Justice Department announces mortgage relief plan

The housing bust still has an impact on both the housing market and the millions of people who owe more money on their houses than they are now worth. Some of this has been due to abuses by lenders and five have agreed to provide funds to assist those still trapped by the crunch. More are expected to follow suit.

From the NYT:

After months of painstaking talks, government authorities and five of the nation’s biggest banks have agreed to a $26 billion settlement that could provide relief to nearly two million current and former American homeowners harmed by the bursting of the housing bubble, state and federal officials said in Washington on Thursday. 


. . . Under the plan, federal officials said, about $5 billion would be cash payments to states and federal authorities, $17 billion would be earmarked for homeowner relief, roughly $3 billion would go for refinancing and a final $1 billion would be paid to the Federal Housing Administration. If nine other major mortgage servicers join the pact, a possibility that is now under discussion with the government, the total package could rise to $30 billion.

Congress to Investigate Freddie Mac

From NPR:

Several U.S. lawmakers and prominent economists on Monday said Congress and the White House should end a financial conflict of interest at the taxpayer-owned mortgage company Freddie Mac.

Freddie Mac, which has a public mission to help make home ownership affordable, also has placed multibillion-dollar bets against American homeowners being able to refinance to cheaper mortgages. NPR, in partnership with ProPublica, an independent, nonprofit newsroom, first revealed Freddie's bets on NPR during Monday's Morning Edition.

Later in the day, Sen. Bob Casey, D-Pa., expressed "outrage" in a letter to President Obama, calling on the White House to "to put an end to these practices."

Freddie's regulator, the Federal Housing Finance Agency (FHFA), late Monday issued a statement saying that last year, it began assessing Freddie Mac's controversial investment strategy. In December, "Freddie Mac agreed that these transactions would not resume pending completion of the examination work," it said.

Oversight on the way....

- More from ABC.
- From Pro Publica: Freddie Mac Bets Against American Homeowners.

Can housing policy be an effective stimulus?

A major story throughout this semester will be what government (fed, state, and local) can and cannot do to prevent a second recession. I'll highlight stories to that effect as they come along.

Here's one from the Washington Post that asks whether effective housing policy might do the trick. One of the reason why Texas did not suffer as much through the recession as bad as other states is that regulations (greater ability to build lots of homes and restrictions on what one could do with home equity loans) ensured that homes were not overvalued and fewer homes now are underwater (worth less than the mortgage).

Is housing relief an appropriate stimulus to the economy?

Fannie and Freddie: Lobbying Powerhouses

And here's a nother book providing an account of Fannie Mae and Freddie Mac's rise to power. It ain't pretty and it illustrates the power of sucessful lobbying. Here's more from NPR:

"Nothing before or since, in my judgment, has ever been as effective as their lobbying strategy," Baker says. "If you were a financial services industry lobbyist available for duty in the 1990s and you were not hired by Fannie or Freddie ... you were really not much of a player."

The Fannie Mae lobbying operation achieved legendary status on Capitol Hill. It was rumored they could cost you a committee assignment, or even your job.

Now, this is the point in the story where you'd expect to hear denials from Fannie Mae, saying the tales about their lobbying have been exaggerated. Not so.

"It was always an us against them," says Bill Maloni, Fannie Mae's chief lobbyist, who left the company in 2004.

Here's how he jokingly describes Fannie's approach to critics: "If you punch my brother I'll burn down your house. I want to kill them, bury them, and piss on their graves."

"A regulator versus regulator dispute" SEC v FHFA

For discussion this week in 2302, some recent federal executive activity. From the Washington Post:

The Securities and Exchange Commission is moving toward charging former and current Fannie Mae and Freddie Mac executives with violations related to the financial crisis, setting up a clash with the housing regulator that oversees the companies, according to sources familiar with the matter.

The SEC, responsible for enforcing securities laws, is alleging that at least four senior executives failed to provide necessary information to investors about the companies’ mortgage holdings as the U.S. housing market collapsed.

But the agency that most closely regulates Fannie and Freddie, the Federal Housing Finance Agency, disagrees with that assessment, according to sources familiar with the matter.

FHFA officials think Fannie and Freddie’s financial disclosures, which agency staff members had reviewed before the documents were released to the public, were sufficient, the sources said. One source added that FHFA has sent a letter to the SEC opposing the filing of charges.

