Author: Matt Browner Hamlin

http://holdfastblog.com

Taxpayers to pay significant portion of mortgage settlement

It continues to be hard to provide a full and thorough accounting for a national mortgage settlement where the terms are neither final nor public. This secret deal was agreed to, it seems, without state attorneys general having a full view of what they were signing onto. The fallout from that is likely on just beginning.

But in what surely will go down as one of the nastiest bits of the deal pushed through by the Obama administration, it is being reported by the Financial Times that modifications made under the taxpayer-funded HAMP program will count towards the banks’ principle reduction requirements.

US taxpayers are expected to subsidise the $40bn settlement owed by five leading banks over allegations that they systematically abused borrowers in pursuit of improper home seizures, the Financial Times has learnt.
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However, a clause in the provisional agreement – which has not been made public – allows the banks to count future loan modifications made under a 2009 foreclosure-prevention initiative towards their restructuring obligations for the new settlement, according to people familiar with the matter. The existing $30bn initiative, the Home Affordable Modification Programme (Hamp), provides taxpayer funds as an incentive to banks, third party investors and troubled borrowers to arrange loan modifications.

Neil Barofsky, a Democrat and the former special inspector-general of the troubled asset relief programme, described this clause as “scandalous”.

“It turns the notion that this is about justice and accountability on its head,” Mr Barofsky said.

Both Shahien Nasiripour of Financial Times and Yves Smith note that since the whole point of providing HAMP payments to banks as an incentive to get them to make principle writedowns, HAMP should have remained outside of the scope of mortgage settlement. But as it’s structured, not only is it a part of it, we have taxpayers paying the banks to make modifications they’re supposed to be making to help homeowners.

This settlement looked pretty bad on the day it was announced. Sadly, it has only gotten uglier with age. That there is no final term sheet and the public is relying on sporadic leaks to understand what is actually in the tentative deal is a guarantee that these unwelcome surprises will continue, especially since it is the Obama administration which has pushed to weaken the deal:

But people familiar with the matter told the FT that state officials involved in the talks had had misgivings about allowing the banks to use taxpayer-financed loan restructurings as part of the settlement. State negotiators wanted the banks to modify mortgages using Hamp standards, which are seen as borrower-friendly, but did not want the banks to receive settlement credit when modifying Hamp loans. Federal officials pushed for it anyway, these people said.

What a sad joke.

More on the need for robosigning investigation

Gretchen Morgenson has a report on San Francisco City Assessor Phil Ting’s analysis of 400 recent foreclosure filings. The investigation revealed that fraud was near-universal:

An audit by San Francisco county officials of about 400 recent foreclosures there determined that almost all involved either legal violations or suspicious documentation, according to a report released Wednesday….

The improprieties range from the basic — a failure to warn borrowers that they were in default on their loans as required by law — to the arcane. For example, transfers of many loans in the foreclosure files were made by entities that had no right to assign them and institutions took back properties in auctions even though they had not proved ownership.

Yves Smith rightly notes that these improprieties aren’t arcane, but “are actually pretty basic to lawyers – you can’t assign rights you don’t possess or sell what you don’t own.”

Ting’s investigation can be added to a short list of actual investigations by public offices that includes Jeff Thigpen in Guilford County, NC and John O’Brien of Southern Essex County, MA. Beyond these officials, reporter Abigail Field also investigated foreclosure documentation in New York for Fortune. But beyond this, there haven’t been substantive investigations of robosigning and foreclosure fraud, particularly by the parties who aim to settle with the nation’s five largest banks (as a gentle reminder, there is no mortgage settlement yet that we know of – the terms have not been released).

More to the point, Ting’s investigation in San Francisco speaks to the need of real investigation of obvious crime. Professor Adam Levitin hits this point hard in a must-read post:

The San Francisco City Assessor’s audit also serves as a benchmark for evaluating the Federal-State servicing settlement. The San Francisco City Assessor managed to accomplish in a few months what the Federal government and state Attorneys General weren’t able to do in nearly a year and a half with far greater resources at their disposal: perform a credible investigation of foreclosure documentation with serious implications about the securitization process in general. That’s a lot of egg on the face of Shaun Donovan, Eric Holder, Tom Miller, et al. The SF City Assessor report shows that it really wasn’t so hard for a motivated party to undertake a serious investigation. And that raises the question of why the largest consumer fraud settlement in history proceeded with virtually no investigation.

The lack of investigation was the compelling criticism that led the NY and DE AGs to stay out of the settlement for quite a while. I’ve never heard an answer as to why no serious investigation. As the SF City Assessor’s audit shows, the documentation is all a matter of public record. It’s not that hard to do, especially if you have the resources of the federal government. So the resources were there. The capability was there. So why no investigation? The answer has to lie with lack of motivation. Were the Feds and AGs scared of what they would find if they delved too deeply into the issue?

