real shame if we don’t get this resolved and moving again.

Analyst: In all likelihood you should be allowed to foreclose as we go into next year.

JPM: I hope so. It’s not up to me. [my emphasis]

First, note the clear reversal. At first, Jamie Dimon says it will take several weeks to “correct any errors” (meaning, to write new affidavits with proper notarizations to replace the ones he admitted to earlier). When asked about the overall impact on the housing market, Dimon gives a classic, “nice economy you’ve got here; it’d be a pity if it died if it takes us longer than three or four weeks to fix ‘our errors.'” But based on that statement, an analyst clarifies that he imagines it will take weeks. To which Dimon response, “I didn’t say weeks to clean up the files.”

But he did.

The real reason for his squirminess–aside from the fact that he all but admits that his company had fabricated affidavits and notarizations, amounting to fraud on courts in multiple states–appears to be the awareness that 50 Attorneys General and some unnamed regulators have him by the balls and will tell him, MOTU Dimon, when he can start foreclosing again. (Nowhere does he admit to doubt that JPMC will be able to foreclose.) He seems to be hoping that if the regulators and prosecutors just look at the “substance underlying the files”–that is, look at the delinquent payments rather than the insufficient paperwork–they’ll green light foreclosures and we can all go on to pretend that the banksters haven’t been engaged in systematic fraud to hide their larger systematic fraud.

But I do find it remarkable that in an earnings call, Dimon all but admitted to fraud, admitted that the Attorneys General will dictate what happens going forward, and yet didn’t lay that out (or the underlying problem of fraud built on fraud) as an earnings risk. It’ll be interesting if JPMC admits the legal jeopardy to the SEC.

Why Does Alabama Love Foreclosure Fraud?

/in /by

This is just an observation.

As of current reporting, Alabama’s Attorney General Troy King is the only state AG not to join in the joint investigation of foreclosure fraud. Even Michigan AG Mike Cox, whose spokesperson said investigating foreclosure fraud would amount to “politicizing the struggles of Michigan families,” has joined the investigation.

I find it interesting that, thus far, AL’s AG is not participating since AL is the state that tried to give us the eNotary bill. It was first introduced–in 2006, and then repeatedly since–by Robert Aderholt, a Congressman from AL. And it was pushed through after Patrick Leahy got snookered by a bunch of notaries in town for a Calvin Coolidge ceremony. But it was pushed through with the help of Senate Judiciary Ranking Member and Alabama Senator Jeff Sessions.

Now this may be one big coinkydink. Or it may be that Alabama’s Republicans just tend to like giving banksters unfettered reign (though AL’s other Senator, Richard Shelby, is calling for an investigation).

But I just find it worth noting.

Update: Looks like AL has now signed onto the investigation.

Did Servicers Commit Fraud So Banksters Could Get Big Bonuses?

/in , /by

When I asked yesterday about the relationship between the stress tests and the servicers’ foreclosure fraud, I had a hunch that the banksters might have been committing that fraud so as to be able to show financial viability so as to be able to repay TARP funds so as to escape the oversight of the government. I wondered whether the stress tests were not just a means by which the government should have exercised some control over the servicers that they already knew to be having problems, but were also one reason the servicers were pushing for the most profitable outcomes (including choosing to foreclose rather than modify loans).

Rortybomb, who knows a lot more about how this stuff worked than I do, provides these damning details:

For what it is worth, I’m sure those conducting the stress test knew that this conflict existed and knew that it was very profitable to the banks. Servicing is considered a “hedge”, because as the origination business dries up foreclosures will increase and servicing income would go up, something Countrywide and others loved to talk about.

Let’s go to a Countrywide Earnings call from Q3 2007:

Now, we are frequently asked what the impact on our servicing costs and earnings will be from increased delinquencies and lost mitigation efforts, and what happens to costs. And what we point out is, as I will now, is that increased operating expenses in times like this tend to be fully offset by increases in ancillary income in our servicing operation, greater fee income from items like late charges, and importantly from in-sourced vendor functions that represent part of our diversification strategy, a counter-cyclical diversification strategy such as our businesses involved in foreclosure trustee and default title services and property inspection services.

The servicing operation will “fully offset” lost income from increased delinquencies and lack of origination business. This is by design. It’s tough to find good counter-cyclical strategies, but this appears to be one. If you were both TBTF and really in need of cash, could you squeeze this a bit further, say by violating the rule of law?

[snip]

Someone enterprising on the hill could ask how the servicing income was incorporated into the stress test and how predictive it was in the adverse scenario case. Things like this make it even more important that the government takes a strong hand in rooting out foreclosure fraud.  We cannot allow an impression to form that we collectively looked the other way at issues of foreclosure abuse, issues well documented since before the stress test, because this business line is one of the few profitable things available to TBTF firms.  TBTF firms that needed cash, were (and are) backstopped by taxpayers and wanted to get out of TARP to issue bonuses.   Nobody gets to be above the law, regardless of how systemically important they are or whatever numbers needed to be hit on the stress test.

