Category Archives: Foreclosures

Deregulation isn’t the solution, it’s the problem

Representative Mark Amodei (R-NV2) was pleased to vote for the so-called “Choice Act,” which rolls back some of the reforms enacted in the wake of the Wall Street casino debacle and subsequent recession as the Great Wall Street Derivative Monster collapsed like an air dancer in a Nevada wind.   The theory behind this ridiculousness is that regulations restrict commerce, and a restriction of commerce diminishes wealth, therefore diminished wealth impacts investment, ergo diminished investment equates to a limit on economic growth.  Not. So. Fast.

Yes, regulations restrict “commerce,” but only some kinds of “commerce,” generally the fraudulent variety.  I am free to issue shares of stock in my corporation — however, I am not free to issue shares of stock in the Reese River Steamboat Company.  Some sharp soul offered shares of this highly dubious company during one of the mining booms, and assuredly some investors were cheated by this obviously fraudulent sale.  We have regulations to prevent this.  We have laws and related regulations to prevent insider trading, to prevent “blue sky” stocks, and to reduce the possibility investors are cheated by financial products which promise high returns with little or no risk.  Sometimes the adage, “If it looks too good to be true, it probably is,” isn’t quite enough to prevent mismanagement of other people’s money.

Recently, Wells Fargo was found guilty of violating regulations and laws relating to the creation of phony accounts, the fine totaled a massive $185 million and some 5,300 individuals were fired. [NYT] The situation was all the more egregious because the bank was ripping off its own customers.  $100 million of that fine was the highest penalty the CFPB ever levied against a financial institution.  This is precisely the agency the so-called “Choice Act” wants to ham-string.

The “Choice Act” would eliminate the regulation regime which was intended to prevent the collapse of banking institutions.  Just for the record, let’s look at the list of US institutions that either disappeared or were acquired during the Great Recession: New Century, American Home Mortgage, Netbank, Bear Stearns, Countrywide Financial, Merrill Lynch, American International Group, Washington Mutual, Lehman Brothers, Wachovia, Sovereign Bank, National City Bank, CommerceBancorp, Downey Savings and Loan, IndyMac Federal Bank, HSBC Finance Corporation, Colonial Bank, Guaranty Bank, First Federal Bank of California, Ambac, MFGlobal, PMI Group, and FGIC.

If we extrapolate the “let the market sort it out” argument to its conclusion — it’s acceptable to allow banking institutions to over-extend themselves to such an extent that they will ultimately collapse; that’s just the market “at work.”  Fine, if the impact of such deregulation solely impinges on the banking institutions themselves, but that’s not what happens in the real world.  In the real world such supposedly safe havens (money market accounts) were in peril:

“A little over a year ago the collapse of Lehman Brothers sparked heavy redemptions from the dozen or so money market funds that held Lehman debt securities. The hit was particularly hard at The Reserve Fund, a money market fund that had a $785 million position in Lehman commercial paper. Soon The Reserve saw a run on its Primary Fund, spreading to other Reserve funds. Reserve tried to furiously sell its portfolio securities to satisfy redemptions, but this only depressed their values.

Despite its best efforts, The Reserve Primary Fund couldn’t find enough buyers and on Sept. 16 the unthinkable happened. The Primary Fund “broke the buck,” meaning that the net asset value of the fund, $1, fell to $0.97 a share. It was only the second time a money market fund, which are commonly thought of as guaranteed, broke the buck in 30 years.”

Meanwhile in Nevada, unemployment soared to 14+%, the state endured being listed among the states with the highest levels of foreclosures, and it took until 2016 for the state to recover almost all the wealth and jobs lost in the aftermath of the deregulated Wall Street casino debacle. [LVRJ]

Deregulation may sound fine when discussed in theoretical, ethereal, terms, it obviously didn’t work in the real world in which Bear Stearns, Lehman Brothers, WaMu, and IndyMac collapsed, and where the Reserve Primary Fund “broke the buck.”

The questions someone should ask of Representative Amodei, and other “deregulators,” are:

(1) Do you favor a return to the regulatory environment in which investment banks were allowed to over-extend and engage in risk taking far beyond their capacity to remain solvent?

(2) Do you favor a regulatory environment in which those being regulated are allowed permission to “self regulate,” without oversight from governmental agencies and institutions?

The second question is particularly important because it addresses the question of trust in commercial relationships.

The most basic of all commercial relationships is the simple act of buying and selling.  I have something to sell, and there is a potential customer for my goods or services.  This is another point at which deregulation can easily become part of the problem.  If I am selling food, there are self-evident reasons for regulating the conditions under which that food is prepared and served to the general public.  Deregulation invites disasters of the public health variety.  We trust that the food offered for sale by restaurants and groceries is safe for consumption.

If I am selling financial products does the buyer (consumer) have the expectation that my product is what it purports to be?  That it is backed by sufficient funds for ‘redemption?’ That it conforms to the standards of acceptable practices?  And, if it doesn’t, are there avenues of redress such that the consumer can be compensated?  In short, can the customer be assured that he or she can trust the product?

If I am selling a manufactured product, can the consumer trust that the item was produced in a safe way, that the product will perform as advertised, that the product will not create a hazard in my home or office?  There are voices on the fringe of Free Market thought calling  for the abolition or at least the restriction of the Consumer Product Safety Commivoicssion, who would love to see the return of Caveat Emptor, but most reasonable people agree that regulations pertaining to product safety are conducive to commerce, NOT restrictive.  A vehicle which meets or exceeds safety standards is more likely to be my choice than a vehicle which does not.  A vehicle which meets or exceeds fuel consumption standards is more like to be my choice than one which does not.  In short, regulatory standards benefit the best products (and their producers) while those who do not meet the standards have a more difficult time at the point of sale.  Now, the question becomes — do we want a regulatory environment which benefits the marginal, the inadequate, or perhaps even the corrupt producers?