Levitin points out that Ting’s investigation goes far beyond transparent robosigning problems and into the depths of the inadequacies and failures of the MERS database of property records. The result is not just confused foreclosure records and fraudulent document filings, but massive amounts of unpaid taxes and filing fees.

Levitin goes on to point out the problem of Too Big To Fail existing as a functional get out of jail free card. But his observations on the lack of investigation and accountability for these giant banks is particularly relevant:

Part of the problem, I think is a social one, as our political leadership is part of the same social milieu as our financial leadership and unwilling to call out criminal acts by their peers.

This is part of the fundamental critique of the Occupy Wall Street movement, namely that financial elites are so close with political elites – often overlapping – that they are able to escape any and all accountability for their actions. Look at the Obama White House and see a chain of Wall Street executives in roles not just connected to the economy, but administration leadership. It’s no surprise that these people in the halls of government don’t prosecute their peers in the private sector.

The depth of Tibetan despair

Tom Lasseter of McClatchy:

“China in our eyes is not fair or peaceful,” said the monk, a man in his early 40s who, like every ethnic Tibetan interviewed for this story, did so on the condition that he not be named and that certain details be withheld, for fear of getting dragged off by police. “We are suffering a lot in our hearts, and when we can no longer bear it we burn ourselves to death.”
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The father first wanted it made clear that he would not “take legal responsibility” for his words, and then said, “The Chinese government issues messages that these things are happening because of foreign plots, but of course the people lighting themselves on fire are local people …”

The father paused and looked at the small stove in front of him, which was heating the room with burning stacks of yak dung.

The younger brother, in his early 20s and with plans to move to a bigger city, finished the sentence with an assertion that no one contradicted.

“The people lighting themselves on fire do it because they are suffering … or because one of their family members has been killed by the government and they are now filled with hatred,” he said. “They are doing these things because they want to express their pain and their hardship.”

The McClatchy article is a massive indictment of the Chinese government’s occupation of Tibet, as if the 23 self-immolations in the last year weren’t indictment enough.

Daily Caller: Fox News is the head of the GOP

Tucker Carlson’s online rag, The Daily Caller, is doing a series of hit pieces on Media Matters for America. Based on anonymous sources and conspiracy-minded dreck, the whole series is a hot mess. Today’s feature piece is an attempt to discredit Media Matter’s non-profit tax status, with the dramatic sounding headline of Media Matters tax-exempt status may face new scrutiny from Congress. They may face congressional scrutiny! Maybe!

My favorite line in the whole mess is notable in that The Daily Caller concedes that Media Matter’s criticism of Fox News as not just an arm, but a leadership element, of the Republican Party amounts to Media Matters engaging in partisan, political activities which are prohibited by their 501(c)3 status:

Because Brock has referred to Fox News as a political organization and the “de facto” leader of the GOP, Gray and other critics have argued that Media Matters is engaged in the kind of direct political activity forbidden by IRS regulations.

The Daily Caller is trying so hard to kick-start a Republican Congressional investigation into Media Matter’s tax status that they concede Media Matter’s core criticism of Fox News as a Republican propaganda outlet!

Politics is serious business and progressives should be concerned that a major piece of progressive infrastructure is under concerted attack from the right. But if this sort of nonsense from The Daily Caller doesn’t make you laugh out loud, you’re missing one hell of a comedic performance…

Pensions will pay more than banks for settlement

No one could have predicted:

The government’s deal with banks over their foreclosure practices after 16 months of investigations is cheap for the loan servicers while costly for bond investors including pension funds, according to Pacific Investment Management Co.’s Scott Simon.
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“This was a relatively cheap resolution for the banks,” said Simon, the mortgage head at Pimco, which runs the world’s largest bond fund. “A lot of the principal reductions would have happened on their loans anyway, and they’re using other people’s money to pay for a ton of this. Pension funds, 401(k)s and mutual funds are going to pick up a lot of the load.”

Asset managers are frustrated with the deal because, in addition to the debt the banks own, it gives credit to the lenders for changes to loans they hold no interest in and oversee for investors. That “treats people’s 401(k)s and pensions,” which hold mortgage securities, “like perpetrators as opposed to victims,” Simon said. The deal comes after all 50 states announced a probe into foreclosures in 2010 following disclosures of faulty documents used to seize homes, costing bondholders as liquidations of bad debt were delayed.

