Treasury Waves Wet Noodle at Big Banks Over HAMP Mortgage Mod Abuses

This latest move by the Treasury Department to appear to Do Something about Big Bad Banks is so off the charts pathetic that I am straining to find an adequate description. It isn’t merely ineffectual; it looks instead like a deliberate thumbing of the nose at the financier-afflicted public, with the Treasury and the mortgage industrial complex elbowing each other in the ribs and laughing uncontrollably at how they’ve made their point, that the public be damned, while observing proper bureaucratic forms in the process.

The latest measure is to withhold (as in merely delay) $24 million in payments to three big banks, Bank of America, Wells, and JP Morgan, for their abuses under the Obama mortgage modification program know as HAMP. That averages $8 million each. And since this is merely a delay, the cost to the bank is the cost of not having the money sooner. Since they can borrow at pretty much zero, the economic cost is so miniscule as to not be worth presenting to the public. The abusive late and junk fees on a single abused borrower (which are ultimately paid to the bank out of the foreclosure sale) are bigger than the monthly cost per bank of the embarrassing sanction imposed here.

To give you an idea of how utterly insulting this penalty is, we need to give a bit of background. If you’ve been paying any attention to the mortgage crisis, you’ve probably taken note of efforts by the Bush and Obama Administrations to pretend to be doing something about foreclosures. The problem is that neither was keen to do all that much. Both were unwilling to apply real pressure mortgage servicers to make more mortgage modifications. Yet nobody’s soft touch vulture investor Wilbur Ross has reported good success with deep principal mods, Indeed, the overwhelming majority of mortgage investors would greatly prefer them if borrowers were screened to eliminate those hopelessly beyond redemption. After all, a 30% to 40% loss on a mortgage mod is a hell of a lot better than a 50% to 75%+ loss on a foreclosure. And the damage to investors is only getting worse as more borrowers fight in court. I know of disputed foreclosures where the loss was 400%.

So instead, we’ve had a series of mod programs that have largely failed because they worked within a rigid and badly malfunctioning securitization model. The worst, in terms of collateral damage, was HAMP, because it was bloody clear servicers gamed the program. The banks falsely told borrowers they had to be in default to participates, kept losing paperwork of those who got trial mods, kept them at a lower payment level longer than the stipulated three months, never notified borrowers they would have to make up the shortfall plus late fees if they did not get a permanent mod, and led many borrowers who were rejected for permanent mods to believe they were going to be approved. And there was a common horror story too: borrowers who had been approved for permanent mods who nevertheless lost their homes because the servicers were using the so-called “dual track” approach, continuing to process the foreclosure while the modification was under consideration. Borrowers were advised to ignore legal notices when they called their servicer. Yet the notices were valid, and many borrowers lured into inaction by their bank lost their home unnecessarily, since the department that was handling the mod could not be bothered to call off the area grinding forward with the foreclosure, even when distraught borrowers pleaded for intervention.

HAMP was so clearly a disaster that Treasury Department officials didn’t try very hard to defend it in a meeting with bloggers that I participated in last August. The best they could do was claim that it helped the housing market by spreading out foreclosures over a long time period. Given that home prices continue to fall in the overwhelming majority of markets in the US, even this alleged benefit was at best temporary in nature, and hardly an offset to the borrowers who were struggling but able to stay current who participated in HAMP and lost their home as a result.

The insulting bit is the latest move. To encourage banks to participate in HAMP, it was a voluntary program with no penalties for non-compliance save the Treasury could claw back incentives. And in that blogger meeting, Treasury fell back on the pathetic excuse that it really had no power over servicers (Geithner made the same claim before the Congressional Oversight Panel, and it did not go over very well, see the testimony starting at 101).

But that’s ridiculous. The states of Arizona and Nevada are suing Bank of America over its actions under HAMP, which violate consent decrees, and Arizona (and I assume Nevada, their lawsuits were broadly similar) ALSO sued Bofa for consumer fraud. Coming up with litigation strategies is over my pay grade, but truth in advertising is a Federal matter, and I’m sure there were other threats of litigation against servicers that Treasury in conjunction with other Federal agencies could have made if it had any real interest in bringing the banks to heel. I’m sure if Treasury had put on its thinking cap, it could have come up with a basis for inflicting some real pain on the banks over this cynical misconduct. Or they could threaten to audit servicers for compliance under the RESPA and the Truth in Lending Act. I’m certain they are a cesspool of violations.