Unfortunately, the deregulatory voices are answering this question in the affirmative.

Is this really the answer Representative Amodei and his cohorts want to give to constituents in the Second District? In the US?  To our customers around the world?

 

 

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Filed under Amodei, banking, Economy, financial regulation, Foreclosures, Nevada economy, Nevada politics, Politics

Shady Lender Protection Act heard in Nevada Legislature Committee

AB 282

Perhaps this was a good week to revisit “Margin Call?”  Why? Because Fiore and Friends are promoting AB 282 in the Nevada state Legislature.

“AB 282: AN ACT relating to real property; revising provisions governing mediation of a judicial foreclosure action; revising provisions requiring certain actions related to the foreclosure of owner-occupied property securing a residential mortgage loan to be rescinded after a certain period; revising provisions governing civil actions brought by a borrower for certain violations of law governing the foreclosure of owner-occupied property securing a residential mortgage loan…”

This bill is on today’s agenda in the Assembly Judiciary Committee.  Might it be suggested that the informal title of the bill be “The Shady Lender Protection Act of 2015?”  Here’s why:

“Existing law provides that in a judicial foreclosure action concerning owner- occupied property, the mortgagor may elect to participate in the program of foreclosure mediation. (NRS 40.437) Section 1 of this bill removes provisions governing the process of such mediation and the documents required to be brought to the mediation. Section 1 instead requires the Nevada Supreme Court to adopt rules governing the mediation.” (emphasis added)

Let’s start with the part wherein the Nevada foreclosure mediation process has been successful.  It’s been especially beneficial for borrowers in owner occupied homes who want to avoid foreclosure. [nolo] Perhaps this is why Fiore and Friends and so dead set against it?  So, what are those documents required in the process?

“Nevada’s mediation program requires that borrowers and the lender provide the mediator and each other with certain documents prior to the mediation. The borrower must provide appropriate documentation, such as financial information, so that the lender can make a determination about whether the borrower is eligible for a loan workout. The lender must provide documents such as the original note, deed of trust, and assignments (or certified copies).” [nolo]

Remember those bad old days, the ones in the wake of the housing bubble debacle?  Those were the days during which lenders were seeking to foreclose properties on which they didn’t have the paperwork necessary to prove who held the mortgage.  And at this point we return to the messy problem of MERS.

MERS was an ‘electronic’ recording of mortgages which was supposed to facilitate the assignment of mortgages etc. at high speed – speed high enough to sate the demand from Wall Street for more and more and more mortgages to slice, dice, tranche, and otherwise divide into financial products for marketing.  The idea was that county recorders weren’t fast enough to keep pace with the Wall Street demand for mortgages in the secondary market.  The fall out from the MERS mess is still being felt in parts of the country. [Harpers]

Thus, what AB 282 does is to (1) eliminate a mediation process which has been successful in Nevada, and (2) eliminates the documentation requirements now on the books according to which the borrowers must provide their financial information and the lenders must prove they own the paperwork on the property.  We can guess who’s having problems with the paperwork, but an article in the Reno Gazette Journal in 2012 provides some interesting details:

“Data from the same report (on program effectiveness) , however, have some questioning what the program’s definition of good faith is. Out of the 3,183 total cases from the same time period, banks did not bring all the required documents in 1,149 cases — a rate of 36 percent.

JPMorgan Chase topped the list, failing to bring all necessary documents in 52 percent of its cases. Ally/GMAC was second at 50 percent, followed by Bank of America at 41 percent, US Bank at 32 percent and Wells Fargo at 31 percent. Citigroup posted the lowest rate of the six banks mentioned at 12 percent.”

And, why did the banks have problems with the paperwork?  They didn’t have it. The Great Wall Street Mortgage Mill had shredded the mortgages into sliced and diced financial products in which nobody knew who really owned what – much less what the paper was really worth.

“They want the original paperwork and not a certified copy, which becomes an issue for mortgages that have been securitized (into investments),” Uffelman said. “Once a mortgage gets securitized, the paperwork ends up in a different place and can be tough for a servicer to track down and pull back together. The more you securitize stuff, the easier it is to screw things up.” [RGJ 2012]

And screw things up they did. Since Wall Street was in such a glorious rush to manufacture asset based securities on offer in the Casino, the recording and other record keeping practices were lost in the great paper shuffle.  Only in the imagination of Wall Street sycophants does this create a problem to be borne solely by the homeowner.

If we look at the latest report (pdf) from the program we see the nature of the continuing documentation problem:

“Of the 1,894 mediations held during FY 2014, 73 percent resulted in the homeowner and the lender not coming to an agreement to retain or relinquish the property. In 28 percent of these cases, no resolution was reached because the lender failed to prove it had the authority to foreclose, or the lender failed to prove ownership of the deed of trust or the mortgage note.”  

“For example, in 319 cases, the beneficiary failed to bring the required certifications for each endorsement of the mortgage note. By statute, the lender must provide a certified deed of trust, a certification of each assignment of the deed of trust, a certified mortgage note, and a certification of each endorsement and/or assignment of the mortgage note.”

And just so borrowers aren’t inclined to take on the banks in a questionable foreclosure, AB 282 limits the time line for the mediation process, drops awards from $50,000 to $5,000, and eliminates the recovery of attorney fees by a prevailing borrower.

The Legislature already has AB 360 The Annuities Saleman’s Friend Bill in the hopper, and now the financialists must be rubbing their palms at the prospect of the Ultra-Big-Bank-Friendly AB 282!