“Think about this, you tell your kid, ‘You did something bad, I’m going to fine you $10, but if you can steal $22 from your mom, you can pay me with that,’ ” Simon said yesterday in a telephone interview from Newport Beach, California.

On the upside, there actually is no term sheet yet, so the deal is not done. But I wouldn’t assume major changes on these lines.

More on the settlement deal

This thing hasn’t improved with age, but there is some more detailed and thoughtful commentary that I think is worth highlighting. The first is by Professor Adam Levitin, who scores it as a victory for the banks. He cites the small size as a major part of the settlement’s weakness:

The formal price tag for the settlement is $25 billion, although it is projected to accomplish up to $40 billion in relief. Only $5 billion of that is hard cash contributed by the banks. Let me repeat that. The five banks involved in the settlement, which have a combined market capitalization of over $500 billion, are putting in only $5 billion. That’s less than 1% of their net worth. And they are admitting no wrongdoing. To call that accountability is laughable.
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But let’s get to the bigger problem. Whether this is a $25 billion or $40 billion settlement is really beside the point. It’s a drop in the bucket relative to the scale of the problem. There is approximately $700 billion in negative equity nationwide weighing down the housing market and the economy. Add to that legions of homeowners dealing with unemployment or underemployment and we’ve got a problem that absolutely dwarfs the settlement numbers. It’s Pollyannism to think that this settlement will have any impact on the national housing market. At best it makes some incremental improvements and helps a small number of homeowners. But at worst, it lets the banks off the hook for the largest financial crime in history.

Levitin then looks at the average payouts for principle reduction, which are so small as to ensure no real impact in the housing market.

What’s interesting, though, is Levitin’s contextualization of the settlement in the political context.

The settlement doesn’t fix the housing market. It doesn’t create accountability for the financial crisis. It doesn’t even create incentives against future wrong-doing. But it provides the Obama Administration (and those attorney generals who just jumped in for the settlement at the last minute) with a fig leaf of political cover. It galls me is that the Obama Administration is going to trumpet this settlement as evidence that it is serious about prosecuting the crimes behind the financial crisis and helping homeowners. It was heartening to hear Obama talk about protecting the middle class in his State of the Union address. It was the right message, but the President is simply not a credible messenger. If Obama wants to run as the champion of Main Street against Romney, the Captain of Wall Street, he’s going to need to do something a lot more credible than this settlement.

If you doubt that the President (and, to a lesser extent, the AGs) are going to use this as a political victory, notice the headline on the national mortgage settlement: “Landmark Settlement, Landmark Relief.” That is a political statement, as it is clearly not grounded in the terms of the deal.

Turning to Matt Stoller’s excellent piece in Salon, he makes an important point about the way in which this settlement represents a very important policy choice about our national priorities.

Rather than settling anything, this agreement is simply a continuation of the policy framework of both the Bush and the Obama administrations. So what, exactly, is that framework? It is, as Damon Silvers of the Congressional Oversight Panel, which monitored the bailouts, once put it, to preserve the capital structures of the largest banks. “We can either have a rational resolution to the foreclosure crisis or we can preserve the capital structure of the banks,” said Silvers in October, 2010. “We can’t do both.” Writing down debt that cannot be paid back — the approach Franklin Roosevelt took — is off the table, as it would jeopardize the equity keeping those banks afloat.

Note that this is similar to the point both Robert Kuttner and I made in terms of having a rebooted banking system when all is said and done. Stoller makes clear that the choice to not aid homeowners at the expense of the banks and instead aid banks at the expense of homeowners is a deliberate and conscious policy held by the Obama administration.

Stoller concludes with a sobering look at the housing landscape and the need for a response which actually helps solve the problems we’re facing:

Settlement or no, the housing crisis isn’t going away. The entire mortgage market at this point is backstopped by the government, and even so, housing prices are sliding. The roughly $1 trillion of underwater mortgages and the destruction of the rule of law in the private mortgage market need to be dealt with, one way or another. And they will be, whether through a restoration of a healthy housing market, or through the end of broad homeownership as part of the American experience.

Banks to pay $5b in federal and state settlement on foreclosure fraud

At this writing, the federal government and forty-nine state attorneys general (all minus Oklahoma) have agreed to a settlement with the nation’s five largest banks for their fraudulent robosigning practices. The banks will pay $5 billion penalty as part of this deal and also provide a vary range of credits which could account for another $20 billion. David Dayen at FireDogLake has the best rundown of what is in the deal, based on his own reporting and mainstream outlets. Dayen gives the breakdown:

$3 billion will go toward refinancing for current borrowers who are underwater on their loans, as well as short sales. $5 billion will go as a hard cash penalty to the states, which can use them for legal aid services, foreclosure mitigation programs, and ongoing fraud investigations in other areas (one official close to the talks feared that much of that hard cash payout will go in some Republican states toward filling their budget holes). The federal government will get a cash penalty as well. Out of that $5 billion, up to 750,000 borrowers wrongfully foreclosed upon will get a $1,800-$2,000 check if they sign up for it, the equivalent of saying to them “sorry we stole your home, here’s two months rent.”