Other observers were equally unimpressed. Alan White at Credit Slips’ headline to his post on the detailed report was “Too Big to Comply.” From the Shahien Nasiripour story at Huffington Post on this travesty:

“All this appears to be is that, after the servicers seemingly violated their agreements with Treasury with impunity, Treasury’s sole response is to give them a temporary time-out before paying them in full,” said Neil M. Barofsky, the former special inspector general for the Troubled Asset Relief Program. His critical reports on the bailout earned him plaudits in Congress for looking out for taxpayers, but enemies at Treasury, which administered the TARP.

“It further reaffirms Treasury’s long-running toothless response to the servicers’ disregard of their contract with Treasury, and by extension, the American taxpayer,” added Barofsky.

But it’s worse than that. This sick joke of a “penalty” looks to be a message by the banks via its minions in the officialdom:

Think you can lay a glove on us? Dream on. The most you can impose on us is symbolic punishment, and as we continue to cement our control, pretty soon you won’t even be able to do that.

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  1. Kielanders

    Let me quickly tell you our story, even though we’d done our research and have an RE Attorney…it’s never enough.

    In trying to buy an REO for our home (we’re not investors, we’ve been renting through the crisis the past 5 years), we got suspicious in the negotiation phase of our purchase contract.

    We live in a very rural state, and decided to have our own title opinion done by a firm well outside the area we were trying to buy.

    The seller in our state is responsible for having the title insurance policy created, and we’ve just received that in addition to the report we quietly had done for us.

    Surprise! The report we paid for has an outstanding unresolved unconveyed mortgage from 2006 for $247K.

    The sellers policy didn’t show that defect.

    We called the sellers title company inquiring about this.

    They said that they had entered into a private agreement with the REO (Citibank/CR Title), who indemnified them from loss should there ever be a claim, as long as the title company would not disclose the defect.

    I just can’t believe this. Is EVERYONE on the take?

      1. Paul Tioxon

        The loan officers, the originators, are the public face of the lending process, they take the application and gather needed supporting documents for income, such as paystubs and W-2s as needed. Frequently, they are on the take, or at least Staple is, where they get their white out to do loan doc-mods. The title insurance company is pressured to endorse or remove, as need be, anything that clouds the title. They are thereby on the take. The appraiser has to come up with a number that works, or else, LTVs are out of whack. And yes, they are pressured for return business and can be on the take. The underwriters, who have a default of “NO” when in doubt, are frequently over ridden in the last 2 or 3 days of the month EVPs, in order to hit sales quotas. While not strictly on the take, they watch as their role of quality control is tossed overboard, rendering their opinions moot, and are reduced to little more than a patina of respectable banking practices. Their silence is consent, and thereby are also on the take. And of course, every body in the business over the age of 29 at the time, who saw how things were run for decades, and saw the change, just went along to get along. On the take.

        And when it was all destroyed, they blamed the public, welfare queens, migrant strawberry pickers, and ACORN for forcing them to do very bad things, things that they would never do if they did not fear for their lives, nay their mortal souls, at the hand of jack boot thugs from THE COMMUNITY RE-INVESTMENT ACT. The government regulators were on the take from the food stamp crowd and low life chislers or else they would never, never in all of their wildest dreams have ever thought they would be reduced to begging to be on the take just to save their jobs, for the sake of the family and the children.

    1. jek40

      @Kielanders: What a story! Thanks for sharing. What’s your next step? For starters, I presume you’re reporting the fraud, yes?

      1. Kielanders

        Thanks for your replies everyone.

        We are not too far along in this process to pull-the-plug on this home purchase. We’d be out some attorney’s fees and an individual title report – small price to pay.

        I’m not sure if what’s happened qualifies as fraud, but it certainly was deceptive.

        I suppose what I was trying to express in my earlier comment was my astonishment at the scale of the problem, and how it’s permeated into every corner of the market. It’s one thing to read about it, but as always, it’s different when it’s happening to you.

        And also, I am astonished that even though my wife and I have been reading-up on this stuff for years and had a trusted RE Attorney, though we sold all of our real estate in late 2006 because we saw stormclouds and have been renting ever since; there are so many hidden traps in this process, that even educating oneself may not be enough.

        We have a meeting with our attorney on Monday. We have questions about everything from killing the deal, to getting the home and doing a preemptive Quiet Title. Obviously, we’re asking for trouble if we move forward – but we at least want to have the discussion so we better under our options, if not for this home…the next one.

        …education like this is expensive!

        Thanks Everyone.


  2. Michel Delving

    Servicers are the darlings of this debacle. Does anyone seriously expect anything more than a wet noodle lashing?
    Afterall, multiple FTC settlements and class actions on servicing fraud had the same effect on these perps who always keep right on, keeping on. Reuters reporters have written on 3 separate occasions this past month that investment banks eagerly acquired serivcers “hoping to glean more information about the housing market to aid its mortgage-bond trading business”. Hello . . . Traders were hip to servicers’ modus operandi and rode their fraud all the way home – to the bank. Firewalls between trading desks and subsidiary servicers? In your dreams!

