Category Archives: secondary mortgage market

The Not-So-Stealthy Attack on Americans

During this something less than merry Month of May the United States Senate is scheduled to take up the Regulatory Accountability Act which will make it all but impossible for our own government to protect citizens (and citizen consumers) from corporate depredation.  We have a warning:

“Among its most egregious provisions, the RAA sets an impossibly high burden of proof that agencies would have to meet before finalizing and implementing a new rule, such as a new air quality or food safety standard. The bill also requires agencies to conduct several rounds of cost-benefit analyses that give more weight to the compliance costs to industry than the benefits to Americans. Taken together, these provisions and others in the bill could lead to total gridlock in the agencies charged with protecting the food we eat, the water we drink, and the air we breathe; ensuring that products are safe before they enter the market; and reining in the worst financial market abuses.”

Interestingly enough the Big Corporate Interests don’t even bother to mention “small businesses” in their push — read shove — for this anti-consumer, anti-worker, anti-Main Street bit of legislation.

A better label would be the Unaccountability Act of 2017 — in that corporations would be protected from citizens who like drinking clean water and breathing clean air, eating healthy and uncontaminated food, driving safe cars, and being reasonably assured that Wall Street investment interests aren’t pulling a “de-regulation” extravaganza that could make the debacle of 2007-2008 seem mild by comparison.

If you enjoyed the scandals of Enron, the predatory behavior of Wells Fargo, the Great Recession brought on by Wall Street Casino operations — then you’ll love this draft to deregulate the major corporations.

On the other hand if one is appalled by the “Screw Grandma Milly” antics of the Enron crowd, if one isn’t concerned that the bank isn’t surreptitiously opening accounts (and charging fees) like Wells Fargo, or if one isn’t concerned that mortgages might be oversold, and fed into another giant bubble of derivative trading — then a phone call to the Solons of the Senate is required.

As the machinations of the Russians, the squirming of the administration, and the daily deluge of tweets from Dear Leader, suck the air out of the room, beware that major corporate interests are working through the halls of Congress.

This is the time to contact our Senators, Senator Dean Heller (who has made no secret of his affinity for deregulation) and Senator Catherine Cortez-Masto who is more likely to be amenable to the concerns of ordinary citizens.  The so-called “Regulatory Accountability” is nothing more than a not-so-stealthy attack on ordinary Americans by extraordinarily powerful corporate interests.

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Filed under conservatism, consumers, Economy, Enron, financial regulation, Heller, Nevada politics, Politics, public safety, secondary mortgage market, subprime mortgages

Advice from The Strip to Wall Street

Nevadans understand gambling.  We bend over backwards to be hospitable to those who want to push buttons on our machines and enjoy the games on our tables.  We advertise it, we oversee it, and we are pleased to be one of the entertainment centers of the world.  We have large fancy casino resorts, and we have small pub-like local bars with enticing machines.  We support many of our public services from the revenue gaming produces.  However, enjoy it as we do we also know it from living with gaming 24/7/365.   There are two general rules we should share with you.

What happens in Vegas doesn’t necessarily stay in Vegas. No, we won’t advertise what you did — but that doesn’t mean your friends and associates won’t.  If you aren’t certain about this concept please contact Prince Harry’s public relations staff.  So, Wall Street, when your presidential candidate of choice makes disparaging comments about 47% of the country’s population at a donors’ dinner please don’t be surprised when the pictures and sound show up on the Internet.

Don’t gamble what you can’t afford to lose.   Nevada has an entire chapter (458A) in its statutes concerning problem gambling,  additionally we define issues involving people with serious trouble following the simple maxim:  “Problem gambling” means persistent and recurrent maladaptive behavior relating to gambling that causes disruptions in any major area of life, including, without limitation, the psychological, social or vocational areas of life.

Most problem gambling finds it origins in the Gamblers’ Fallacy:  “The Gambler’s Fallacy is committed when a person assumes that a departure from what occurs on average or in the long term will be corrected in the short term.”  There is also an investment oriented version of this definition:

“When an individual erroneously believes that the onset of a certain random event is less likely to happen following an event or a series of events. This line of thinking is incorrect because past events do not change the probability that certain events will occur in the future.”

