Moon of Alabama Brecht quote
December 02, 2007

A "Broad Coalition" For Mortgage Scams

One currently discussed initiative to help homeowners in mortgage trouble is legislation sponsered by Democrats which would allow judges to modify faulty mortgage loans in bankruptcy proceedings.

The White House-Wall Street plan is opposed to this. It's idea is to freeze some selected Adjustable Rate Mortgages at their current interest rate.

That is unlikely to benefit homeowners and investors. But Paul Krugman and Nouriel Roubini somewhat lauded the effort.   

The Washington Post made it sound like all interests were included in the WH-WS discussion:

Homeowners could apply to freeze their rates or refinance their loans quickly under the deal being worked out by Treasury officials; the Hope Now Alliance, a broad coalition of consumer counseling groups, investors, nonprofits such as Homeownership Preservation Foundation; and lenders such as Citigroup, Wells Fargo, and Countrywide Financial.
A key point of negotiation that remains unresolved is working out a solution for investors, who are being represented by the American Securitization Forum, that would convince them to give up their right to sue.

Note the semicolons in the first WaPo paragraphs that make it look like three distinct different groups, -Treasury; Hope Now Alliance; lender banks- , plus the investor representation, are involved. But these actors are not distinct.

From the government we have:

  • Henry Paulson, Secretary of Treasury, former CEO of Goldman Sachs
  • Sheila C. Bair, Chairwoman of the Federal Deposit Insurance Corporation, former Senior Vice President for Government Relations of the New York Stock Exchange. Her academic research interest is "Expanding Access to Financial Services Among Low Income Groups", i.e. how to make subprime loans.
  • Alphonso Jackson, HUD Secretary, former President of American Electric Power-TEXAS and a partisan crook.

Who is this "broad coalition" named Hope Now?

HOPE NOW is a cooperative effort between counselors, investors, and lenders to maximize outreach efforts to homeowners in distress.

The group was inaugurated October 10. Seven weeks later the effort to "maximize outreach" still consist of only one simple static webpage.

It includes, amongst others, the Homeownership Preservation Foundation, Citigroup, Countrywide, Wells Fargo and many other banks and also the Amercian Securitization Forum.

According to WaPo the "lenders", depicted as a different group, directly involved in the negotiations are Citigroup, Countrywide Financial, JPMorgan Chase, Wells Fargo, Washington Mutual.

The nonprofit Homeownership Preservation Foundation the WaPo mentions has this mission:

To develop innovative solutions for preserving and expanding homeownership by partnering with consumers, policy makers and the mortgage lending industry.

It's funding partners are:

Citigroup, Countrywide, JP Morgan Chase, Washington Mutual, GMAC ResCap, Home Loan Services, a subsidiary of Merril Lynch, HSBC, Ocwen, Wilshire Credit Corporation, Fannie Mae

Investors, the WaPo says, are represented by the The American Securitization Forum:

The ASF membership encompasses all aspects of the securitization industry, including issuers, investors, financial intermediaries, rating agencies, legal and accounting firms, trustees, servicers, guarantors, and all other market participants.

That is quite a mix of interests there.

A small town in Norway or a school district in Florida that were talked into buying MBS junk, i.e. real investors, might not feel well represented by an organisation that also represents everyone who made huge profits by selling the junk to them in the first place.

On its webpage ASF does not disclose it's membership or who is financing the group. But the Google cache has a nugget  that shows the members of the ASF MARKET STANDARDS AND PRACTICES COMMITTEE. These come from Citigroup, Washington Mutal, Goldman Sachs, Merrill Lynch, Wells Fargo, ...

ASF's Executive Director is a lawyer who "specialized in structured finance transactions". The Deputy Executive Director, also a lawyer, used to "represented issuers and underwriters in various structured finance offerings, including residential mortgage-backed securitizations and asset-backed securitizations."

The distinct groups and "broad coalition" the Washington Post tries to sell in its piece are nothing like that.

The government people involved are from the banking business, the "consumer counseling", "nonprofit" organisation is financed by the mortgage banks involved and the "investor position" is taken by a mortgage industry advocacy group that includes all the mortgage banks.

These are crooks negotiating with their companions and themselves on how to press even more money out of the homeowner and investors the have scamed before.

Paul Krugman and Nouriel Roubini should better take another look at this 'initiative'.