  3. R Foreman

    The irony is usually they lost more money by foreclosing than if they had performed a mod or principle write-down and kept the borrower in the house… and they say these guys are smart ? I think not. Now banks are finding the people they want to loan to don’t want to borrow, and the people who want to borrow aren’t good credit risks. As our friend Kielanders has learned the banks are back in the fraud game (as if they ever stopped). Until we get real deflation the only people able to make money will do it via fraud, since asset prices are still in bubble territory relative to incomes.

    1. Mark P.

      @ R. Foreman

      No. You do not understand the game.

      The banks absolutely did not and do not in the majority of cases lose “more money by foreclosing than if they had performed a mod or principle write-down and kept the borrower in the house.”

      To the contrary. The banks, as originators, in most cases took their profits up front via points, PMI, etcetera, while selling on the risk. To whom? Well, since upwards of 60 percent of American mortages are now parked with the GSEs, Freddie and Fannie, partly to us.

      Thereafter, the banks — as servicers — are now making more money via fees given them for foreclosing and for short sales: that is, those fees Yves talks about here, which Treasury is temporarily delaying in its “wet noodle” gesture.

      Additionally, I don’t fully understand the workings of mortgage-based CDSs — and if somebody wants to educate me here that would be nice — but my impression is that, even after having sold on the specific mortgages in question, the banks in many cases can collect via CDSs on those mortgages that default.

      Here, the banks may or may not have gotten too clever, since once AIG and the other monoline insurers began getting knocked down, in something like 85 percent of cases the TBTFs were left as counterparties to each others risk — and it’s this fact, primarily, that’s enabled them to achieve “too big too fail” status.

      In any event, with most U.S. mortgages the banks probably make their money “back” — although, of course, via the magic of fractional reserve banking those banks never really put up any money in the first place — at least a couple of times over.

      And the American people are consequently fools at least a couple of times over.

      1. R Foreman

        > The banks absolutely did not and do not in the majority of cases lose “more money by foreclosing than if they had performed a mod or principle write-down and kept the borrower in the house.”

        Meanwhile the banks sit on a million homes that they can’t sell and continue paying real estate taxes on, which continue to lose value since there are no buyers at those prices.

        > Thereafter, the banks — as servicers — are now making more money via fees given them for foreclosing

        The banks have a hefty amount of REOwned. They are not servicers on these properties, but owners who cannot find tenants, and they stupidly kicked the last tenant out so they could feel like big men.

  4. Expat

    We get what we deserve. Americans believed all this crap on the way up and let the system entrench itself. Now, on the way down, Americans will suffer at the hands of their ruling elite.

    It’s all frankly deliciously ironic.

  5. Doug Terpstra

    That’s right, it’s too far gone and the PTB can no longer claim ignorance of the deep damage and suffering they are causing. They are utterly without excuse. May God have mercy on their souls.

    This cat-and-mouse game with borrowers and “the financier-afflicted public” seems to reveal the sadism that is commonly embedded within the predators’ arrogance, similar to the abusive culture of DSK’s IMF. Prolonging the agony and adding insult to injury is fundamental; and toying with one’s prey and rubbing their noses in scat is part of the ego gratification that psychopaths crave like a narcotic. What’s the point of raw power after all if you can’t revel in it and enjoy the debasement of your “lessers”. This is the same psychological insult of the ‘noble’ plantation master: “you’re my n—–r, and there’s not thing one you can do about it.” It is the egoic madness where imperial militarism and war take root.

    “The insulting bit … Treasury fell back on the pathetic excuse that it … really had no power over servicers (Geithner made the same claim before the Congressional Oversight Panel, and it did not go over very well…)”

    Oh, that so reminds me of a line delivered with icy malice by John Malkovich in “Dangerous Liaisons”: “I’m sorry, my dear, but it is entirely beyond my control”.

    In that movie, the ego-possession of an unaccountable aristocracy was evoked superbly by Glenn Close and John Malkovich as they became consumed with follies in an escalating game of conquest and betrayal in 18th century France. Seduced by materialism and airs, the characters grew dead to empathy and gradually began to relish the suffering of others. At the end, with palpable anguish, Malkovich’s character discovered that “crimes of the heart” are unpardonable sins after all that kill the soul and any capacity for real joy, genuine bliss. The most dangerous trap, which the perpetrators crave, is to induce victims to mirror their own demons.