Why are we reminding you of all this?  Because … the more you believe  you can lose without doing irreparable harm to your economic or vocational life  the less likely you are to play the games responsibly, and the more susceptible you are to the Gamblers’ Fallacy.   There isn’t all that much difference between playing at one of our roulette tables and playing with high stakes bets on derivatives.   Remember — Past events do not change the probability that other events will occur in the future — the next roll on the wheel or the next position taken on oil futures are not fundamentally all that different.

One may be emotional, ” X is my lucky number,” but there’s a reason for those two green slots on the roulette wheel — which create just enough margin for the house to make a profit.  No matter how elegant the algorithms created by the Quants in the investment bank office building, no bet is without risk, even those bets made in the interest of reducing risk.

Perhaps individuals like Nick Leeson, who brought down Barings Bank in 1995, or the collapse of Long Term Capital Management in 1998 [FRBC pdf], or the failure of Lehman Brothers in September 2008, or AIG facing a potential $60 billion loss in early 2009, or more recently the London Whale backwash for JP Morgan — should be a reminder that he or she who adopts the Gamblers’ Fallacy can easily become a “problem gambler” who disrupts major areas of life — like our economic system.

Goosing the Pot? One of the problems with current suggestions that the “Job Creators” be allowed to keep more of their earnings by lowering capital gains taxes and reducing taxes for the top 0.1% of American income earners is that we don’t know whether those funds will be allocated for venture capital and entrepreneurial support — OR — if they will be returned to the Wall Street Casino in the form of esoteric “bets” on the behavior of other investments.

If a bank believes it can bet its funds with impunity, without having a Financial Stability Oversight Council monitoring its behavior, then why not indulge in the kind of “gambling” that created the Credit Meltdown in 2008?  If the Federal government has no power to require the orderly liquidation of banks making too many bad bets, then all that remains is the status quo ante- Dodd Frank Act, and the chaos created as Lehman Brothers and other investment houses almost totally wrecked our financial sector. This is a timely topic because:

“The attorneys general of Michigan, Oklahoma and South Carolina argued that the government’s new power to liquidate large, non-bank financial companies that are on the brink of failure is unconstitutional.” [LATimes]

All three attorneys general are Republicans.  All three are arguing that the Federal government cannot monitor  financial sector behavior, and cannot order the rational liquidation of a troubled investment institution if something like those irresponsible bets in our immediate past go horribly wrong — again.   The only options left are a potentially catastrophic collapse or a — Heaven forefend — a bailout.

Frankly, this is tantamount to hugging the unrehabilitated problem gambler and politely admonishing him “not to do it again.”

At least the state of Nevada is willing to acknowledge that some people have serious gambling problems, that some need oversight and help to deal with their issues, and that some need a firm reminder that they have no business gambling money they cannot afford to lose.

The question remains: When will the Republican Party acknowledge the insufficiency of voluntary oversight of financial institutions entirely too prone to sail close to the winds of the Gamblers’ Fallacy, and admit that the Wall Street Casino requires the same level of diligence Nevada exercises over “problem gambling?”

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Filed under 2012 election, banking, Economy, financial regulation, Politics, Republicans, Romney, secondary mortgage market, Taxation, Treasury Department

>Heller’s Words and Voting Record Don’t Exactly Match


Congressman Dean Heller (R-NV2) managed to get a “moderate” label attached to his candidacies in Nevada, but his voting record in Congress has been more closely associated with the radical right wing of the Party.  The Nevada Democratic Party provides three recent examples. (Jobs, Foreclosures, Border Security) The problem with this stance is that it is also at variance with the anti-immigration reform rhetoric coming from the same wing of the same political party.

