Category Archives: Real estate

Sleaze Watch: Florida Attorney General Cavils About “Moral Hazard” While Letting Foreclosure Mill Off the Hook

t’s becoming increasingly clear that morality applies only to little people, especially the sort that are cannon fodder for our mortgage industrial complex.

The Florida attorney general, Pam Bondi, joined three other Republican attorneys general in arguing against the principal reductions called for in the so-called mortgage settlement on the basis of “moral hazard”. Their argument? That it would reward those who “simply choose not to pay their mortgage”.

Boy, am I naive. The term “strategic default” appeared out of nowhere and had a pre-packaged sound about it.

Slapping Team Obama: Several Democratic AGs to Withdraw from Proposed Mortgage Fraud Settlement; Federal Negotiations in Disarray

The so-called mortgage settlement looks to be coming apart at the seams. That does not mean there will not be a deal of some sort. Remember, a hallmark of the Obama administration is to do things simply to have more “achievements” to discuss. But not only, as has been rumored for some time, are a number of Republican attorneys general saying they will not join in the settlement, so are some Democrats as well.

It’s important to recognize that Democratic withdrawals are a far bigger problem for Obama than the Republicans. Given that a number of AGs signed up at the last minute, and some of the Republicans were not even on board with the concept of a mortgage settlement, defections among the GOP participants can be depicted as partisanship. By contrast, repudiation by Democrats, particularly Democrats that have garnered some attention in the national press by taking mortgage abuses seriously, is much harder for the Administration to explain away. And as David Dayen at Firedoglake reports, if enough AGs defect, the settlement becomes a dead letter:

Are Fannie and Freddie Giving Banks Yet Another Bailout by Not Pursuing PMI Claims?

The further you look at the banking mess, the more the same problems keeps staring back: too many losses, not anywhere enough equity or reserves, and a lot of tap dancing by the officialdom to pretend otherwise.

We wrote yesterday, thanks to some sleuthing by Chris Whalen, that Fannie and Freddie might be sitting on north of $100 billion of unreported losses. If they started realizing those losses, one of the first parties that would take a hit would be the private mortgage insurers, since on high loan to value loans (over 80% of appraised value), they were in the business of guaranteeing the loan balance in excess of 80%. So while the failure of the GSEs to act is no doubt part of the extend and pretend shell game, it serves to keep PMIs that would otherwise be as dead as certain notorious parrots alive.

Marshall Auerback: The Economic Policy Behind Intervention in Libya Chases Its Own Tail

By Marshall Auerback, a hedge fund manager and portfolio strategist. Cross posted from New Deal 2.0

Any intentions of boosting the economy will be obliterated by our spending on military actions.

As my friend Chuck Spinney has noted in an exchange of emails, President Obama’s actions in Libya show that he has caved in to the “humanitarian interventionists” in his administration, as well as British/French/American post-colonial and oil interests. The result: yet another war with a Muslim country that has done nothing to us. Additionally, the fact that we are doing nothing to staunch the Saudi/Bahraini/Yemeni crackdowns smacks of hypocrisy and will hurt us even more on the Arab streets.

Fannie and Freddie Hiding Over $100 Billion of Losses?

Bank expert Chris Whalen has a little bombshell in his current newsletter. It’s so obvious that it should not only have occurred to me but pretty much everyone on the real estate beat. And that begs the question why no one has even mentioned it.

Beware the Predatory Pro Se Borrower!

Somehow, “predatory pro se borrower” reminds me of “The Attack of the Killer Tomatoes.” Pro se defendants are generally lost souls in the court system. They typically get up, flail around before a frustrated judge, and lose (cinematic examples to the contrary, like “Find Me Guilty”, notwithstanding). So the idea that they could rise to the level of being threatening enough to be “predatory” seems like more than a bit of an oxymoron.

But this document depicts these usually hapless defendants as a danger (hat tip April Charney):

The Elizabeth Warren Rorschach Test

The spectacle of a bunch of Republican Congressmen spending over two hours pillorying Elizabeth Warren, following weeks of death of a thousand unkind and generally offbase cuts coverage in the Wall Street Journal has led a lot of folks from what passes for the left, and even not so left, to ride in to her defense. A partial list includes Paul Krugman, Simon Johnson, Joe Nocera, Mike Konczal, and Adam Levitin.