The bulk of the money, around $17 billion, will go to principal reduction credits for troubled borrowers. The banks will not get dollar-for-dollar credit for every write-down; reductions on loans bundled in private-label mortgage-backed securities, for example, will be under 50 cents on the dollar, and write-downs for second liens (mostly home equity lines of credit) will be more like 10 cents. Housing and Urban Development Secretary Shaun Donovan believes that they will be able to get between $35-$40 billion in principal reduction in real dollars out of the settlement. Donovan became the point person on the federal level, along with DoJ, as the Administration pretty much took over the investigation and settlement process from the states, who were led by Iowa AG Tom Miller.

But even this $35-$40 billion number, which is at best a guess since the direction of the principal reduction is mostly at the discretion of the banks, pales in comparison to the negative equity in the country, which sits at $700 billion. And the banks have three years to implement the principal reductions, drawing out the loss on their books. [Emphasis added]

Look at the section in bold. What this settlement says is that if the bank stole your home – and according to the deal, banks did this to 750,000 American families (though in reality the number is much higher) – the banks will get off scot-free for $2,000. Can you imagine the Department of Justice arresting a bank robber who stole $180,000 and letting him go as long as he returned $2,000? Wouldn’t we all be bank robbers if such was the state of justice? This is quite possible the most insulting, if not the most problematic, aspect of the deal.

Dayen goes on to note that at its best, this deal will provide an almost certainly insufficient amount of principle reduction to a small fraction of underwater homeowners: “you’re talking about $20,000 (when homes are on average underwater $50,000) for 1 million borrowers (when there are 11 million underwater).” Given that being underwater is the single largest predictor of foreclosure, making someone 40% less underwater is no panacea.

If you want a much deeper analysis of the reasons why this is a bad deal, Yves Smith is a good starting place. She identifies twelve reasons to hate the settlement and frankly it’s just the tip of the iceberg as we have yet to see the text of the deal. One that is surely worth noting, though, is:

That $20 billion actually makes bank second liens sounder, so this deal is a stealth bailout that strengthens bank balance sheets at the expense of the broader public.

Gee, and here I was just thinking the other day, “Wouldn’t it be great for America if we had another bank bailout?”

The actual settlement has not been released and likely will not be released until it is filed in federal court. This lack of transparency is actually a fundamental problem, in part because the majority of the money that is in this deal will not be coming from the banks who agreed to it, but from their investors (including 401ks, public and private pension funds). The less time this agreement is fully in public before being filed in court, the less time investors will have to object to its terms.

Smith concludes her post with an important observation:

As we’ve said before, this settlement is yet another raw demonstration of who wields power in America, and it isn’t you and me. It’s bad enough to see these negotiations come to their predictable, sorry outcome. It adds insult to injury to see some try to depict it as a win for long suffering, still abused homeowners.

The fix has been in for a long time, though it was delayed because a number of Attorneys General wouldn’t agree to the direction things were heading. We are told that they are now on board because the settlement is sufficiently narrow in scope (though, again, both Dayen and Smith highlight some ways in which that is not believable). Until we see the actual settlement, it’s impossible to know whether this is truly narrow in scope. But even if it is, the idea that there be any immunity as part of any settlement of any area of criminal behavior which has not been fully investigated is a heartbreaking testament of the failures of system of justice.

As the sign at Occupy Wall Street said, shit is fucked up and bullshit.

Sobering poll on Democratic support for previously-opposed Bush terrorism policies

There’s a lot of discussion going on now in liberal circles about a new Washington Post poll which shows that not just Democrats, but liberal Democrats support for President Obama’s policy of using drones to assassinate American citizens without warrant or judicial oversight, as well as support for his continued use of Guantanamo Bay. Greg Sargent has more on it.