In other words, going back to 2007, mortgage companies were upfront in claiming that their servicer-related profits served to offset their loan losses. That’s not to say they would have argued that in their stress test results (again, I’m not expert on this, but I’m not even sure that the stress tests looked at the servicer income). But it does say that to prove viability–to make a half-credible claim they weren’t insolvent and to evade restrictions on bonuses and political giving–they had an incentive to suggest their servicer income was enough to offset a significant chunk of their loan losses. That not only gave them a huge incentive to keep servicer costs low (by doing things like hiring WalMart greeters and hair stylists to serve as robo-signers), but it also increased the incentive to increase profits as a servicer by refusing to modify loans.

So I’d go further than Rortybomb in calling for some enterprising Hill person to look into this. Given that we know Timmeh Geither, campaigner against injustice, was officially warned and knew about this conflict, I’d like to know how much he knew about this hedge. The Administration now says it was helpless to stop this kind of fraud, yet it chose not to use at least two sources of leverage (cramdown and stress tests) to control it. Is that because they knew the servicer fraud was an important part of extend anad pretend?

Timmeh Geithner, Campaigner against Injustice

/in , /by

What a load of crap:

Charlie Rose: You’re encouraging banks to declare a moratorium on foreclosures?

Tim Geithner: No, I wouldn’t say it that way. I think that you know what you’re seeing in housing still now is a national tragedy, still very, very difficult. You know, again, this was a crisis caused by a lot of people were taken advantage of, a lot of people were too optimistic about what they could afford in terms of a house, lot of people were speculating in real estate, and a lot of innocent victims got caught up in the consequences of those basic mistakes. You saw, you know, the nation’s largest banks that ran these servicing businesses, not invest anything like what they needed to, to run that business effectively in a downturn like that. And you’re seeing the consequences of all those mistakes play out still across the American economy. Now, you’ve seen some banks suspend temporarily the foreclosure process so they can just make sure that they’re not causing any injustice to the borrowers and that’s very important for that to happen. And we’re going to –

Charlie Rose: So you’re pleased to see that happen.

Tim Geithner: I think where that’s happening again the suspension is to make sure they’re not causing any injustice is very important, but I think it’s important to recognize, Charlie, that if you — a national moratorium would be very damaging to exactly the kind of people we’re trying to protect, because the consequence of that would be in neighborhoods that have been most affected by the foreclosure crisis, where you see lots of houses on the block empty, unoccupied, what it means is those communities will be living longer with houses unoccupied, with more pressure on their house price with the people still in their houses. That would be very damaging, and so again we want to make sure we’re holding these services accountable, that they’re not causing any injustice to people who can afford to stay in their home, and we’re going to make sure we’re careful in doing that. But we also want to make sure that we’re not going to make the problem worse. [my emphasis]

You see, Timmeh and the banks are entirely motivated by an interest in justice. It has nothing to do with protecting the banks (even though Timmeh conveniently leaves out the fraud of the people between the mortgage originators and the servicers, all of whom share the blame in this process, or the liability of the banks selling properties with titles they have to know are flawed). It has nothing to do with protecting the government’s own position with Fannie and Freddie. It’s all about preventing injustice.

Of course, Timmeh seemed fine with letting HAMP continue for a year causing significant injustice to those who could afford to stay in their home.

And Timmeh, tremendous economist that he is, seems not to have thought about what’s going to happen to foreclosures with dubious titles in the market place (and with those foreclosures, the value of property in the neighborhood).

But he sure is pitching this desperate scramble by the banks in the best light!

Foreclosure Crisis May Well Be Catastrophic In Any Case

/in /by

John Cole asks a bunch of questions about what a foreclosure moratorium would accomplish.

I just don’t understand what good would come from a national moratorium. Forty state AG’s are on the ball, what exactly could a national moratorium do? The idea is to stop the bad foreclosures, not grind every single transaction in this sector to a damned halt.You aren’t hurting the banksters when you do something like that. You’re hurting every single buyer and seller in the market. It would be catastrophic. On top of that, under what legal authority does the White House declare a moratorium on a specific type of business transaction? How would that happen? Who would be in charge of it? Geithner? Warren? Under what legislative or Constitutional authority? [my emphasis]

At the start, let me say two things. First, I am a buyer and seller at the moment–a pretty cranky one about being in this limbo as this shit hits the fan, to say nothing about already losing 1/3 of the value on the house I’m selling (though I have the luxury of being in a month-to-month apartment, which means I would be less screwed by a moratorium on the purchase side). Second, I don’t think I–or anyone else–knows what the least bad solution to this problem is going to be.

But I do suspect it’s probably going to be catastrophic in any case.

John frames this as an issue of stopping bad foreclosures. But that’s not the problem, not by half. The problem is that the problems exposed by foreclosures in judicial states are problems that exist throughout mortgages that were securitized in the last 6-10 years. The reason the servicers are going to such lengths to make up for deficient paperwork–including robo-signing affidavits or counterfeiting notes–is presumably because for at least a significant portion of mortgages that were securitized, the paperwork is not in order. What we’re seeing through the foreclosure process is just what is getting exposed through the random sampling of foreclosure, and any other random sampling of securitized mortgages would presumably have the same level of deficient paperwork.