Heller’s 2006 stance on immigration from his campaign website:Stop Illegal Immigration and Defend Our Borders: Dean Heller opposes amnesty for those that enter America illegally. Immigrants that wish to become citizens must follow our laws. In Congress, Heller will support increased efforts to defend America’s borders and protect us from anyone that wants to do harm to Americans. Heller will defend our freedom, and our way of life in Nevada.”  This was all well and good until Congressman Heller decided to join the House GOP slash and burn budget parade, and in February 2011 voted to cut funding for 250 border patrol and customs agents. Republicans responded to criticism saying they would retain funding for more detention facilities and raise salaries for current border patrol agents. [AZCentral]

What the Department of Homeland Security requested more agents,  to perhaps “increase efforts to defend America’s borders?”  Just in case anyone might question why the House Republicans would want to cut the number of agents, but keep funding for detention facilities, part of the answer may lie in the fact that Corrections Corporation of America had as of 2008 some 10,000 “beds” in development, and got a lucrative contract with ICE for the operation of the Hutto Detention Center in Texas in 2005. [CCA] CCA’s main competitor, Wackenhut, got a 2003 contract with ICE for the Broward County, FL detention center for women. [HB]  Evidently, it is more important to House Republicans to maintain the sanctity contracts between ICE and CCA and/or Wackenhut Corrections, and to subsidize the salaries of their employees, than to increase the number of border patrol and customs agents along American borders?

Here’s Congressman Heller on Foreclosures:Homes in foreclosure strain local governments too, since they often become sites for crime or other neighborhood problems.  Just one foreclosure can impose up to $34,000 in direct costs on local government agencies, including inspections, court actions, police and fire department efforts, potential demolition, unpaid water and sewage, and trash removal. ”  Point well taken, homes in foreclosure do, in fact place a tremendous burden on local governments. However, in the interest of keeping the government out of the housing market, Heller voted to gut a new program to assist homeowners with refinancing.  

The Administration sought to use $62 billion of the TARP funding for banking institutions to assist FHA homeowners refinance mortgages, the idea being that if most of the problems associated with repaying TARP funds were related to the home mortgage market then it would make sense to direct that refinancing to minimize foreclosures would alleviate part of the problems. The FHA program was initiated in November 2010.  Two months later House Republicans were ready and willing to ditch the program because it had only served 42 families — in the face of persistent opposition from mortgage holding financial institutions which did not want to offer any refinancing as part of the acceptance of TARP funding.  [NewsY]  Congressman Heller has made much, and will no doubt seek to make more, of his vote against the TARP bank bail out.  However, his attempts to characterize this vote as “against TARP,” should be moderated by the fact that his vote on this issue is nicely aligned with the wishes of the Mortgage Bankers Association and their financial institutional allies.

H.R. 830, which Congressman Heller supported, would end the refinancing program which allowed under-water homeowners to refinance with less expensive FHA loans. [roll call 171]  Congressman Heller also supported H.R. 836 that would terminate the Emergency Mortgage Relief Program which helps homeowners who have lost jobs to continue making mortgage payments. [ABA]  [roll call 174]

Congressman Heller went one step further away from his initial concern for local governments plagued with abandoned housing.  On March 16, 2011 he voted in favor of terminating the Neighborhood Stabilization Program [roll call 188] which provided aid to local governments which have high rates of foreclosures and abandoned property.  The corporate position on the NSP was that it was a waste of tax payer funds that did not assist individuals facing foreclosure, and that allegations of misuse of funding were noted by the HUD inspector general and the GAO. [NMBA] The criticism is a far cry from the actual GAO recommendation: ” GAO recommends that HUD provide additional guidance to NSP grantees and HUD field staff to help ensure that information on output measures is collected in HUD’s data system in a more consistent manner. HUD agreed with the report’s recommendations.” 