An FHFA spokesman declined to comment.
This is mighty complex. Essentially, one federal regulatory agency charged with investigating securities fraud wants to charge two government sponsored enterprises for activities related to the recent financial crisis, while a fourth agency that oversees those enterprises, wants to protect them from those charges. This is the latest in the housing crisis saga.

More on the story:

- David Indiviglio I.
- David Indiviglio II.
- Life after Fannie and Freddie


Here are the players:

- Securities and Exchange Commission.
- Federal Housing Finance Agency.
- Fannie Mae.
- Freddie Mac.

Fannie and Freddie

In 2302 we glossed through many aspect of the budget, and the institutions budgetary money is allocated to. I'll fill in details over the rest of the semester when relevant stories appear.

Here is one from the NYT. Obama is proposing a gradual abolishment of Fannie Mae and Freddie Mac, two government sponsored enterprises that backup the mortgage industry.

The Obama administration released a broad outline on Friday for the future of housing finance in the United States, calling for a substantial reduction in government support for the mortgage market but providing few concrete details about how it should be accomplished.

In a 31-page report, the administration proposed that the two mortgage lending giants, Fannie Mae and Freddie Mac, should be gradually abolished within 10 years at most, and it gave Congress three options for reducing the government’s role in supporting homeownership. It did not recommend an option; instead, the document was intended to set parameters for what is certain to be a heated and protracted debate.

The story is also covered in Politico.

Here is the administration's report to Congress with the proposal.

CBO Budgetary Treatment of Fannie Mae and Freddie Mac.

The CRA and the Housing Bubble

For our discussion of civil rights: Conservatives argue that Community Reinvestment Act of 1977 (and other simlar laws), which outlawed practices that discriminated against middle class and poor people who wanted to purchase homes are partially, if not wholly, responsible for the housing bubble and the resulting financial crisis. Others argue that it did not. We will discuss.

Is the Mortgage Crisis a Product of Demosclerosis?

That's a reasonable conclusion from reading the following assessments of what got the country into the current foreclosure mess:

The real scandal is that the process of recording property title is so antiquated, and there are so many interest groups that resist modernizing it. The MERS mortgage database shows what a modern system could look like. But all of the counties that charge fees for title recording, the title "insurance" companies that shake down home buyers to buy "protection" from getting sued to prove that they own their property--these interest groups want to keep the title recording system as expensive and unreliable as possible.

A change in the system, even one that improves the condition of the vast majority is prevented by an entrenched interest. The minority clogs the administration.

Obama's First Veto

Obama vetoed H.R. 3808, the Interstate Recognition of Notarizations Act of 2010. From WonkBook:

The law, which would've allowed banks to speed the notarization process by using out-of-state, electronic firms, passed the House and Senate with virtually no notice, but became unexpectedly consequential as accusations of fraudulent contracts ripped through the mortgage industry. Some thought the bill might help with the current problems, unfreezing some of the contracts and demonstrating the government's intention to push through this. But no, we're stuck in this morass for at least awhile longer. Sorry, recovery.
- White House Statement.
- NYT Story.
- Wikipedia: List of Presidential Vetoes.
- Wikipedia: Vetoes in the U.S.

And while we're on the subject: the Line Item Veto.

Foreclosures Proceedings Stopped By Judges

Some checks and balances from Ezra Klein:

Judges across the country are ruling foreclosures illegal because of faulty paperwork, report Brady Dennis and Ariana Eunjung Cha: "If millions of foreclosures past and present were invalidated because of the way the hurried securitization process muddied the chain of ownership, banks could face lawsuits from homeowners and from investors who bought stakes in the mortgage securities - an expensive and potentially crippling proposition. For the fragile housing market, already clogged with foreclosure cases, it could mean gridlock and confusion for years. And there is concern in Washington that if the real estate market and financial institutions suffer harm, it could force the government to step in again."

The Securities and Exchange Commission Sues Goldman-Sachs

The company is accused of packaging mortgage bonds they thought were likely to fail into a single portfolio, selling it to investors, and then betting against the portfolio. When the housing market collapsed, the investors lost money, but the company did very very well.

This is fraud.

More from the Huffington Post. They end their story by wondering whether the SEC will in fact punish the company. The agency looked the other way while it was going on, might it still? Has the SEC been captured by the financial industry?

For more info: Financial Regulatory Reform.