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Obama Housing Plans vs. Reality

Will anything come of the Obama administration’s plan for homeowners?

President Obama announces a plan to help homeowners with federally guaranteed mortgages refinance their homes during an October 2011 speech in Las Vegas. (Photo by Ethan Miller/Getty Images)

The Obama administration recently unveiled a string of proposals to help struggling homeowners and get the housing market back on its feet — part of the administration’s “We Can’t Wait” election year to-do list. Of course, the White House has made big promises before about helping homeowners, only to see them disappoint time and again.

Here are the latest proposals, whether they are anything new and whether they stand a chance of going anywhere.

Refinancing

President Obama wants to allow homeowners whose mortgages are backed by private-sector companies to refinance at lower rates through the Federal Housing Administration. (The FHA insures many mortgages, and it is not the same as the FHFA, the regulatory agency in charge of Fannie Mae and Freddie Mac.) The president stressed that the proposal would help only “responsible” homeowners who were current on their payments — to counter Republican complaints that his housing policies reward foolhardy borrowers.

Déjà vu: This is only the latest in a long series of attempts by Obama to help homeowners refinance. There have been a few, minor attempts to push refinancing through the FHA. Via a separate program launched in 2009 that used Freddie and Fannie, more than 900,000 homeowners have refinanced, substantially fewer than the goal of 4 million homeowners.

Will it happen? Unlikely. This plan needs to get through a Congress that is staunchly opposed. “How many times have we done this?” said House Speaker John Boehner, R-Ohio.

Republicans have a number of objections. First, Obama wants the plan to be paid for with a fee on the banks in repayment for the bailout, a tactic that’s raised Wall Street hackles in previous budgets. Secondly, some Republicans balk at passing more risk on to the FHA, which is in danger of having to ask the Treasury for a subsidy for the first time in its nearly 70-year history. Even if the plan passes, its impact would likely be limited. For the Obama administration to instigate mass refinancing without Congress’ help, many say it would need to get Fannie and Freddie on board, a move the companies’ regulator has so far been reluctant to endorse.

Bill of rights

A so-called “homeowner’s bill of rights” aims to make things clearer for borrowers, requiring a standard set of forms and disclosure of fees and conflicts of interests. It also calls for help for those very close to foreclosure, including a right of appeal on the decision to foreclose. (Homeowners have claimed wrongful foreclosure for a wide variety of reasons, and have had little recourse to appeal mortgage servicers’ decisions.)

Déjà vu: This may be just a branding of efforts already under way across different agencies. The new Consumer Financial Protection Bureau says it is already developing a set of standard disclosure forms and rules aimed at preventing misleading or fraudulent practices by mortgage servicers. As for an appeal process, Treasury already has a system for complaints about foreclosures, and is reportedly expanding its review process for those denied eligibility for government loan modification programs. Advocates have criticized Treasury’s current review efforts as ineffective. And, separately, federal bank regulators are developing new standards for mortgage servicers.

Will it happen? According the White House’s announcement, a host of agencies that deal with housing will work to enact new rules in keeping with the bill of rights. But right now the bill of rights itself is simply a set of guiding principles that don’t yet have any teeth. (We’ve documented problems with enforcement on similar guidelines.) The Department of Housing and Urban Development and the CFPB did not respond to our queries on exactly how the bill of rights relates to existing efforts.

Loan modification

The administration’s plan to make it easier for homeowners to restructure their loans has two key elements. First, it lays out yet another push on principal reductions, which it argues are central to slowing the rate of foreclosures and stabilizing the market. The move triples the incentive for mortgage insurers, including Fannie and Freddie, to write down the amount owed by struggling borrowers. Secondly, it makes more borrowers eligible for HAMP, the administration’s loan modification program, and also will give some homeowners who were previously denied access to the program a chance to reapply.

Déjà vu: Like refinancing, incentives for principal reduction have been proffered again and again, with mixed success. As we’ve noted, a key obstacle is Fannie and Freddie, which guarantee mortgages and haven’t been willing to take the hit that lowering the amount a borrower owes entails even if doing so would ultimately prevent foreclosures. Meanwhile, HAMP has been beset with a host of enforcement and logistical problems.