Perhaps the best description of the stakes comes from that hippie publication, CNBC. It suggests the problems being exposed by the foreclosure process are probably systemic, affecting a good portion of mortgages securitized in the last six to ten years (or more). Which means it’s not entirely clear who owns a good percentage of the housing stock in the United States, which could set off a free-for-all among those trying to resolve that question.

So with the chain of documentation now in question, and trustee ownership in question, here is one legal scenario, according to Prof. Levitin:

The mortgage is still owed, but there’s going to be a problem figuring out who actually holds the mortgage, and they would be the ones bringing the foreclosure. You have a trust that has been getting payments from borrowers for years that it has no right to receive. So you might see borrowers suing the trusts saying give me my money back, you’re stealing my money. You’re going to then have trusts that don’t have any assets that have been issuing securities that say they’re backed by a whole bunch of assets, and you’re going to have investors suing the trustees for failing to inspect the collateral files, which the trustees say they’re going to do, and you’re going to have trustees suing the securitization sponsors for violating their representations and warrantees about what they were transferring.

Keep reading, if you have the stomach, for the suggestion that this could be worse than the Lehman bankruptcy if–as some think–every single loan written during this period was written without the proper endorsements.

This may well be catastrophic whether or not there’s a moratorium on foreclosures until such time as people start admitting what’s going on.

If that’s true (and as I said, I don’t really know, but that seems to be the obvious implication of all the fraud that was going on), then the question is, which catastrophe is going to be least bad for the American people? And which catastrophe best preserves the rule of law and property–the bedrocks of our country? Do we enter this catastrophe on the banksters’ terms, or on more equalized terms?

As I said, I can’t say I know the answer to that; I doubt anyone does.

Read more →

Remember the Stress Tests?

/in , /by

The other day, I noted that Administration claims that they were helpless to affect what they now depict as loan servicers’ “sloppiness” but what really amounts to fraud ignores their decision to stop pushing for cramdown–and with it, leverage over the loan servicers.

I think (though I’m less sure of this) they’re ignoring one other source of leverage they once had over the servicers: the stress tests.

First, remember that the top servicers also happen to be the biggest banks. Here is Reuters’ list of the top loan servicers.

  • Bank of America (19.9%)
  • Wells Fargo (16.9%)
  • JPMorgan Chase (12.6%)
  • Citi (6.3%)
  • GMAC (3.2%)
  • US Bancorp (1.8%)
  • SunTrust (1.6%)
  • PHH Mortgage (1.4%)
  • OneWest (IndyMac) (1.4%)
  • PNC Financial Services (1.4%)

And here is the list the nineteen banks that had to undergo stress tests in 2009.

  • American Express
  • Bank of America
  • BB&T
  • Bank of New York Mellon
  • Capital One
  • Citigroup
  • Fifth Third
  • GMAC
  • Goldman Sachs
  • JP Morgan Chase
  • Key Corp
  • MetLife
  • Morgan Stanley
  • PNC Financial
  • Regions
  • State Street
  • SunTrust
  • U.S. Bancorp
  • Wells Fargo

So all of the top mortgage servicers–Bank of America, Wells, JP Morgan Chase, Citi, and even GMAC–had to undergo a stress test last year to prove their viability before the government would allow them to repay TARP funds and therefore operate without that government leverage–which was threatened to include limits on executive pay, lobbying, and government oversight of major actions–over their business. Significantly, all but JPMC were found to require additional capital.

Now, I’m not sure what I make of this. The stress tests were no great analytical tool in the first place. Moreover, the stress tests focused on whether the banks could withstand loan defaults given worsening economic conditions, not whether they could withstand financial obligations incurred because their servicing business amounted to sloppiness fraud.

But in letters between Liz Warren (as head of the TARP oversight board) and Tim Geithner in January and February 2009 discussed foreclosure modification, stress tests, and accountability for the use of TARP funds (Geithner made very specific promises about foreclosure modifications and refinancing which Treasury has failed to meet). And those discussions–and the stress tests–took place as COP reported on the problems with servicer incentives, servicer staffing and oversight, and the lack of regulation of servicers more generally (the COP report came out March 6, 2009; the stress test results were announced May 7, 2009). So at the same time as the Administration was officially learning of problems with servicers, it was also giving those servicers’ bank holding companies a dubious clean bill of health. And with it, beginning to let go of one of the biggest pieces of leverage the government had over those servicers.

Beyond that, I’m not sure what to think of any relationship between the stress tests and the servicer part of these banks’ business. Rortybomb has an important post examining how this foreclosure crisis may go systemic. If it does, these same banks that eighteen months ago promised the government they could withstand whatever the market would bring will be claiming no one could have foreseen that they’d be held liable for their fraudulent servicing practices. Ideally, we would have identified this as a systemic risk eighteen months ago, and based on that refused to let the big servicers out of their obligations (which would have provided the needed incentive for the servicers not only to treat homeowners well, but to modify loans). Had the stress tests included a real look at these banks’ servicing business, these banks might not have been declared healthy.

Confirmed: Official Administration Policy Is to Continue Foreclosures

/in , /by

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 →

Remember Cramdown?

/in , /by

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.