Those criticing the Department of Housing and Urban Developments work, by citing the report from the Inspector General’s office may also be doing some highly selective reading. The IG’s scope report for FY 2010 actually says: [pdf]

“Programs and Housing Management Entities: During fiscal years 2007 and 2008, OI developed significant investigations that uncovered public corruption in the management of housing projects as well as the administration of grant programs funded to state and local governments. As a result, OI is proactively targeting underperforming grantees and management entities to detect early signs of fraud and abuse in these HUD funded program areas. Working jointly with the Department to identify this corruption, OI has put in place a strategy to aggressively weed out the criminal element trying to take advantage of these tax dollars. Training has been established for all Special Agents that will assist them in their investigations. Each OI Regional office is tasked with targeting underperforming grantees and housing management entities to root out fraud operations by using the assets of the Department such as REAC and Multifamily Asset Management as well as enlisting the support other Federal and local law enforcement agencies. OI is also closely monitoring the progress of the Neighborhood Stabilization Program (NSP), which provide $3.9 billion in formula grants to local communities to address the problems associated with foreclosed and abandoned properties.”  (emphasis added)

It appears that critics of the NSP decided to focus on the “early signs of fraud and abuse,” and ignore the part where the Department will boost training and oversight to “root out fraud operations.”

The next target in House Republican sights is HAMP (Home Affordable Modification Program].  Full program information here (pdf). The initial intentions were good: “The purpose of HAMP is to help homeowners who are making their mortgage payments on time but their homes are underwater. As long as the amount of the loan is less than 125 percent of the home’s value, homeowners are eligible for a HAMP refinance. This allows homeowners to refinance when their home is underwater and they had not been eligible to refinance.” [LenderSt]  The problems began when homeowners found they could not emerge from the trial period, and ended up in litigation with those who may (or may not still) hold the actual mortgages.  Once more, financial institutions holding home mortgage paper are not at all enthusiastic about modifying the terms of the initial mortgages.  On March 16, 2011 Congressman Heller voted in favor of bringing H.R. 839, which would eliminate the HAMP program, to the floor of the House. [roll call 181]

Not to put too fine a point to it, but the programs such as the FHA refinancing plan, the Emergency HUD plan, and the HAMP program all run afoul of the banking industry which is doing all it can to eliminate the possibility banks and financial institutions will have to modify any of the highly questionable mortgages spun out during the Housing Bubble.

Now, we need to refer to the third paragraph in Congressman Heller’s statement on home foreclosures: “We need to reestablish a housing market that has long-term stability in which private capital, not the federal government, is the primary source of mortgage financing.  Any financial regulatory reform bill in the future should stop taxpayer-funded bailouts, make further reforms to Fannie Mae and Freddie Mac and help address the struggling housing market which is especially problematic in Nevada.” 

However much Congressman Heller may have wished to sympathize with the plight of those in Nevada facing the highest foreclosure rate in the nation, his final word on the matter is “Private Capital.”  The first sentence is almost risible: Private funding is THE primary source of mortgage financing in this country — is now and ever shall be. The federal government has only been significantly involved as a primary party in the secondary market. The FHA stamp of approval facilitates transactions in the secondary mortgage market, Fannie and Freddie operate in the secondary market.  The second sentence is perilously close to non-sequitur. What inflated the housing bubble in the first place, and made the impact of the implosion so expensive at every level, were financial institutions (un-regulated) which made almost in-comprehensively bad business decisions (“creative” new financial products, CDOs squared, cubed, and quadrupled, etc.) which in turn created a situation in which the financial arteries of this country were clogged with their toxic assets.  What Congressman Heller is advocating is a return to the Business As Usual de-regulated, unstabilized, and unfettered privatization of the home mortgage market — which is precisely what caused the need for bail-outs in the first place.

Congressman Heller’s position on the issue of  home foreclosures is almost enough to bring back the Desert Beacon Sunday Deck Bass.

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>Make It Fail: Heller votes to protect banks, not homeowners


For the 50th straight month now Nevada has the dubious honor of leading the rest of the nation in the number of home foreclosures, currently at one in every 119 mortgaged residences during February. [Blmbrg] A sentient person might believe that this would produce cries for additional assistance from Nevada’s Congressional contingent? Not. So. The $8 billion FHA refinancing program is slated for the House GOP axe. The reasons sound familiar, (1) only 42 families have been assisted so far (This is the point at which it should be noted that the FHA program didn’t even start until last November, and the mortgage bankers have fought and stalled implementation every step of the way.) And, (2) “the program picks winners and losers.” This seems to be a standard piece of GOP boilerplate language which has lost all meaning after being applied to any and all legislation to which the Republicans are opposed.