Posted by b on December 2, 2007 at 18:36 UTC | Permalink


If Wall Street pulls off the tax-payer supported Hope Alliance, that may serve to stabilize housing prices at a price-point some 200% to 300% higher than the cost to build new housing, but since no new housing loans will be made, those underwritten inventory prices will continue to climb, like NYC real estate.

Limit supply, but underwrite demand. That's the Wall Street:White House Way.

* DENY - Extending ARM resets to Mom and Pop, who can no longer afford the mortgage payments due to inflation. Those repo's will roll up to the next caste.
* APPROVE - Extending resets to the higher caste who can make continued payments, investment flippers, builders, developers, mortgage banks and foreign CDO holders.
* SLIP UNDER THE VELVET ROPE - Extend resets even to the elite caste who have more than enough $'s to burn, but don't want to lose equity selling. Who's watching?

IMHO, 9/11 was an augury for the End of the American Dream, crashing at 500mph into the twin forked-tongue evil of Wall Street after the dot-con neutron bomb. Katrina then became an augury for the End of the American Administration, so corrupted and co-opted now, they can barely tie their Testoni's, or speak in coherent sentences.

Posted by: Joshua Slaove | Dec 2 2007 19:42 utc | 1

Mortgage industry hashes out rate-freeze plan

Mortgage industry executives worked on Saturday to hammer out details of a homeowner rescue plan that would freeze interest rates on some U.S. subprime mortgages for up to seven years, but questions remained over how to avoid investor lawsuits and other legal challenges.

The negotiations among lenders, servicers, investor groups, regulators and other parties were aimed at allowing U.S. Treasury Secretary Henry Paulson to announce a framework for the plan on Monday, with full details expected on Wednesday, said a mortgage sector source involved in the talks.
The plan's details are now up to the mortgage industry and investors, the two groups that will have to absorb its costs.
The American Securitization Forum, a trade group that represents large mortgage investors such as pension and mutual funds, said on Friday it could "support loan modifications in appropriate circumstances."

A streamlined approach to loss mitigation "will ultimately help servicers manage their responsibilities in a changing market, while appropriately balancing the interests of borrowers and investors," Tom Deutsch, ASF deputy executive director, said at a housing hearing in Los Angeles.

ASF does NOT represent "large mortgage investors such as pension and mutual funds" - this is a huge, huge scam.

The Reuters piece hints that they are probably trying to make Fannie Mae and Freedie Mac to take the losses (Fannie and Freddie are guaranteed by the tax payer). But Fannie and Freddie are not involved in the "negotiations"

As major investors in subprime mortgages, the government-sponsored housing enterprises will need to be on board with the plan, but they face tight legal restrictions on how they can modify loans.

"We believe that any efforts by Treasury, originators, servicers and investors to help families in distress weather the current downturn are welcome and positive developments," Freddie Mac said in a statement. "We are not familiar with all the details of this concept. But we believe it is critical for all parties to be creative in finding solutions to the current problems."

Posted by: b | Dec 2 2007 20:20 utc | 2

I somehow assume that the Republicans have all but written off the 2008 presidential elections and just want to stave off the inevitable crash until the Democrats are firmly ensconsed in the White House.

Posted by: ralphieboy | Dec 2 2007 20:21 utc | 3

Just found another google-cache page which includes the MEMBERS - LEGAL, REGULATORY, ACCOUNTING AND TAX COMMITTEE of AFS.

Lots and law firms and banks that securitize and make fees from it - no real investors.

Posted by: b | Dec 2 2007 20:31 utc | 4

Where Was Jeb?

A government money market debacle unfolding in Florida is raising questions about former governor and presidential brother Jeb Bush's possible involvement in the mess.

Florida froze withdrawals from a state investment fund earlier this week when local governments withdrew billions of dollars out of concern for the fund's financial stability.

In the past few days, municipalities have withdrawn roughly $9 billion, nearly a third of the $28 billion fund (which is similar to a money market fund) controlled by the Florida's State Board of Administration (SBA). The run on the fund was triggered by worries that a percentage of the portfolio contained debt that had defaulted.

A majority of this paper was sold to SBA by Lehman Brothers. Bush, as the state's top elected official, served on a three-member board that oversaw the SBA until he retired as governor in January. In August, Bush was hired as a consultant to the bank.
While SBA wouldn't confirm, Bloomberg reported the amount of debt in default is around $900 million.