AB 282 is a bill for the Banks, for the Wall Street Casino Players, for the Speculators, for the Financialists – and it is NOT a bill which does anything for average Nevada families.   As the session progresses it’s becoming ever more clear who the Nevada Republicans are supporting – and it’s definitely not Nevada homeowners.

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Filed under Economy, financial regulation, Foreclosures, Nevada economy, Nevada legislature, Nevada politics

Nevada’s Moral Hazard: The One With No Connection To Brothels

Foreclosure StreetNevada, one of the nation’s poster children in home foreclosures, is now tangled in the process of unwinding the results of the financial sector’s vulpine avarice.  Which home mortgages may legitimately be foreclosed upon and which are so defective that no legal process will rationally resolve the issues?  Bankers are lobbying for changes in NRS 106.210 and NRS 107.070 as included in AB 284 (pdf) of the 2011 session.

“At issue is Assembly Bill 284, a measure passed by the Nevada Legislature in 2011 and signed by Gov. Brian Sandoval that forces banks to prove they have the legal right to foreclose on a particular home before they take action. Most important, the law requires bank workers to sign an affidavit that they have personal knowledge of a property’s document history, or they will face criminal or civil penalties.”  [LVSun]

That “document history” part is important. A person doesn’t know the “document history” if the mortgage was robo-signed.  The “document history” may be unfathomable if the property documentation wasn’t properly registered with local government officials.  If the mortgage was signed, handed over to a servicer, later packaged with other mortgages into securitized asset products, sliced up into bits, and then re-sold to investors — we’ve seen this movie before and it didn’t have a happy ending…

Just how badly the financial sector had mismanaged the handling of mortgages can be quickly discerned from the numbers included in the Las Vegas Sun article.  Of the 5,350 foreclosure notices filed in August 2011, and the 4,684 default notices sent later, only 80 were compliant with the statute requiring that the banker demonstrate knowledge of the “document history.”

The issue also demonstrates how long it can take to fix messes created by free wheeling enthusiasts of financial creativity.  The housing boom lasted until 2007-2008, it’s now the end of 2012, and the bankers are only now returning to focus on their foreclosure mess.  It also provides an object lesson on the transitory nature of Moral Hazards.

Members of the financial community are oft heard speaking of Moral Hazards.  The New York Times explains: “…in economic terms it refers to the undue risks that people are apt to take if they don’t have to bear the consequences.”  For decades the formerly obscure term was applied to the “little guy.”

The Theory of Moral Hazard was applied to sales representatives, who it was said would not work hard to sell the manufacturer’s products if not given incentives like commissions to augment their enthusiasm for sales.  Later, it was applied to those “losers” who purchased home mortgages they did not understand with terms which were designed to create income for the mortgage sellers at the expense of the homeowner — whether the homeowner was financial capable of the increased expense or not.   In short, it is often argued under the matrix of Moral Hazards that the more trouble one might be in, the less help should be provided.

Even the libertarian Cato Institute was willing to accept the possibility that corporate malfeasance, unaccountable management, and shoddy risk management played a role in the collapse of the U.S. financial system in 2007-2008.*  The question becomes how much Moral Hazard should apply to the corporate entities which engaged in the financial transactions that fueled and eventually blew up the financial markets?

State Senator Tick Segerblom (D-Las Vegas) places the Moral Hazard on the bankers: “If it comes down to a homeowner who had a mortgage, or a bank — who has the right to be there? I’ll go with the homeowner,” he said. “I’m not worried about the banks. They made their beds. They can sleep in it.” [LV Sun]

If the question is: Shall the unworthy who got themselves into a Big Mess by the dint of their own avarice be offered succor from the government, either state or federal? Then those who truly hew to the Moral Hazard argument are stuck with banks, mortgage institutions, and investment houses whose porcine appetites caused them to fall into the trough.  The only other way out of the mess is to attempt to claim that the bankers didn’t really do it (an obvious mirage) or that, as the libertarians would like to assert, the bankers were merely acting out the extrapolations of government policy (as if the bankers have no free will and cannot discern Moral Hazards when they see them.)

Unfortunately for the banking industry apologists, the first option flies in the face of economic reality; and, the second makes them look like first class fools.

*The Institute author, after having pointed out the core of the problems, promptly reverts to the anti-government “Devil Made Me Do It” argument holding that low interest rates, deposit insurance, and federal participation in the secondary market were the ‘real evils.’

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Filed under banking, Economy, financial regulation, Foreclosures

If You Aren’t Pulling The Wagon, Don’t Complain About The Load: Foreclosures in Nevada

Another day, another glossy flyer from Grover Norquist in my P.O. box reminding me that the President supposedly promised to staunch the foreclosure flood in Nevada.  Better information and analysis can be found in the Las Vegas Sun article on the faltering foreclosure reduction plans in the Silver State.  The article makes some important points, and falls nicely into the Must Read List.

One of the advantages of blogging is that there is no length limit to articles, and some areas can be explicated in greater specificity.  No surprise, here come’s additional information on the securitization issues related to the foreclosure processes.

Wonk Alert

Not only were banks administratively unprepared to deal with failing home loans, the system devised in the Securitization Boom wasn’t helpful either.  The New York Times produced some of the better graphics to illustrate what was going on during the Housing Bubble.