    Continuing off topic, I always felt this was behind Cheney’s twisted fascination with torture, the details of waterboarding, ‘stress positions’, and debasement; it manifested as he talked cavalierly of aggressive war in the smug way he jutted his jaw with warped, thin-lipped smile. It was obvious in his getting away with outright treason in the betrayal of Valerie Plame for pure political revenge; his direct role was so thinly veiled it was virtually broadcast. This was why he was later furious with Bush-the-lesser for not granting underling Libby a straight-up pardon in the aftermath. He wanted full immunity and impunity.

    These ‘people’ live in an alternate universe. We’re going to take it back.

    1. Rex

      “These ‘people’ live in an alternate universe. We’re going to take it back.”

      Perhaps. That’s the optimistic view. Or maybe the trend of getting worse just continues. We are now inside the gates of a purgatory that we will have to live through for our collective sins.

      I accept my own responsibility for buying into the flow and assuming we could live with our hedonistic assumption of inherited right for comfort and security even though I sensed we were bleeding the neighborhood to make it possible. Now we find ourselves led by the worst of the vampires. Many (most?) are in a state of denial that the party could be ending.

      I’m thinking of Francois T yesterday. Let’s all just vote republican so we can get through the tipping point and see if humanity can survive or if we are all toast.

      I guess it’s only an expected natural process. I remember in the 80’s (when pollution was the cause du jour) thinking about my trying to make wine from grape juice in my closet when I was a teen. The yeast eat the sugar in the grape juice, turning it into alcohol. Eventually the sugar is depleted, the yeast are swimming in their alcohol excrement, and the yeast society collapses. I guess the yeast can’t really debate, “this sugar can’t last forever. We have to slow down.” They just do what comes natural until the party ends.

      Sorry. I want to be optimistic but a transition seems inevitable. I thought I might check out of this mortal coil before the excrement began to be atomized by the fan blades, but it looks like it may be starting already.

      I guess there is nothing to do but look for the best path. Good plan. Yep. Sorry for the distraction. Carry on.

      1. Dan Duncan

        Rex’s comment stinks.

        Liberals are, indeed, at their best when they challenge not only authority but also the very culture that tolerates (or permits) that authority.

        And I mean that previous sentence sincerely.

        As a culture, Liberals challenge the way we do things. Just because “we’ve always done it this way”, it’s not good enough for the Liberal minded person. This is such a necessary element of any healthy society. It’s a shame that “Liberalism” has become a pejorative.

        But Rex’s comment is case and point with what is wrong with modern Liberalism/Progressivism.

        Modern Liberals just take it too far. And self-questioning becomes more and more neurotic to the point of futile self-loathing.

        No, Rex isn’t there…yet. But he sure as hell is on his way.

        Yves’ post highlights yet another disgusting example of feckless governance. And here comes Rex stating that he “accepts (his) own responsibility for buying into the flow and assuming we could live with our hedonistic assumption of inherited right for comfort and security…blah, blah, blah”.

        It may not be quite as dramatic or unreasonable as the Genesis conception of Original Sin, but it’s damn close.

        And the subtle inclusion of “we” exacerbates matters. Rex becomes a martyr as he accepts responsibility for all of us…by assuming we could live with our hedonistic assumption…

        Hey, Rex: Speak for yourself.

        And from this point…the rest of his comment is essentially about the futility of it all and just giving up.

        This strain of Liberalism is self-indulgence of the worst kind…because it’s really all about feeling good about one’s own self-loathing. Self-examination becomes and end. And in the end it merely collapses back on itself under the weight of its own purposeless scrutiny.

        “I accept my responsibility. And while I do feel bad about my responsibility, at least I recognize OUR responsibility. And this makes me feel good…because I’m enlightened enough to feel bad.”

        Hey Rex: These people do live in an alternate universe. The only way that we might deserve this state of affairs is if we allow this state of affairs. We are going to take it back and we will not merely “carry on.”

    2. ambrit

      Re: “These people live in an “alternate’ universe. We’re going to take it back.”
      I’m afraid I have to agree with Rex above. There is a growing feeling of apprehension out here on ‘the Street.’ People have lost confidence in the fairness of ‘the system.’ Whether or not ‘the system’ was fair to begin with, public perception played the deciding role in its’ functionality. Now that the public is turning against this ‘system’ and its beneficiaries, the police state comes into its own. The elites are labouring mightily to enforce their version of ‘fairness’ within the ‘system.’ A cynic will sigh and resign him or herself to a ‘bumpy patch.’ The rest of us thrash about wildly searching for coping mechanisms: The Tea Party, Dancing with the Stars,the War For Drugs (has anyone noticed how many Meth heads and Crack heads there are now?), the latest ‘Non-Event.’
      The saving grace in all this is that all the people here and on other ‘Thoughtful Blogs’ are doing what they can to understand what’s going on and shift the political conversation towards rationality. Since it took the “Forces of Evil’ thirty years or more to get us to this point, we’ll bloody well have to resign ourselves to a long and hard slog to reverse the momentum. I’m putting on my boots and rolling up my sleeves.