So, how did Representative Dean Heller (R-NV2) vote on H.R. 830, the bill to bring the FHA Refinancing program to an abrupt halt, even before it had the opportunity to get off the ground?  Congressman Heller, representing a state with the nationally highest level of home mortgage foreclosures, voted with House GOP leadership to terminate the program. [roll call 171] [Representatives Heck (R-NV3) and Berkley (D-NV1) voted not to end the program.]  House Speaker John Boehner (R-OH) framed the vote as one to “shut down the TARP program” since funding came via rescue and recapitalization for the banks. [Boehner] The banks had never been enthusiastic about having to devote any portion of their recapitalization funds to home mortgage modification. 

The choice was clear: A vote to terminate the program was a vote in favor of the banking interests who oppose refinancing, and a vote against the interests of those who hold home mortgages which could be made more affordable through refinancing.  In this case, Congressman Heller decided to pick a winner, and the winner was — The Banks.

There is another program, unpopular with bankers, which House Republican leadership opposes, the HUD Emergency Mortgage Relief Program.  On Friday, March 11, 2011, Congressmen Heller and Congressman Heck voted to end the unobligated funding and terminate the program. [roll call 174] Representative Berkley was opposed to the program termination.  House Speaker John Boehner complained that the program was ineffective, and that “taxpayers want to cut spending,” while decreasing “uncertainty in the housing market.”

There are a few problems with the Speaker’s statement: (1) If the House GOP gets its way we’ll never know if the programs might have been effective because there hasn’t been time for them to get fully underway; (2) The Speaker assumes causality where none may exist, the question should be asked — uncertainty for whom? If the Speaker is addressing the “secondary mortgage market” then, yes, refinancing may make investors uncertain about their profit margins. If the Speaker is addressing home sales and construction, his point is irrelevant.  It’s evident the Speaker, and Congressman Heller, want “government out of the way” of the bankers.

This week the House will target the Home Affordable Modification Program, which has assisted some 540,000 homeowners since its inception. Republicans have announced its “failure” since it has not provided assistance for the 3 to 4 million homeowners predicted. Once again, we should remember that banks have resisted mortgage modifications from the beginning.  Also on the House menu, the Neighborhood Stabilization Program, which was enacted to help local governments protect property values by funding programs to rehabilitate abandoned properties.

Once more we may hear Republicans speak of a highly generic “taxpayer” who wants to cut spending and get Washington out of the way… and not speak to the very real taxpayers in very real Nevada communities who watch in dismay as their property values decline (and thence their net worth) because of foreclosed and/or abandoned properties in their very real neighborhoods. Apparently lost on Republicans such as Congressman Heller is the fact that these very real property owners are also very real taxpayers.

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Filed under Heller, housing, secondary mortgage market

>Cat Exits Bag: Wall Street Banks Want Control Of Secondary Mortgage Market


So, now it’s public. In case one might have wondered why members of the Republican Party were so eager to launch calumny upon Fannie Mae and Freddie Mac about their roles in “causing” the imploded housing bubble, the answer has now become ever so much more clear. Wells Fargo, along with some other large banking concerns would like to establish themselves as “the new housing finance giants helping to bundle individual mortgages into securities — that would be stamped with a government guarantee.” [NYT] All the usual players have been present, see list. That’s right: The banks would now take over the bundling of mortgages into securitized packages (Does this sound familiar?) while the loans on which the securitized instruments are based would be “guaranteed by the government.” (Read: Taxpayers, as in we the people)  Thus, the banks get all the profits, and the taxpayers take all the risks. Nice work if you can get it.