At this point we should recall that those mortgages being pooled were not being held by the banks that issued them.  First, some weren’t even properly registered.  The MERC mess was created by bankers who didn’t think county recorders were working fast enough to satisfy the financier’s demand for more mortgages to pack into the pools.  [DB]

“The mortgage industry created MERS to allow financial institutions to evade county recording fees, avoid the need to publicly record mortgage transfers and facilitate the rapid sale and securitization of mortgages en masse,” Mr. Schneiderman said. By creating this “bizarre and complex end-around of the traditional public recording system,” Mr. Schneiderman’s lawsuit asserts, the banks saved $2 billion in recording fees.” [NYT]

It might have saved the banks some $2 billion in recording fees, but when it became obvious some of those hybrid adjustable rate monstrosities were going into default, one thorny question arose — Who owned the mortgage? When trying to determine how to re-negotiate an individual mortgage it is helpful to know who owns it.  On the other end of the scale, investors who purchased mortgage backed securities were told that all the loans were just fine and dandy — some, specifically Bear Stearns, told investors the firm would repurchase defective loans — that wasn’t what happened. [NYT]

Now let’s look at the next step in the diagram.  The mortgage backed securities shown in the first part of the diagram were used to create another layer of investment products called CDOs.   This isn’t as much of a problem for the homeowner facing the possibility of robo-signing and ‘who owns the mortgage’ MERC related issues, but it does illustrate how the faulty or defective  mortages contaminated the system when pumped into Wall Street Casino.

One Size Doesn’t Fit All

In addition to the problems associated with the Securitization Boom, homeowners faced a situation in which not all regional housing markets were created equally.  David McGrath Schwartz’s article mentions this crucial point.  One map from 2010 illustrates the point:

The “hottest” real estate markets in the Housing Bubble were those most likely to see the creation of the now infamous no-doc hybrid adjustable rate mortgages which were designed from the outset to encourage refinancing NOT repayment.   However, federal statutes must address national problems, so the initial programs were devised with the national — not the Nevada — issues in mind.

HAMP:  “The program was built as collaboration with lenders, investors, securities, mortgage servicers, the FHA, the VA, FHLMC, FNMA, and the Federal Housing Finance Agency, to create standard loan modification guidelines for lenders to take into consideration when evaluating a borrower for a potential loan modification.”  [source]   Problems for Nevada emerged immediately.  Many home loans in the state weren’t part of any of the eligible agencies.  Some didn’t meet the first lien qualification standard.  How to calculate the >31% of available income became problematic.   Worse still the American Bankers Association in conjunction with the Mortgage Twins (Fannie & Freddie) were adamant in their objections to any mention of reducing the principal of the loans to prevent homeowners from going any further underwater.  [ Examiner]

The notion of bankers being unwilling to accept any reduction in the principal in order to prevent foreclosures doesn’t seem to make sense, unless we remember that the banks didn’t have enough skin in the game.  Too many banks securitized too many mortgages while retaining too little ownership of them.

HARP:  The Home Affordable Refinance Program — “To be eligible, you must have a mortgage owned or guaranteed by Fannie Mae or Freddie Mac, sold to those agencies on or before May 31, 2009. The current loan-to-value ratio on the mortgage must be greater than 80 percent. Having a mortgage that was previously refinanced under the program disqualifies you from the program. Borrowers cannot not have missed any mortgage payments in the past six months and cannot have had more than one missed payment in the past 12 months.” [WaPo]

Here we go again — if the loan was owned or guaranteed by one of the mortgage twins, then a homeowner would be eligible.   If not — good luck.

“This is a big deal because, although the Fannie Mae-Freddie Mac-FHA triumvirate controls more than 90% of today’s new mortgage originations, that wasn’t the case from 2001-2007. Last decade, non-GSE lending was a major part of the U.S. housing market.

For example, Alt-A mortgages accounted for 27.5% of mortgage originations in 2005. Today, each of these homeowners is locked out from HARP. HARP 3.0 would allow these Alt-A customers to (finally!) refinance their home loans.”  [TMR]

HARP 3.0 is still on the drawing boards.  The situation as of June, 2012?

Although at least one Senate Republican shows interest in a plan to expand the Home Affordable Refinance Program, the outlook for Congressional action remains doubtful and House Democrats are pushing the Federal Housing Finance Agency to make further HARP changes administratively. During a Senate Banking, Housing and Urban Affairs Committee hearing last week on legislation to expand HARP, Sen. Bob Corker, R-TN, said he was open to the proposal. “I hope that we’ll have a real mark-up on this bill,” he said.”  [IMF]

A HARP 3 bill was introduced by Senators Boxer (D-CA) and Menendez (D-NJ) in September 2012.  S.3522 “Responsible Homeowner Refinancing Act of 2012,”  was placed on the Senate’s legislative calendar on September 12, 2012 and no action has been taken since.

In short, the two major programs have been limited because (1) of the opposition of banks and the mortgage finance industry to any suggestion that the principal of the mortgages be reduced; and, (2) the fact that a full 27% of the mortgages issued during the Housing Bubble were not from government guarantors over whom the Federal government has any current jurisdiction.

Instead of bemoaning the slow pace and limited reach of home mortgage modification in Nevada, we should be demanding that the 112th Congress take action on bills like Menendez’s S. 3522 which would expand the reach of federal services to those holding non-GSE  or FHA loans.

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Filed under 2012 election, banking, Economy, financial regulation, Foreclosures, housing, Nevada economy, Nevada politics

The Mortgage Modification Morass

President Obama, currently in southern Nevada — one of the unfortunate centers of the foreclosure problems in the wake of the Housing Bubble Collapse — would like to promote more mortgage modification to assist homeowners who are having difficulty paying their mortgages.  [LVSun]

Unfortunately the same problem that got us into this mess (securitization) is precisely the source of the problem getting out of it (securitization).

Why, for example, would any financial firm ever opt to promote foreclosures if there were any possibility the homeowners could be assisted to fulfill their mortgage obligations with a little modifications?

