The Treasury Department seems to be a wits’ end on several front. The Wall Street Journal reported yesterday that Geithner said bad words to banking regulators to try to bring them to heel. A few weeks ago, Geithner also had a chat with bank executives about their failure to do much in the way of mortgage mods despite the Administration having offered them some bribes, um, incentives to do so. Turns out the incentives are light compared to what the banks make carrying on as before.
As a result, only 9% of of eligible borrowers have received mods under the new programs. That does not make for good PR, needless to say.
So the Treasury decided to publicize which banks have done the least on this front, presumably hoping that the bad press might induce them to do more. Wachovia (now Wells Fargo) and Bank of America are the laggards, but even the supposed best, JP Morgan, has done mods on only 20% of the eligible loans. This is wht the Japanese woudl call :”a height competition among peanuts,” looking for distinctions when everyone is operating at a pretty low level.
Even calling these changes “mods” is giving them more credit than they deserve. The banks first offer a “trial mod,” and because they can include payment catchups, they can result in HIGHER payments!
From the New York Times:
The Treasury Department said on Tuesday that only a small number of homeowners — 235,247, or 9 percent of those eligible — had been helped by the latest government program created to modify home loans and prevent foreclosures….
While 15 percent of eligible homeowners have been offered help through the mortgage modification program, the low rate of actual mortgage reductions has frustrated administration officials.
Yves here. I think that was poor drafting. Surely the Treasury can’t be happy with 15% either. Back to the article:
Under the $75 billion program, homeowners whose monthly mortgage payments are more than 31 percent of their gross income are eligible for modified loans, with interest rates as low as 2 percent.
Bank of America has modified only 4 percent of the eligible mortgages, and Wells Fargo has modified 6 percent.
Citimortgage, a unit of Citigroup, fared better at 15 percent, while JPMorgan Chase was among the most successful, modifying loans for 20 percent of eligible borrowers…..
John Taylor, president of the National Community Reinvestment Coalition, said the government should not depend on voluntarily compliance from banks.
“There are other modifications that Wells Fargo and Bank of America would argue that they’re making,” he said. “But maybe they’re making modifications that are not as deep or consistent with the guidelines.”
Michael Calhoun, president of the Center for Responsible Lending, was also skeptical that banks had enough incentive to comply with the program. The Treasury Department offers $1,000 payments to lenders for each modified loan and pays lenders part of the difference between borrowers’ old monthly payments and their new ones.
“For over three years, leaders have insisted they can handle this crisis on their own, but today’s report shows that the time for voluntary action is over,” Mr. Calhoun said in a statement.
Kathleen Day, a spokeswoman for the center, said: “There’s still a lot of market reasons why they wouldn’t do it. Some may not have the warm bodies to do it. They may feel overwhelmed.”
That would change, she said, if banks knew judges could modify mortgages in bankruptcy courts.
The problem is pretty simple. The banks have no shame, and the government has no leverage, or more accurately, isn’t willing to use the leverage it has.
I think the Japanese would also call Geithner's tactics a bit like kabuki.
I'm working on the basis that we are being driven off the cliff towards an Argentina-style default and devaluation.
The country will continue to function, but at a lower level, but with the potential to become a solid exporter.
Of course, outright owners of large assets will make out like bandits, whilst most others will be reset to zero.
I posted a rant about this yesterday, The Politics of Shame.
Pretty much said your observations, with a poetic flare.
What was that about massive regulatory reform?
No sane person any longer believes in "voluntary", "self"-regulation.
Everyone knows if you really want change in the behavior of criminals you have to force this change. Or just get rid of the criminals once and for all.
So, that this admin is reduced to whining about mortgage mods rather than dictating them (and Geithner is squeaking and swearing at his own people – how does one keep a straight face? "the mouse that roared") proves that they are not serious, and are only afraid of the politics of it.
You will the end, you will the means.
Housing needs to be brought down a couple of pegs on the Federal priority level. We are a long, long way from FDR's 1/3 of a nation ill-housed.
Let's focus on public health, biotech, socioeconomic disparities, etc.
Geithner, as a banker, understands the logic behind the banks not doing mods and agrees with them. But his job as a bureaucrat requires him to put on a show.
The banks routinely offer modifications, deny them, and then give homeowners the consolation prize of a repayment plan with higher monthly payments than what they were paying before they fell behind.
First, give people with no incomes loans with low teaser rates.
Second, raise the rates to unaffordable levels.
Third, collect bailout money from government.
Fourth, "fix" the bad loans by offering even higher, more unaffordable payments.
Sounds like a sound business plan.
Lets see, we expect the banks to voluntarily lower interest rates and reduce principal on the most risky loans they hold. After all, the current high interests rates on these loans reflect to some extent the bank's risk. Although, probably not all of it since many of these loans shouldn't have been made in the first place. So now they will hold these same very loans but receive less $ for taking on more risk. Probably, why Wells did so few loan mods. Wells acquired Wachovia which was stuffed full of subprime.
So, a quick Google search resulted in the discovery of this goofy-looking Photoshop of Geithner turned into the Incredible Hulk. Enjoy.