Posted by: b | Dec 2 2007 22:35 utc | 5

Oh nooooo surely not! Just goes to show what a genuine fuck up this whole sub prime thing was if one of those upright Bush fellas was keeping an eye on things. Old Jeb, he's such a gentleman he even when onto the board of the bank when he retired, just to make sure that the state's finances were safe.

Just practising the spiel that will be used for the next generation of Bush candidacy in '12 or '16.

Posted by: Debs is dead | Dec 3 2007 4:10 utc | 6

FWIW, the bankruptcy bar favors the amendment to the Bankruptcy Code to permit "cram-down" of mortgages in Chapter 13 for a short period of time, two to three years. This would help actual homeowners but not speculators, who should just eat the loss. It also completely solves the legal issues described in the main articles, by cutting out the problem of consents by owners of the securities. I don't really understand why the greedheads on Wall Street don't support this solution.

Posted by: masaccio | Dec 3 2007 4:49 utc | 7

@Ralphieboy, agreed they're doing whatever they can to stave off crash til '09; but I'm not sure Repug party has given up. I'm reading kevin Phillips @the moment, & I think they're hoping a "successful" attack on Iran - that's how neo-fascists are presenting it to the Dauphin - will rescue them. My take is that Bloomberg will be compromise/consensus candidate. He just met w/Obamination (& last wk. I read art. that he's being tutored by a Soros employee, from "Open Society Institute" as I recall.).

b- have you considered refocusing your consulting practice on munipalities, etc., who are getting duped by the Global Securities Predators, who are clearly hellbent on sucking every last penny from peoples around the globe into their greedy claws? Perhaps team up w/International Lawyer. Norway for example should consider suing the ratings agencies for misrepresenting the junk as top grade crap.

Posted by: jj | Dec 3 2007 6:26 utc | 8

@jj b- have you considered refocusing your consulting practice on munipalities, etc., Nice idea, but that requires a law degree which I don't have.

Posted by: b | Dec 3 2007 8:07 utc | 9

Krugman (still no real judgement on the plan): Innovating Our Way to Financial Crisis

The financial crisis that began late last summer, then took a brief vacation in September and October, is back with a vengeance.
Skip to next paragraph

How bad is it? Well, I’ve never seen financial insiders this spooked — not even during the Asian crisis of 1997-98, when economic dominoes seemed to be falling all around the world.

This time, market players seem truly horrified — because they’ve suddenly realized that they don’t understand the complex financial system they created.
The freezing up of the financial markets will, if it goes on much longer, lead to a severe reduction in overall lending, causing business investment to go the way of home construction — and that will mean a recession, possibly a nasty one.

Behind the disappearance of liquidity lies a collapse of trust: market players don’t want to lend to each other, because they’re not sure they’ll be repaid.
But the innovations of recent years — the alphabet soup of C.D.O.’s and S.I.V.’s, R.M.B.S. and A.B.C.P. — were sold on false pretenses. They were promoted as ways to spread risk, making investment safer. What they did instead — aside from making their creators a lot of money, which they didn’t have to repay when it all went bust — was to spread confusion, luring investors into taking on more risk than they realized.
Now, Mr. Paulson’s new proposal to help borrowers renegotiate their mortgage payments and avoid foreclosure sounds in principle like a good idea (although we have yet to hear any details). Realistically, however, it won’t make more than a small dent in the subprime problem.

Posted by: b | Dec 3 2007 8:19 utc | 10

Thanks for this post b, and for uncovering who is who running these various "groups". WaPo's semi-colons! What a laugh. I do hope your post prompts some closer scrutiny in the corp. media. (*doubtful sigh*)

Re: Krugman. In his last 3 grafs he writes:

And free-market orthodoxy dies hard. Just a few weeks ago Henry Paulson, the Treasury secretary, admitted to Fortune magazine that financial innovation got ahead of regulation — but added, “I don’t think we’d want it the other way around.” Is that your final answer, Mr. Secretary?

Now, Mr. Paulson’s new proposal to help borrowers renegotiate their mortgage payments and avoid foreclosure sounds in principle like a good idea (although we have yet to hear any details). Realistically, however, it won’t make more than a small dent in the subprime problem.

The bottom line is that policy makers left the financial industry free to innovate — and what it did was to innovate itself, and the rest of us, into a big, nasty mess.

As much as I generally respect Krugman's analyses he seems to wimp out at the end of some, as per the above. " ... policy makers left the financial industry free to innovate ... into a big, nasty mess." Pretty lame.