Well, if the firm is a mortgage servicing company then there are at least four reasons (shown in the graphic above) which make it more profitable for the foreclosure process to continue, than for a mortgage modification to be negotiated.  [Credit Write Downs] [AllmandLaw]

“Obama focused his address on the need for Congress to approve his housing market plan to assist “responsible homeowners” that he presented in February. The plan would allow those homeowners a chance at a lower rate, saving them about $3,000 a year.” [LVSun] (link added)

Or, a bit more specifically:

“Under the proposal, borrowers with loans insured by Fannie Mae or Freddie Mac (i.e. GSE-insured loans) will have access to streamlined refinancing through the GSEs. Borrowers with standard non-GSE loans will have access to refinancing through a new program run through the FHA. For responsible borrowers, there will be no more barriers and no more excuses.” [WH]

There’s another fly in this ointment.   While the President’s proposal is certainly better than the present position of the Congress in which Doing Nothing seems always preferable to doing anything,  the plan really doesn’t go far enough.  Congressional Republicans have been enthusiastic about opposing what little has been done (HAMP) on the grounds that the underfunded and limited program hasn’t been effective — as underfunded and limited programs often are in the face of massive problems.  A short list of problem creators:

The Foot Draggers: Those who (a)  invested heavily in mortgaged based securities during the Housing Bubble, especially in the upper tranches, have little incentive to support mortgage modification if any hope remains that they’ll get their share IF they hold out.  The MBS market, recently viewed though it was some small fuzzy brown thing walking on a dinner plate, is now “coming back.” [ChiTrib] (b) There is also the MERC Mess.  Investment companies, finding the efforts of local county recorders entirely too slow to satisfy the bankers’ voracious appetite for more mortgages more swiftly, created their own electronic recording system only to see it collapse in a heap of unresolved paper work which leaves homeowners wondering who owns what.  (c) Mortgage service companies who want to protect their margins. “We find that loss mitigation is costly for servicers, in large part because servicers currently lack adequate staff and technology; unfortunately, servicers have few financial incentives to expand capacity.” [ClFed]

The Inch Worms:  The foreclosure problem is a national issue, as illustrated by Realty Trac’s map shown below:

Click on the map to go to Realty Trac for more information.  About 93% of those facing foreclosure are single family homeowners [FDIC pdf] — not the “flippers” so often blamed in some conservative blogs.  Secondly, most of the mortgages in really serious trouble are those notorious adjustable rate monsters with reset rates designed to make homeowners refinance (thus stuffing the mortgage finance industry with new revenue) rather than pay off the existing mortgage.

Any plan which allows the mortgage sector to renegotiate loan by loan day by day inch by inch is insufficient to solve the problems.  Banks or other mortgage holders need to be required to deal with categories of mortgages not individual mortgage holders.   No doubt the bankers assault on this idea on Capitol Hill would be roughly analogous to the D-Day landings in Normandy.

The Principals:  Bankers and the financial sector recoil in horror at any proposal calling for them to take any cuts in the principal of a mortgage.  This is a bit hard to stomach since these were the same little Wall Street Wizards who paid zilch attention to the types of mortgages being sold to unsuspecting, and quite often unsophisticated borrowers, all in the interest of creating fodder for their CDOs and Synthetic CDOs… There are some real estate markets, and Nevada may well be one of them, in which the foreclosure problem will not be significantly mitigated until some banks take a cram down.

Calendar Watchers:  Forbearance is a lovely word.  The White House proposal addresses this as follows:

 “Move by Major Servicers to Use 12-Month Forbearance as Default Approach: Key servicers have also followed the Administration’s lead in extending forbearance for the unemployed to a year. Wells Fargo and Bank of America, two of the nation’s largest lenders, have begun to offer this longer period to customers whose loans they hold on their own books, recognizing that it is not just helpful for these struggling families, but it makes good economic sense for their lenders as well.”  [WH]

12 MONTHS?  And, notice that the Lady Bountiful Forbearance demonstrated by Wells Fargo and Bank of America is on loans which they hold on their own books.   First, why only 12 months? Why not just get rid of the resets on those nefarious ARM mortgages and turn them into good old fashioned fixed rate mortgages?  Or, why not allow 24 months or 36 months for ‘forbearance?’

And…not to bring up another sticky point… What about those mortgages which are on someone’s books somewhere that isn’t a bank?  Unless, of course, the argument is that if BoA and Wells-Fargo can do it, why then can’t some mortgage servicer?  At which point we revert to the dis-incentives for servicers to modify much of anything.

Perhaps the best that can be said of the President’s proposal is that it does try to do something, and it does answer the Grover Norquist mailer sent to Nevada households saying that the President “promised” to solve the foreclosure crisis — which no, he didn’t.  And, in the face of extraordinary opposition from bankers, mortgage servicers, bondholders, shareholders, investment houses, and the attendant army of lobbyists thereof, it might be the best option political practicable at the moment.  It’s certainly better than Governor Romney’s suggestion that we simply let things “bottom out.”

There’s one more trap coming from the financialists — any good news concerning the housing market becomes fodder for the argument that we really don’t need to do anything because “the market is coming back.”   Tell that to the underwater, out of luck, and nearly out of time, homeowners in one of those states shown in deep red on the RealtyTrac map.

