If I had Onion-level parody skills, I’d treat the latest story in The Hill on Team Obama’s latest housing headfake masquerading as an initiative by riffing on one of its planned new program. Call it HUMP, Homeowners Upward Mobility Program. In true Ministry of Truth style, mortgage borrowers facing foreclosure would be moved, discreetly, into tent cities that would do Potemkin proud, with names like “Country Club Lane” and “Lake Shore Drive” and painted facades in front of their tents and shanties. Local merchants would praise the new subdivision and the inhabitants would say how nice it was to now be living in a McMansion, even if it was only really a couple of inches deep.
But instead you get my normal shtick.
The Administration is so far from having a plan that it is only talking about having a plan: “White House signals more aggressive stance to protect homeowners.” It’s a little late to be talking about doing something in January of an election year, particularly when you’ve spent over a year (starting in November 2010 with the coverup known as the Foreclosure Task Force, which dovetailed nicely with the administration basically taking over the attorney general “settlement” talks, but letting Iowa AG Tom Miller get a lot of media profile so as to disguise who was running the show.
Now the only thing the Administration could conceivably do (well it could in theory do a lot, but that would require being in a parallel universe in which Obama had realized he could go down in history as a great president if he leashed and collared the banks) is a really big refi program by Fannie and Freddie. Oh, but the Administration already has that happening, sort of. We talked about their new scheme last October:
The simple outline is: the government is extending and modifying its disappointing HAMP program, which allowed borrowers underwater up to 125% loan to value to refinance through Fannie and Freddie at lower rates. HARP was expected to help 3 to 4 million borrowers but only 900,000 participated. The LTV cap is now being eliminated and no appraisal will be required. Only borrowers who have never missed a payment will be eligible. Certain fees will be waived for borrowers to refi into short-term mortgages.
Even the Administration conceded this wasn’t much of a program…
This plan is yet more proof that this Administration is not about to inconvenience banks to help homeowners and communities. It has tools in its power than would change the incentives for banks and make them far more willing to do what the overwhelming majority of mortgage investors would prefer, which is provide deep principal mods for viable borrowers. Forcing banks to write down seconds, and taking an aggressive stance on foreclosure fraud would restructuring debt more attractive than it is now. But just as the banks and their captured governments in Europe seem intent on grinding down entire economies to extract their pound of flesh, so are banks in the US continuing to operate a doomsday machine that grind up housing with no regard for the economic and social costs.
Note we’ve been skeptical of refi programs as a form of relief, since mere interest reduction won’t make enough of a difference for borrowers in serious negative equity land.
But having resorted, in typical fashion, to a path of little resistance option, what pray tell can Team Obama do now? The Hill tells us:
The Obama administration has signaled to allies that it will take a more aggressive role this year in protecting homeowners from foreclosure, a posture that fits with Obama’s populist campaign stance….
“There’s an understanding now in the administration that there needs to be a comprehensive strategy to diminish the foreclosure rate and clean up the housing problem,” said Rep. Barney Frank (Mass.)…
“There’s a lot of conversation going on,” Frank said of talks with the administration to find solutions that do not require the expenditure of taxpayer money, a constraint during a time of record budget deficits…
“We need to put more pressure on the banks,” Frank said.
“The four largest servicers are the four largest banks. I don’t believe investors have a right to resist that,” he added.
OMG, there are so many layers of dissimulation in this that it is hard to know where to begin. I guarantee that “There are a lot of conversations going on” is code for “They are flailing around but I am never gonna admit that to you on the record.”
How can Frank talk about “We need to put more pressure on the banks” and then talk about investors, and not bank second liens? He immediately presents investors as the obstacle, when banks don’t want to take the losses. In fact, the New York Fed’s William Dudley said in a stunning argument in the Financial Times that first mortgage investors should take principal writedowns, but really, it was just too hard to do anything about the bank owned second liens. Huh? This the reverse of what is true and what ought to be done, but welcome to the Fed-backed world of cream for the banks, crumbs for the rest of us.
And back to Frank, you may have missed the significance of this remark: “I don’t believe investors have a right to resist that.” Um, what about a contract don’t you understand? Ex bankruptcy or sovereign debt restructurings, investors have to AGREE to a restructuring. The amazing thing about this remark is Frank already lost this fight. There was a servicer safe harbor provision in the initial version of HAMP that was not present in the final version of the program. Why? Because some investors contended that it raised 5th Amendment issues.
But more important, the horse has left the barn and is in the next county as far as being tough on bank is concerned. Obama has already given so much ground to services that it’s inconceivable that he could claw much back. The OCC has already entered into consent orders that are toothless by design. The seemingly neverending mortgage settlement negotiations if they ever get done are intended to be another “get out of jail almost free” card for bank miscreants.
The article does indicate that the Administration is waking up to the idea that housing could be a contentious election issue. But the article is all grand talk, no new ideas, and most important, no evidence of real will.
But the reality is Obama is relying on looking less awful than the Republican candidate (the risk that disillusioned voters will stay home does not seem to be taken seriously enough by his team). So despite the palaver, fundamentally the Administration does not see the housing issue through the impact on individuals and families, communities, and the broader economy. If he did, you would have seen more aggressive action on jobs and foreclosure fraud some time ago. Instead, the mortgage mess is simply another opportunity to differentiate Candidate Obama from Brand Republican.