Check out his latest blog

Maybe I don’t have what it takes to be a serious columnist. I mean, it would never have occurred to me to suggest that the only way to explain an economic forecast I don’t agree with is to say that it must be part of an evil plot to drive down the market, so that Goldman Sachs can make money off its short position — and to suggest that Goldman should be the subject of a federal investigation.

But that is exactly what should happen IMO.

Posted by: Hamburger | Dec 3 2007 12:22 utc | 11

Following from #11: GS was making money off its short position in the same shit-pile it was selling to investors. Is this even legal? Let an investigation decide about "evil plots". K sounds likes he's in the weeds on that blog post.

Posted by: Hamburger | Dec 3 2007 12:42 utc | 12

If this program will help save homeowners, then why would one be against it, scrooge. As far as labeling Secretary Jackson as a "crook". Do you have any facts that state he stole anything or received bribes? Of course, when the majority recommends their son's company or a nephew for a job, then it's just a helping hand. Allegations of crookedness and dishonesty have been lashed at minorities too loosely since Jim Crowism. Wikipedia is not a dictionary service, anyone can add or delete information based on their own agenda. Too bad Jackson is a public figure and cannot take legal action against those who slander and libel or report half-truths for political fun.

Posted by: tel | Dec 3 2007 15:37 utc | 13

Yesterday the NYT had an article by Ben Stein asserting precisely what Krugman in an elliptical way suggested. Read it it is astonishing.

Posted by: jlcg | Dec 3 2007 15:41 utc | 14

Jim Kunstler pointed out on his blog that one big problem they're going to have renegotiating these loans is that they've been subjected to so much slicing, dicing, and chopping, that nobody really knows anymore who actually owes what to whom.

Posted by: Loveandlight | Dec 3 2007 18:06 utc | 15

@tel - Jackson denied a contract to someone because the guy didn't support Bush. As a private person he may dod so, as a public servant he may not. That's a crook for me.

If Jackson wants to have legal action for slander - welcome - he should look up something like "first amendment" before he starts.

@jlcg - Ben Stein in The Long and Short of It at Goldman Sachs critizes a Goldman Sachs economist because the guy assumed a 15% downturn in house prices and a general CDO mess. Stein thinks that's impossible and too much. I (and I believe Krugman too) think it will be worse.

But his main point is that Goldman shortened the CDO market while selling CDOs itself and then, by releasing such research, could make more money on its shorts.

That is certainly a plausible theory, but could also simple pragmatism. "As long as you wnat to buy these apples I'll sell them to you even though I think they taste like s***" It will be hard to prove anything here ...

Reintroduce a modified Glass-Steagall act and the conflict of interest issue should be solved - maybe.

Posted by: b | Dec 3 2007 18:14 utc | 16

Paulson just announced the result of the "broad coalition" talks.

Seems there is not much left from the original plan - to help some of the mortgaged people by screwing some investors.

First, we are increasing efforts to reach able homeowners who are struggling with their mortgages. Second, we are working to increase the availability of affordable mortgage solutions for these borrowers. Third, we are leading the industry to develop a systematic means of efficiently moving able homeowners into sustainable mortgages. ... [1]By bringing together counselors, servicers and investors, the HOPE NOW alliance has brought the resources of investors to bear to enable non-profit mortgage counselors to be more widely available. The Alliance is scaling up a national hotline that borrowers can call for mortgage counseling. And let me say to those listening out there – if you are worried about losing your home, call this number, 1-888-995-HOPE, to see if you are eligible for assistance. ... [2]Given the local nature of housing markets, state and local solutions can be particularly effective. Current law allows states and localities to issue tax-exempt bonds only to assist first time homebuyers or homebuyers in designated distressed areas. Some states' housing agencies have initiated pilot programs, backed by taxable bonds, to help refinance struggling subprime borrowers into more affordable mortgages.

Today, we are proposing to allow state and local governments to temporarily broaden their tax-exempt bond programs to include mortgage refinancings; if enacted, this will reduce the cost of innovative mortgage programs and allow these programs to reach more struggling homeowners.
This fall, HUD initiated "FHASecure" to give the FHA the flexibility to help more families stay in their homes, even those who have good credit but may not have made all of their mortgage payments on time. An estimated 240,000 families can avoid foreclosure by refinancing their mortgages under the FHASecure plan.