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Filed under 2012 election, banking, Economy, financial regulation, Foreclosures, Nevada economy, Obama

The Must Read Roundup

** Housing Bubble Splatter/Slime still oozing:  Bad news, foreclosure numbers are inching back up in Las Vegas, NV; good news home prices have started to climb up a bit. [Las Vegas Sun] Realytrac has more numbers. What is even more interesting is that now Elko and Churchill Counties have been included in the high range of home foreclosures.  There may be some hope on the horizon, the Washington Post notices some positive signs in the housing market.   Meanwhile, the government settled with Wells Fargo over discriminatory practices in the mortgage market to the tune of $175 million. [DoJ]

** Why should voters praise Romney’s business experience if he doesn’t know where his money is? Or does he?  The Romney campaign says the former Massachusetts governor cannot be accountable for actions taken by Bain Capital after Mr. Romney’s departure from the company — even though he founded the company and directed its course as a pioneer in business consulting in mergers and acquisitions.   This Boston Globe article opens with “Government documents filed by Mitt Romney and Bain Capital say Romney remained chief executive and chairman of the firm three years beyond the date he said he ceded control, even creating five new investment partnerships during that time.”   The Romney camp responded that the former Governor was not “active” in Bain management after Feb. 1999, or might we say: “I did not have management with that firm?

For a closer examination of Mr. Romney’s financial reports, limited as they are, see Crooks & Liars on the Romney off shore accounts. There’s more information at The Nation’s “Romney’s Donors Share His Love Of Offshore Tax Havens.”   The question really is obvious: Why go to all the bother of moving money off-shore if the purpose ISN’T to avoid paying taxes?

Governor Romney’s been “tough on China” of late, however once there was a manager of Bain Capital who ” invested heavily in a Chinese manufacturing company that depended on US outsourcing for its profits—and that explicitly stated that such outsourcing was crucial to its success.” [MotherJones]

** LIBOR rigging and the financial sector that spawned it continue to make news.   If you were wondering why this should be of any interest to you, there is an excellent infographic from Deal Book.  Still wondering? Note 45% of prime mortgages and 80% of subprime mortgages are based on the LIBOR (London Interbank Offer Rate) and about 50% of student loans are tied to LIBOR.  Business Insider has a more colorful version, also a good place to start, and it illustrates how the LIBOR affects some $800 Trillion in securities and investments.

Now that you have the basics, you might want to see where the scandal is headed.  JPMorgan has already been implicated.  Now there are questions about the role of the Federal Reserve Bank of New York. [Telegraph] Massachusetts is beginning an investigation to see if any of its public agencies were affected by the LIBOR manipulations.  [BostonGlobe] The situation could get uglier as some cities file lawsuits stating that manipulated borrowing costs damaged their loans and investments. [HuffPo]  The article explains why the “just shrug it off there’s nothing to see here” protestations from Wall Street may not be accurate:

If the banks were responsible for moving the three-month Libor rate by just 1/100th of a percentage point on that entire universe of $800 trillion in notional derivatives contracts, then that would be worth $20 billion, according to Tchir’s calculations.

“Banks are probably not going to be on the hook for derivatives worth anything close to that $800 trillion. But if banks manipulated rates by more than that 1/100th of a point, or for more than 90 days — the term of three-month Libor — on even smaller notional derivative amounts, then the numbers can still get big in a hurry. And that doesn’t even include punitive damages. And it doesn’t include the estimated $10 trillion in mortgages and other loans tied to Libor, including $275 billion worth of U.S. mortgages, according to an estimate from the Office of the Comptroller of the Currency referenced in the FT.”

There are Big Bucks involved in this game, and entities from school districts to homeowners have skin in it.  The Economist warns the scandal is about to go global in a must read piece, “The Rotten Heart of Finance.”

** Once upon a time a U.S. president called for higher taxes on the wealthiest Americans and the Republicans cried out, “Class Warfare, and Job Killer.”  It was 1993 and Bill Clinton’s administration launched the longest economic expansion in recent history and created 23 million jobs. More at Perrspectives.   Sound familiar?

** Oh those tax and spend Democrats! Oh,…wait.  There’s this:

“Yesterday, a new Congressional Budget Office report said that in 2009, taxes were at their lowest rate in 30 years and that does not include the other tax cuts this President enacted since 2009. In fact, President Obama’s historically low taxes were less than Bush I, Clinton, Bush II, and Reagan administrations, but Republicans will never admit that inconvenient truth, but there’s more.” at [Politicususa]

So, now do the Congressional Republicans want to hold tax cuts for 98% of the American public hostage in order to secure extended tax cuts for 2%?

Taxed Enough Already?  In the REAL world federal taxation rates are the lowest they’ve been since 1979:

Sometimes it’s hard to get Republicans to move from closely held Ancient Truths, but in the case of taxation there’s really no argument anymore about the average rate of federal taxes.  However, e-mailing the little graphic to fuzzy math Uncle Fester could produce some interesting sounds?  He probably won’t want to read the full article at the Washington Post, because it’s “from one of ’em librul media buyass places.”

** Body parts.  NV Progressive neatly eviscerates Senator By Appointment Only™  Dean Heller’s attempt to attack Rep. Shelley Berkley on vague “ethics” allegations. ™Gleaner.  Could it be that Senator Heller forgot he worked with Representative Berkley to save the UMC’s kidney transplant center?

While we’re on the subject of news — there’s this piece from Media Matters about local political reporting and who’s paying for it.   Must Read!

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Filed under banking, Berkley, Foreclosures, Heller, Romney, Taxation

Supreme Court Rules In Favor Of ACA: Heller Kicks The Gator Ade Bucket

Senator Dean Heller (R-NV), or as the Fine Wordsmith The Gleaner calls him, “The Senator By Appointment Only,”  wants us all to know that he is not pleased by the Supreme Court’s ruling on the Affordable Care Act and Patients’ Bill of Rights.

“Nevada families and businesses are already struggling in this current economic environment, and the President’s job-killing healthcare law is making a difficult situation worse. Congress spent more than a year debating healthcare legislation while Nevadans were losing their jobs and their homes. Obamacare made sweeping changes to Medicare, impacting thousands of Nevada’s seniors, and cut the program by a half trillion dollars.