…Fannie and Freddie have helped lower rates for the bulk of homeowners. Some Republicans are trying to narrow this broad role, and on Thursday, several conservative researchers released a proposal on how to do so. But banks, for their part, have told the administration that removing the guarantee would wipe out the widespread availability of the 30-year mortgage, fundamentally reshaping the American housing market.” [NYT] And wouldn’t you know, the American Enterprise Institute has just the recommendation for privatizing the secondary mortgage market…to the redounding credit (and profits) of the Bankers. (pdf)

By the lights of the AEI the only thing the government should do is to focus on “ensuring mortgage credit quality.” Translation: The government should protect the banks’ money by focusing on individual and family credit standards — not the banks’ lending standards. Programs, according to the AEI,  should not focus on getting people into homes, but upon securing the lowest level of risk possible to the lending institution. Translation: The government’s job is to protect the banks from lending to unqualified borrowers — not to protect borrowers from mortgage scams and other highly questionable practices by those offering the mortgages.  And here comes the clincher:

Finally, Fannie and Freddie should be eliminated as GSEs and privatized—but gradually, so the private sector can take on more of the secondary market as the GSEs depart. The gradual withdrawal of the GSEs from the housing finance market should be accomplished by reducing the conforming loan limit by 20 percent each year, according to a published schedule so the private sector knows what to expect. These reductions would apply to the conforming loans limits for both regular and high-cost areas. Banks, S&Ls, insurance companies, pension funds, and other portfolio lenders would be supplemented by private securitization, but Congress should make sure that it does not foreclose opportunities for other systems, such as covered bonds.” [AEI pdf]  (underlining added)

More of the secondary market?  If the GSE’s depart the banks will have ALL of the secondary market. So, “the private sector knows what to expect?”  I think the private sector can reasonable expect that with the banks running the entirety of the secondary mortgage market we can all assume that the mortgages will be sliced, diced, and shuffled into those Wonderful Tranches that served so well to help create the Credit Default Swaps and Synthetic CDOs. — With, of course, the government (that would be us) bearing the obligation of guaranteeing the underlying loans.  And, of course, those would be both the regular and the jumbo loans in addition to the subprime offerings.  But wait, there’s more!  “Congress should make sure that it does not foreclose (what an inappropriate choice of terms?) opportunities for other systems such as covered bonds.” Heaven fore-fend we’d not allow the bond trading desks to get in on this government (that would be us) action.

Meanwhile back in Nevada, 1 out of every 66 homes in Clark County is in some stage of foreclosure, and statewide 1 out of every 84 homes is facing foreclosure. [RealtyTrac] Ah, it seems not so long ago when the foreclosure vultures started winging their way into the Silver State ready and very willing to turn other people’s misery into a tidy profit — as on February 2, 2009, when the Nevada Attorney General’s office joined with 11 other State AGs to encourage the Office of the Comptroller of the Currency to deal with banks that were stalling mortgage modification procedures.  The Nevada AG’s office started warning about possible “foreclosure consultant scams” in March 2009, and again discussed the modification issue on March 6, 2009. The same month a former talk radio host was arrested for creating a “mortgage rescue” scam.  There were a couple more indictments along these lines in June 2009. While the vultures were scanning the desert for fodder, several States Attorneys General were looking closely at the mortgage originators.

On July 24, 2009 there was a national settlement with Countrywide Financial ($3,041,882) to the 3,467 Nevada mortgage holders who were duped by the firms mortgage sales persons. Fast forward to January 2011 and we find the Bank of America Corp (BAC.N) and JPMorgan Chase & Co (JPM.N), may be the first to settle with 50 state attorneys general who are investigating foreclosure practices.

So that we get all this straight: (1) The major banks who encouraged highly questionable mortgage lending during the housing bubble want (2) the American taxpayin’ public to guarantee (3) loans approved by the mortgage lending sector (4) while insuring the creditworthiness of the borrowers, and (5) while fighting tooth and nail not to have to settle foreclosures based on “robo-signing” and documents which they do not now possess — like the mortgages.  It doesn’t take much imagination to reduce this down to a refrain from the banking sector similar to: We really screwed up big time with the mortgages we repackaged and bundled during the Housing Bubble, and now since we screwed up even more than Fannie and Freddie — we’d like all their loans too!  Like I said, nice work if you can get it.

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Filed under credit, recession, secondary mortgage market