The Administration is taking action to help homeowners, and Congress must do the same before it leaves for the year. Since August, the President has been calling on Congress to pass his FHA modernization proposal which, by lowering the down payment requirement, increasing the loan limit and allowing risk-based pricing, will make affordable FHA loans more widely available. The Administration's proposed bill would help refinance another estimated 200,000 families into FHA-insured loans.
[3]To speed up the modification process, Treasury is working through the HOPE NOW alliance with the American Securitization Forum to convene servicers and investors so they can develop categories of borrowers eligible for appropriate modifications and refinancings, and an industry-wide solution. This work takes time, as all parties seek to define categories of borrowers for streamlined refinance and modification where that is in the best interest of both the borrower and the mortgage investor. I am confident they will finalize these standards soon. And I expect all servicers will implement them quickly, and create benchmarks to measure their progress along the way. As a result, what was a fragmented, cumbersome process can be a coordinated effort which more quickly helps able homeowners.

[1] is just an industry hotline to do some counseling - may help a bit to sort things out, but could be a danger if it is abused to sell more mortgages

[2] is a bit of governemnt bailout for some loans. In certain cases the taxpayer will assume more risk. It is a bit of bailout but justifiable if the criteria are strictly controlled and out of private hands.

[3] is the promise to keep the "broad coalition" talking about the original announced plan. The plan itself will not happen in my view, for the reasons I have discussed before.

Alltogether - very little outcome ...

Posted by: b | Dec 3 2007 19:03 utc | 17

This really explains why the whole supprime issue is base on scams: Subprime Debacle Traps Even Very Credit-Worthy

An analysis for The Wall Street Journal of more than $2.5 trillion in subprime loans made since 2000 shows that as the number of subprime loans mushroomed, an increasing proportion of them went to people with credit scores high enough to often qualify for conventional loans with far better terms.
[See an interactive graphic]

In 2005, the peak year of the subprime boom, the study says that borrowers with such credit scores got more than half -- 55% -- of all subprime mortgages that were ultimately packaged into securities for sale to investors, as most subprime loans are.

People who had perfect ratings for a fixed interest 6.x% loan were scammed into a subprime ARM by offering them teaser rates for the first few years butwith much higher interest rates later. Overall these loans will cost these people much more than a normal fixed interest loan would have cost them. That is, if they can afford the later 10+% interest rates of their ARM loans at all.

Countywide and other mortgage companies payed higher commission to their salesforce when these scammed people into subprime ARMs instead of lower cost fixed interest loans. Can someone make those folks pay now please.

Posted by: b | Dec 3 2007 19:45 utc | 18

@b: Yep. There is so much bad debt-paper here that any government efforts to mitigate the disaster would be like trying to bail out the Titanic by sending a few crewmembers with saucepans to the rupture in the hull.

Posted by: Loveandlight | Dec 4 2007 4:17 utc | 19

A couple of years ago (at the height of RE values out here) we refi'd with Countrywide. The Misses & and me don't have real jobs (ie documentation) so you might think it would have been problematic. But not with these folks, I would be surprised if the appraiser even did a drive by - nobody ever saw him, let alone show him through the house. And it was similar at the office, like how much can we give you? 120% of valuation, even more with the ARM, starting with a lower interest rate. It was all pretty crazy, but we insisted on a fixed rate (hey, I lived through the Carter years 17% rates). A couple months later they called back wanting to give us even more money.

Hell if I know, most years my shack makes more money per year that I do. Mostly though, it just makes me shake my head.

Posted by: anna missed | Dec 4 2007 7:11 utc | 20

@anna missed - interesting - but obvious - the salespeople made more money by selling shit than food.
And look who bought into the "investorside" of this shitpile of debt.

Florida Pension Fund Has `Suspect' Debt Held by Pool

Florida's pension fund owns more than $1 billion of the same downgraded and defaulted debt that sparked a run on a state investment pool for local governments and led officials to freeze withdrawals, according to documents obtained by Bloomberg News through an open records request.

The State Board of Administration, manager of $37 billion in short-term assets, including the pool, also oversees the $138 billion Florida Retirement System. The board purchased $3.3 billion of debt whose top ratings were reduced following the collapse of the subprime mortgage market.

Jeb Bush was the head of the State Board of Administration.

Some peopel will be hurt twice. First by getting into mortgages they couldn't afford to pay back. Second by deminished pension as their pension funds invested into the crap.

We'll see this again and again in the next months.

Posted by: b | Dec 4 2007 15:56 utc | 21

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