“This law has now been affirmed as a colossal tax increase on the middle class, and its excessive regulations are stripping businesses of the certainty they need to hire at a time when Nevadans and the rest of the country are desperate for jobs. The President should work with Congress to find real solutions to healthcare reform so the excessive mandates and taxes in this law do not further add to our national debt or continue to stifle economic growth. This onerous law needs to be repealed and replaced with market-based reforms that will provide greater access, affordability, and economic certainty to our nation,” said Senator Dean Heller.

Let us parse:

Heller:Nevada families and businesses are already struggling in this current economic environment, and the President’s job-killing healthcare law is making a difficult situation worse.”

Coupling “job-killing” and “healthcare” is a Republican construction which doesn’t do anything more than seek to associate a change in health care statutes with something (anything) negative.  If unemployment in Nevada were at 2%, and the nation’s major problem was smog, then it would be easy to imagine that the ACA and Patients Bill of Right would be “pollution producing.”  That’s speculative, so let’s drill down a bit further.

Let’s go to that bastion of liberal thinking, Forbes, to see if the ACA/PBR is actually “job killing?”  The answer: No.  In fact, when we go to the Urban Institute’s Study the Massachusetts health care reform enacted under Governor Romney’s administration did NOT produce “job killing” results:

The graphic reduction is difficult to read, so click on the image for the full sized version in the Urban Institute’s original study.  What happens when we take a look at the right hand side of the chart?

While the U.S. was experiencing a decline in full time jobs during the Recession of 3.6%, Massachusetts saw a 2.8% drop.  While the U.S. witnessed a 0.8% increase in part time employment, Massachusetts saw a 0.9% increase.  Whether Governor Romney wants to admit it or not, the Massachusetts plan is the closest statutory comparison to the Affordable Care Act we have, and the numbers about “job losses” in Massachusetts don’t make the Republican point.

Neither do the national numbers: “Since the Affordable Care Act was signed into law, the economy has created 3.5 million private sector jobs, including 488,000 jobs in the health care industry. The unemployment rate is 8.3%, lower than it was in March 2010.”  [Hoyer] And this: “360,000 small businesses have taken advantage of tax credits that are making health insurance more affordable for 2 million workers.  As many as four million small businesses are eligible for these credits.” [Hoyer] And, again, this: “…over 2,800 employers are participating in the Early Retiree Reinsurance Program, which is helping provide coverage to 13 million early retirees who are not yet eligible for Medicare.”  [Hoyer]   Whether we look at national numbers or state numbers, or both — the health care reforms enacted in Massachusetts and in the United States are NOT job killing.

Heller:Congress spent more than a year debating healthcare legislation while Nevadans were losing their jobs and their homes.”

Yes, many things happened while foreclosure rates in Nevada were leading the nation,  and during this time what was the GOP agenda on financial reform and mortgage relief?

On October 12, 2010 Representative Eric Cantor (R-VA) laid out the GOP position on the foreclosure crisis: “Republican leader Eric Cantor chose to break his silence on the foreclosure crisis, with other Republicans quickly picking up the talking points.  And his position should come as no surprise.  Rep. Cantor came to the defense of the housing industry and laid blame squarely on the feet of the American homeowner.” [C2C]

Then, there was the infamous comment from current GOP standard bearer Governor Romney on home foreclosures: “Don’t try to stop the foreclosure process. Let it run its course and hit the bottom,” Romney said when asked what he would do to jump-start the floundering housing market.” [WashMonthly Oct 2011]

Thus, while Congress was debating, the President was signing, and then the Department of Health and Human Services was implementing the provisions of the Affordable Care Act and Patients Bill of Rights, the Republicans were blaming homeowners for the foreclosure debacles and the leader among the GOP presidential candidates was asserting that Nevadans who were in the foreclosure process should close their eyes and Think of the Free Market.  In other words, the Congress could have been debating the desirability of regulating Sea Horse Races, and the GOP wouldn’t have been much interested in legislating solutions to the housing crisis.

Heller:Obamacare made sweeping changes to Medicare, impacting thousands of Nevada’s seniors, and cut the program by a half trillion dollars.”  We won’t go into the part in which the Ryan Budgets in their various incarnations cut massive amounts from Medicare AND sought to turn the program into a voucher/coupon program.  Let’s just deal with the blatantly misleading statement about cuts to Medicare, and see what the professional fact checkers had to say:

“Under the act, Congress voted to reduce $500 billion in projected Medicare spending over the next 10 years, not in one substantial chunk. The reductions are aimed at eliminating parts of the Medicare program seen as ineffective or wasteful. For example, the plan phases out payments to the Medicare Advantage program, an optional program set up under the George W. Bush administration, where seniors could opt to enroll in a private insurance program and the federal government would subsidize a portion of their premium.”  [PolitiFact.com, 5/10/11] (emphasis added)

Under the Affordable Care Act the savings were reinvested in the Medicare program itself, not simply cut from the budget and the program privatized.  And note — some cuts were made to the taxpayer subsidies to insurance companies offering highly profitable optional insurance.  The cuts were in areas considered wasteful, and were NOT related to basic Medicare services.

Heller:This law has now been affirmed as a colossal tax increase on the middle class, and its excessive regulations are stripping businesses of the certainty they need to hire at a time when Nevadans and the rest of the country are desperate for jobs.”   This statement is straight out of the GOP Talking Point Random Generator.

Interesting how Republicans like Senator Heller become really engaged in the problems of the Middle Class when taxes or fees might be increased, but rarely (if ever) when said Middle Class is getting pounded by corporate raiders, union busters, private equity Giant Squids, and stagnating wages.   Be that as it may, if the middle class wants a colossal tax increase — it’s more likely to come from the Republicans.