The last time I can recall the Journal becoming quite so unhinged about an individual was over Eliot Spitzer. And since Warren seems pretty unlikely to be found to have similar personal failings, the specter of the right throwing what look to be ineffective punches at her makes for a peculiar spectacle. What is the real aim behind this drama?

Clearing Up Some Misperceptions on the Mortgage Modification/Second Lien Debate

A fairly long discussion, by blogosphere standards, has broken out over second liens. For those comparatively new to the topic, a recap is in order.

Second liens are either second mortgages or home equity lines of credit on homes. The bone of contention is that mortgage servicers, which also happen to units within the biggest US banks, have not been playing nicely at all with stressed borrowers out of an interest in preserving the value of their parent banks’ second liens. And the reason for that is that writing down second liens to anything within hailing distance of reality, given how badly underwater a lot of borrowers in the US are, would blow a very big hole in the equity of major banks and force a revival of the TARP. That is one of the very last things Team Obama would like to see happen, hence its eagerness to promote various extend and pretend policies.

The mortgage settlement proposal includes a provision that would call for second liens to be reduced pro-rata with the firsts. That, as Gretchen Morgenson noted, and Jesse Eisinger amplified, is contrary to long-standing principles of priority of creditor payments. Felix Salmon then argued that the banks were within their rights to try to extract some value from the seconds, which led to further rebuttals…

Implosion of Foreclosure Mill Leaves 100,000 Cases in Limbo

Florida, as the ground zero of the foreclosure crisis, is arguably further along in seeing how some of the uglier aspects of this mess will work themselves out. The foreclosure mill abuses were so bad that even a not terribly venturesome AG, Bill McCollum, went after them, and his Republican successor, Pam Bondi, is reported to be keen to keep the heat up on mortgage arena miscreants.

As the cases against the big foreclosure mills have moved forward, clients have exited, and that is generally a death knell for a law practice. Normally, when law firms get in trouble, partners who have books of business not involved in the scandal plus senior associates capable of handling client relationships grab as much of the old business as possible and reconstitute under another name. But the foreclosure mills were very high leverage operations, with very few partners and much of the work handled by paralegals or junior attorneys. So there is no one to pick up the pieces when a firm like that falls apart.

On the Clouded Title Mess and the Difficulties of Cleaning It Up

Abigail Field’s latest piece at Daily Finance is a great one-stop summary of the most thorny problem underlying the securitization mess: how can we clean up title given how badly it has been screwed up? As we and many others have noted, integrity of property ownership is an essential foundation of development; this is straight Hernando de Soto gospel. And as our Richard Smith has pointed out, the various fixes to get around this mess run roughshod over well established court procedures that date back to the 1677 Statute of Frauds. Why was it necessary to implement those rules? Because without them, wealthy people could use the court system to steal property. Sound familiar?

One thing that it is important to stress: that the abuses to established real estate transfer and recording processes were not inherent to the securitization model. I’m not a fan of securitization but the sad reality is that no one is prepared to go back to the more costly in terms of equity required, model of on-balance sheet banking (it would result in a shrinkage of credit that every respectable economist would recommend against and hence will never happen). But no one (except the FDIC, which keeps being ignored) is thinking seriously enough about what it would take to make securitization safer.

We Speak on BNN About Housing Outlook, Foreclosure Fraud Settlement Discussions

This was a wide-ranging talk on US housing with the very well informed hosts at BNN. Enjoy!

Quelle Surprise! New Home Construction Plunges

How could anyone have expected new home building to be anything more than anemic with housing prices expected to fall nationwide in 2011? Did some forecasters miss the fact that there are a lot of foreclosures in the pipeline given the current level of serious delinquencies as well as a lot of shadow (homeowners who would like to sell but are not putting their homes on the market due to depressed prices in their market?)

Obama Pressing for a “Shock and Awe” Mortgage Mod Program, 3 Million in 6 Months

Given how well “shock and awe” worked in the Iraq war, I’d see the Administration’s use of that expression in the context of the mortgage mess as a Freudian slip.

I must confess to being surprised at the report by Shahien Nasiripour of Huffington Post, namely that the Administration is pushing for an even more aggressive-looking mortgage modification program than has been rumored. The reason I’m surprised is that this effort, even though it appears misguided on several fronts and falls far short of what is needed, represents an upping of the demands being made against banks. That is contrary to both the Obama Administration’s past behavior of making great sounding promises and walk them so far back as to wind up in a different country, and of inconveniencing the banks terribly much. But Shahien is an able reporter, so I’m sure he has the facts right.