The Foreclosure Crisis Isn't Going Away And Won't Mend Itself

Earlier, in that article about the drubbing the Conservative-LibDem coalition took in the U.K. by-election yesterday, I mentioned how Obama gave such a brilliant, inspired and inspiring address in Tucson Wednesday basically because Wall Street doesn't care what he says about topics like that. When it comes to the way the banksters have perpetrated a huge fraud on the public in terms of the foreclosure crisis... well, Obama has to mind his p's and q's if he says anything about that. Don't expect any FDR-like soaring rhetoric to give Hope for Change when it comes to banksters ripping anyone off, particularly in hard-hit Florida, Arizona, California, Nevada, Michigan and Illinois, the states hardest hit.

Lenders are poised to take back more homes this year than any other since the U.S. housing meltdown began in 2006. About 5 million borrowers are at least two months behind on their mortgages and more will miss payments as they struggle with job losses and loans worth more than their home's value, industry analysts forecast.

"2011 is going to be the peak," said Rick Sharga, a senior vice president at foreclosure tracker RealtyTrac Inc. The firm predicts 1.2 million homes will be repossessed this year by lenders.

The outlook comes after banks re-possessed more than 1 million homes in 2010, RealtyTrac said Thursday. That marked the highest annual tally of properties lost to foreclosure on records dating back to 2005.

One in 45 U.S. households received a foreclosure filing last year, or a record high of 2.9 million homes. That's up 1.67 percent from 2009.

...The pace slowed in the final two months of 2010 as banks reviewed their foreclosure processes after allegations surfaced in September that evictions were handled improperly. Under increased scrutiny by the government, lenders temporarily halted taking actions against borrowers severely behind on their payments.

However, most banks have since resumed their eviction processes, and the first quarter will likely show a rebound in foreclosure activity, Sharga said.

Resumed... and with a vengeance. And the Conservative Consensus likes it that way. Obama-friendly Third Way. Yesterday Naked Capitalism analyzed Third Way's proposal to tilt the solution in a very Wall Street way-- and right at the time that investors are turning on the banksters!

Third Way is an influential think tank whose board is composed of a special Wall Street-type-- the Rubin Democrat. These people sit at the nexus of politics and finance, and are conduits for big bank friendly information flow into the administration and Congress. The President of the think tank, Jonathan Cowan, was the Chief of Staff for Andrew Cuomo at HUD in the 1990s, and Third Way is well known in policy circles for delivering ‘politically safe’ and well-packaged conventional wisdom. Oh, and one more thing-- the new White House Chief of Staff Bill Daley, who just left the most senior operating committee of JP Morgan, was on their Board of Directors.

So by looking at this proposal, we are looking at the state of play among high level policy makers in DC, particularly of the New Dem bent. This is how the administration will probably try to play foreclosure-gate.

Their proposal, not surprisingly, is yet another bailout.

The big difference between the original and the new, improved version of the bailout model is that the payouts to the banks were at least in part visible the first time around. This is an effort yet again to spare the banks any pain, not only at the cost of the rule of law but also of investor rights.

This proposal guts state control of their own real estate law when the Supreme Court has repeatedly found that “dirt law” is not a Federal matter. It strips homeowners of their right to their day in court to preserve their contractual rights, namely, that only the proven mortgagee, and not a gangster, or in this case, bankster, can take possession of their home.

This sort of protection is fundamental to the operation of capitalism, so it’s astonishing to see neoliberals so willing to throw it under the bus to preserve the balance sheets of the TBTF banks. Readers may recall how we came to have this sort of legal protection in the first place. England learned the hard way in the 17th century what happens with low documentation requirements: abuse of court procedures, perjury and corruption become the norm. Parliament enacted the 1677 Statute of Frauds to establish higher standards for contracts, such as witnessing by a third party, to stop the widespread theft of property that was underway.

The memo completely ignores the harm to investors from the bank mistakes and lacks any provisions for damage to investors to be remedied. Moreover, denying borrower rights removes their leverage to obtain deep principal mortgage modifications, which for viable borrowers produces lower losses than costly foreclosures and sales of distressed property. Thus this shredding of contractual protections in mortgages not only hurts borrowers but also harms investors.

So to save the banks from their own, colossal abuses of contracts that they devised, the Third Way document advocates Congressional intervention into well established, well functioning state law. This is a case where these matters can and should be left to the courts and ultimately state AGs to coordinate the template of a more broadbased solution.

And now Congress is going to get involved-- an exceptionally venal, anti-family Republican-controlled Congress. Fortunately there are competing interests muddying the water with lots of very angry investors-- angry at banksters-- (who the GOP pays attention to) as well as angry consumers (who are generally ignored by the GOP.

As Congress begins discussing potential mortgage servicing legislation, and as the group of 50 state attorneys general investigating problems with foreclosures continues to hammer out details of a settlement with the banks, the investors find themselves fortuitously aligned with borrowers who are facing foreclosure and who have the sympathy of lawmakers.

The Association of Mortgage Investors, a Washington-based group that represents hedge funds, state pension funds, charitable endowments and other investors, on Wednesday fired the latest salvo by issuing a "white paper" that delineated its views on what would constitute an acceptable settlement between the banks and the state attorneys general. The investor group is calling for improvements to servicing and transparency that the banks have resisted in the past.

...In Congress, lawmakers such as Rep. Brad Miller (D-N.C.) have been in close contact with consumer groups that represent borrowers and with the investors, because of their shared interest in mortgage reform. "Some unlikely allies are now talking and working more together to fix the problems," he said.

Miller said he plans to re-introduce legislation that could force banks to spin off their mortgage servicing operations, but he added that he's not overly optimistic it will pass, given the new Republican majority in the House. He said he is putting more hope in pushing regulators to use their new powers under the Dodd-Frank financial regulatory law to bring changes to bank foreclosure practices.

Investors represent what may be the biggest risk to banks that initiated questionable foreclosures. While homeowners may succeed at getting individual foreclosures delayed or even overturned because of paperwork mistakes and other errors, the money at stake in such cases is minuscule compared with the billions in bad mortgages that banks could be forced to buy back if investor lawsuits are successful. One estimate by J.P. Morgan Chase put the price tag at $120 billion.

The pressure from mortgage investors comes just weeks before the release of two key federal reports about the mortgage industry-- a multi-agency report on the foreclosure problems and another by the Treasury Department on Fannie Mae and Freddie Mac.

Meanwhile, home foreclosure filings dropped 26 percent in December from the same time a year ago, the biggest annual drop since RealtyTrac started tracking the figures in January 2005.

The slowdown is not a sign of a strengthening housing sector, according to the California-based firm, which sells foreclosure data. Rather, it's a consequence of the temporary halt in evictions adopted by some major lenders after widespread reports of foreclosure paperwork errors.

...Despite the expected rise in foreclosures for 2011, a key federal program to help delinquent borrowers avoid foreclosure has continued to show disappointing results, the Government Accountability Office reported Wednesday.

In early 2009, the Treasury Department announced that the Home Affordable Mortgage Program [HAMP] would help 3 million to 4 million homeowners by reducing their monthly payments to affordable levels, but through the end of November, fewer than 550,000 permanent loan modifications had begun, the GAO said.

The number of started trial modifications declined from about 118,000 in December 2009 to about 31,000 in November, and fewer than half of the modifications begun on a trial basis have led to permanent modifications, the GAO reported.

Too bad Wall Street would never allow Obama to fix HAMP the way that allowed him to give that stirring speech Wednesday night! You can't ask for everything. Maybe the Republicans and the lobbyists calling the shots for them will allow Brad Miller to come up with a reasonable solution. Sure.