There is, for example, the tax proposal set forth by Governor Romney, about which the Christian Science Monitor reported:

“In any case, not extending the 2009 tax cuts still in effect in 2012 means that Romney’s plan would, on average, raise taxes for households in the bottom two quintiles, relative to what they’re paying this year.  Mitt Romney’s tax plan would cut taxes, by about $180 billion in 2015 alone, relative to current tax policy. And, despite all arguments to the contrary, a disproportionate share of the savings would go to households with the highest incomes.”  (emphasis added)

Ezra Klein, Washington Post columnist, added this analysis of Governor Romney’s plan:

“Note that the Tax Policy Center could only conduct a partial analysis of Romney’s tax plan. That’s because Romney’s proposal itself is incomplete. He’s said that he wants to scrap various deductions in the tax code, particularly for high earners, in order to broaden the tax base. But he hasn’t offered any details about which deductions he’d scrap or how, so there wasn’t anything for the Tax Policy Center to analyze.

Based on the details Romney has provided so far, his plan would lower tax rates for the top quintile by 5.4 percent, saving the wealthiest an average of $16,134. (The top 1 percent of earners, meanwhile, would save an average of $149,997.) The lowest fifth of earners, by contrast, would see a small tax increase of 1.3 percent under Romney’s plan, owing the federal government an additional $143 extra on average.

Obama’s tax proposal, meanwhile, would keep tax rates roughly the same except for married couples making over $250,000 per year (or single earners making more than $200,000 per year). On average, under Obama’s plan, the top 1 percent would be paying about $87,173 more per year.”

Klein offers the following illustration:

There are many “ifs” involved in the Romney tax proposal, incomplete as it is, but there are some deductions which if eliminated would have a definitely negative impact on middle income level Americans:

“Most middle-class families would get little help. About 18 million working families would actually pay higher taxes because Romney would end the American Opportunity Tax Credit for college and cut tax credits for taxpayers with children and earned income.”  [OCCD]

In fine, if one would like to see a tax structure which bestows the greatest advantages on those who already have great advantages — Governor Romney and the Republicans are your kind of people.

There’s nothing quite like tossing in a phrase like Excessive Regulations to stir the hearts of the financial and insurance sectors, both of whom dislike being told, for example, that using premium payments for CEO compensation and advertising aren’t the best use of consumer dollars.   And, the phrase tickles those who think the EPA is merely a professional thorn in the side of the energy sector — Deep Water Horizon notwithstanding.  It’s often notable that when expounding on the “excessive regulations” in the ACA, very few — if indeed any — examples are offered.

Ah, the now hoary and hirsute talking point “uncertainty and hiring” comes back for yet another encore.   The “uncertainty” allegation is a one size fits all gob-lob at any legislation or legislative proposal which might cause corporations to THINK about what they’re doing.

We’ve been told that implementing the provisions of the Dodd Frank Act on financial regulation reform creates “uncertainty.”  In this instance there’s something to be said for a bit of uncertainty — no bank should believe that it “certainly” has the latitude to use depositors funds to play around in proprietary trades, or has blanket permission to bet against the interests of its own clients, or has leave to arbitrarily play with interest rate reporting because it wants to make its own books look better.

And for the umpteenth time — small business hiring won’t increase until small businesses (not to be confused with Washington, DC lobby shops and hedge funds) see the demand for their goods and services increase such that their current staffing levels are insufficient to meet customer needs.   The only thing that is Certain is that middle class income and middle class jobs need to advance in order to improve aggregate demand.  This has precious little to do with the desires of the Wall Street Wizards to play cowboy with depositors dollars.

Heller:The President should work with Congress to find real solutions to healthcare reform so the excessive mandates and taxes in this law do not further add to our national debt or continue to stifle economic growth.”

Now what could be adding to the national debt?

So, if we are really serious about reducing the federal deficit — then we get rid of the Bush Tax Cuts! And, we do something to get more “growth” into the economy.  Hardly the austerity prescription being touted by Senator Heller and his Republican cohorts.

Heller:This onerous law needs to be repealed and replaced with market-based reforms that will provide greater access, affordability, and economic certainty to our nation,” said Senator Dean Heller.”

Yes, the House will make another symbolic move at “repealing” the Affordable Care Act during the week of July 9th.  Meanwhile, what are “market based reforms?”

Representative Paul Ryan has suggested some “market based” reforms which mean that Medicare recipients will get a “coupon” or voucher toward paying their private health insurance premiums.   This is essentially a government subsidy for health insurance corporations to give them an “incentive” to offer health insurance for the elderly.  Meanwhile back in the real world — the reason we have Medicare in the first place was that insurance corporations do not want to offer plans for elderly people — they get sick, and old, and old and sick.

This might be a good time to remind ourselves that it’s not a “free market” when some corporations are being subsidized by the taxpayers to offer services and products they don’t otherwise want to sell.  For those keeping score, “market based solutions” is GOP-Speak for privatization.

Not to belabor the point much further, but the GOP response to the ACA ruling as evidenced by Senator Heller is simply to offer no solutions to demonstrated problems, and demonstrations about issues of primary interest to the upper 1% of the American income earning public.  It is a tale bedecked with focus group tested buzz words and talking points, which can mean almost anything to their devoted listeners, and almost nothing to anyone seeking solutions to real American problems.

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Filed under 2012 election, Bush Administration, conservatism, Economy, employment, family issues, Federal budget, financial regulation, Foreclosures, Health Care, health insurance, Heller, Insurance, Medicare, national debt, Nevada politics, Politics, privatization, Republicans, Taxation, unemployment