Not surprisingly, Glenn Greenwald has strong opinions about what this means. But I think the thing that’s most relevant is this:

I’ve often made the case that one of the most consequential aspects of the Obama legacy is that he has transformed what was once known as “right-wing shredding of the Constitution” into bipartisan consensus, and this is exactly what I mean. When one of the two major parties supports a certain policy and the other party pretends to oppose it — as happened with these radical War on Terror policies during the Bush years — then public opinion is divisive on the question, sharply split. But once the policy becomes the hallmark of both political parties, then public opinion becomes robust in support of it. That’s because people assume that if both political parties support a certain policy that it must be wise, and because policies that enjoy the status of bipartisan consensus are removed from the realm of mainstream challenge. That’s what Barack Obama has done to these Bush/Cheney policies: he has, as Jack Goldsmith predicted he would back in 2009, shielded and entrenched them as standard U.S. policy for at least a generation, and (by leading his supporters to embrace these policies as their own) has done so with far more success than any GOP President ever could have dreamed of achieving.

This is a problem that is quite literally Constitution destroying. Political consensus across parties on what was once considered a controversial issue means that the public has no opportunity to see contrast on the issue because there is none. This leveling-down of the differences between the two parties on a fundamental constitutional issue means that other than a handful of critics like Greenwald or the rare ideologically committed politicians, like Dennis Kucinich or Ron Paul, there is essentially no dissent against these policies. Worse, what little dissent there is has been pushed outside the mainstream, making it something that the public has little opportunity to consider.

The poll numbers certainly look bad, but they are most likely a reflection of the combined absence of political leaders showing opposition to these policies and the presence of a Democratic President who both supports and has expanded on his Republican predecessor’s policies.

Leaks versus secrecy

Glenn Greenwald has a post on the ACLU suing the Obama administration to find out what legal arguments and doctrines were used to justify the assassination of Anwar Al-Awlaki, an American citizen who was never charged with a crime. Greenwald notes throughout that the administration has used anonymity granted by a compliant press corps to repeatedly leak what happened and how it has been happened, as well as boasted of by the President on late night talk shows, but only when the justifications are challenged in court does it become Obama administration policy that these things cannot ever see the light of day:

Everyone knows that the U.S. Government is doing these things. They are discussed openly all over the world. The damage they do and the victims they leave behind make it impossible to conceal them. Often, they are the subject of judicial proceedings in other countries. Typically, U.S. officials will speak about them and justify and even glorify them to American media outlets anonymously.

There’s only one place in the world where these programs cannot be discussed: in American courts. That’s because, when it comes time to have real disclosure and adversarial checks — rather than one-sided, selective, unverifiable disclosure — and when it comes time to determine if government officials are breaking the law, the administration ludicrously claims that it is too dangerous even to confirm if such a program exists (and disgracefully deferential federal courts in the post-9/11 era typically acquiesce to those claims). So here we have the nauseating spectacle of the Obama administration secretly targeting its own citizens for assassination, boasting in public about it in order to show how Tough and Strong the President is, but then hiding behind broad secrecy claims to shield their conduct from meaningful transparency, public debate, and legal review, all while pretending that they are motivated by lofty National Security Concerns when wielding these secrecy weapons. The only thing worse than the U.S. Government’s conduct of most affairs behind a wall of secrecy is how cynical, manipulative and self-protective is its invocation of these secrecy powers. [Emphasis original.

It’s also worth noting that when government officials leak information in unauthorized ways about the powers seized by the executive branch relating to terrorism and surveillance, these leakers are prosecuted with extreme prejudice by the Obama administration. Leaks are a tool to be used to bolster themselves when they want to look and act tough, but when someone uses leaks to shine sunlight onto the behaviors of the administration, then they are treated as the gravest of offenses. The hypocrisy is truly sickening.

More settlement happenings

Yves Smith:

If the Administration had really changed its stance on bank misdeeds, you’d see it putting the settlement on hold until the investigations led by Schneiderman had been concluded. The fact that they mortgage settlement is proceeding on schedule says this the Administration is, as before, trying to cover up its bank-favoring actions with better propaganda.

It’s really hard to disagree with this assessment of the state of play.

To make matters worse, Smith has another post looking at the scope of the settlement and the implications of a number of the specific questions Nevada AG Catherine Cortez Masto raised in relation to how broad or narrow the liability release that goes along with the settlement will be. Smith also points out that while the press is on to get California to join the deal (latest reports show CA was offered $15 billion out of the $25 billion package), other AGs don’t know how much money their state will get or how allocation of that money will be decided. In short, the push seems to be to get people to sign on to a deal that prevents states from prosecuting banks for robosigning, for forging mortgage assignments, for committing perjury and fraud, and doing so with zero guarantee that their state’s citizens will get financial relief from the settlement. Smith writes, “It is hard to fathom how any responsible attorney general can agree to this deal not knowing what they are getting for their constituents.” Agreed.

I’m by no means convinced that a deal will come in the immediate future. There appear to be too many outstanding questions for the outside AGs to get back in the fold. But then again, the promise of the Schneiderman task force may be enough to move people.