      1. jsn

        It is one of our heuristics as humans to fear loss more than we hope for gain. Unanticipated change for good can be just as unexpected as change for ill but we are not set up to embrace the good while we are set up to brace for the bad and in the insecurity of dramatic change it is hard to tell the difference. The will to be is strong, particularly in youth so you get this:,1518,767032,00.html

        and this:,1518,767032,00.html

        It is not inevitable that positive change will succeed, but if we don’t try, it becomes inevitable that it won’t.

  6. pjwrites

    I think our “democratic republic” is, in fact, a country under mob rule.

    There is no other clear explanation for the actions of our so-called “leaders” in government – or their inaction with regard to protecting the populace and honoring their personal vows to protect the Constitution.

    It’s time to impeach not just the President, but all three branches of government along with all staff members, as well.

    Rot starts at the top – and there is no doubt we are rotting.

    1. darms

      “Mob Rule”? Really?

      In a CNN/Opinion Research Corporation poll released Thursday, 39 percent of those surveyed say that all American forces should be brought home now – up nine percentage points from a poll conducted the day after Osama bin Laden was killed in Pakistan. Another 35 percent say that some troops should be brought home, up one point from last month.

      In this case a ‘mob’ of 74% surveyed want most or all our forces withdrawn from Afghanistan and from the article only 18% favour troop levels to stay steady”.

      That ain’t ‘mob rule’, that’s an out-of-touch plutocracy who rule as they see fit, majorities be damned.

  7. Graham

    My first election in which I was eligible to vote was 1980. I became politically aware shortly thereafter.For 31 years now, I have watched in horror as the commons were attacked and bizzaro world come to flower. Now, the things that any fool could have predicted would happen from these policies, are happening.

    Post 911, as the rule of law was dismantled, along with all other constraints to market rigging… I wonder how much longer this irrational model can continue, and what next?

  8. ep3

    “Treasury fell back on the pathetic excuse that it really had no power over servicers ”

    Why do they say things like this? I thought one purpose of gov’t was to have this extraordinary hand that could intercede in all matters so they could go above and beyond any actions the market could take. It seems now that the purpose of the gov’t is to be an bystander with a bottomless checkbook.
    I went to a pathetic school so maybe i am wrong. But I thought the purpose of gov’t was so that all the citizens could get together and decide how they wanted their country run. That when “the world” failed to take care of even one citizen, the gov’t would be there to see that justice was there for them. For example, if someone stole my car, it wasn’t my responsibility to get it back. We had decided as a society that stealing was wrong and that gov’t would see that stealing wouldn’t happen and if it did, the gov’t would be there to right that wrong.
    I guess I am trying to say I expect my gov’t to be more proactive for the best interests of it’s citizens, everyone of them. You can’t make everyone happy but you try to do right (whatever that may be) and work to equalize the system.

  9. F. Beard

    Personally, I am against mortgage mods. Too tame. Instead, the entire US population, including savers, should be bailed out with massive and equal checks of new, debt-free fiat. And to prevent the banks from leveraging that new high powered money, the banks (and Fed) should be put out of the counterfeiting business at the same time.

    Politically, the banks have divided savers against borrowers but a proposed bailout of the entire population would UNITE savers and borrowers against the banks. Furthermore, a bailout of the entire population would fix State and local tax revenues too.

  10. juno

    Monthly HAMP reports show that well over 50% of “modifications” are new, longer dated mortgages; ie/ you have 23yrs left on a 30yr mortgage…get “help” from HAMP and you now have a 40yr mortgage. Even w/ principle write-downs..which cut the amount owed, and a lower rate…the longer dated mortgage more than makes up for cutting 20k off principle which does not even bring the property down to current prices.

    Another cute trick, that looks like the same old rules arbitrage, is to call homeowners that are current, with fixed rate mortgages, and “sell them” on a lower rate….if they extend their mortgages!

    HAMP, extending mortgages to lower rates is just accumulating garbage out at longer dates…thus allowing banks to extend the life of their REOs while raking in the dough with yet another scam.

    When institutions are no longer trusted, the country is in deep trouble; we are in deep trouble.

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