Will it happen? As a tweak to an existing program, these changes don’t need to go through Congress. And as we explained last week, the mortgage settlement and these changes may actually breathe life into the disappointing HAMP program. But for principal reduction, the question remains: Will Fannie and Freddie give their OK? Without that, only a portion of homes in the U.S. could qualify.

Foreclosures to rentals

This plan takes foreclosed homes where mortgages were backed by Fannie and Freddie and sells them to investors who will put them on the market as rentals. Obama claims this will help heal neighborhoods blighted by empty buildings and evictions, and give a boost to real-estate sales.

Something new: This has been in the works since August 2011, and the Federal Reserve touted it recently as an important process, though Chairman Ben Bernanke cautioned it was no “silver bullet” for the housing market.

Will it happen? It’s already started, though it’s just an experiment for now. It will go through the FHFA, so it doesn’t need congressional approval. The FHFA has already put out its first call for investors for the pilot phase.

When politicians interfere with markets… bad things happen.  The unintended consequence is simply delaying the ability of housing markets to hit bottom.

Banks keeping bad loans on their books for years freezes banks from the more critical task of lending to new homeowners that can afford homes and businesses that can in time create jobs.

If principal reductions are forced upon banks they will simply pile on more fees and costs to newly-created mortgages meaning a transfer of wealth from future homeowners who intend to play by the new rules to present homeowners that are not playing by the rules and are asking for a special dispensation. 

I am tired of having to subsidize those among us who have displayed horrible, irresponsible, behavior.  Enough is enough.  It is far better if these homeowners file bankruptcy and start over… better for them and better for those of us who live and play by rules and expect those that do not to suffer the consequences of their own actions.

Wow. Obama really thinks that he’s a king and can command banks to do things when the federal government legally isn’t supposed to be involved anyway. Any fee that the banks are charged will be forced onto and paid by consumers. This fee will be the same as a tax and will remove more working capital from the economy making things get worse. The failure of the government to understand this is one of the largest problems. Obama has to face the fact that he cannot force the country to buy everyone a house. It does not have the money, the money doesn’t exist, and it cannot be created..

Housing did not truly recover after the great depression until the early 1950s…. we had all better get used to the reality that our homes are this place we purchase to live in.  It is not an entitlement store of value.  It is not an ATM card.  You don’t take equity out for anything other than to perhaps improve your home.  You improve your home as an alternative to buying a bigger home.

You pay off your mortgage ASAP so that you can have a measure of personal freedom and./or personal pride.  You pay off your mortgage so that you can better weather life’s ever changing dynamic that may find you at a great disadvantage otherwise.  You pay off your home because that is precisely what the establishment wants you to do.  The establishment, the politicians, big business, etc. want you to spend every dime on them and then die before you start costing society too much.

Your best revenge is to own your home free and clear.  You controlling your own destiny, wanting nothing from the Obama’s of the world that want you dependent on them for everything you have and everything you will ever have….. that is the best revenge against a system that derives comfort knowing that you are dependent upon them for your basic needs.

So the foreclosure-to-rental plan is just taking hold. I wonder what the monthly payments will be like if they’re homes and not apartments. Obviously with the market the way it is, not many people want to buy, so it seems renting is more popular, maybe even more necessary. People who have been foreclosed on don’t have the credit rating to get another property to own. This is a good idea, but if monthly rent payments determined by the investors is around $1500, not many people will be able to rent those and as a result, renting prices might go up because of supply and demand of less expensive rental property. I wonder what the FHFA is asking investors to do with the foreclosed properties. Of course, if demand goes down on more expensive rental property, then the price will go down as well.

Margret Brady

Feb. 14, 2012, 4:22 p.m.

Bruce appears to have a few things quite backward. It was the market interfering with the politicians responsibility to regulate those markets that caused our current problems.  The lack of regulation led to the industry stealing the money intended to enable home ownership. While the finance industry enhanced its own wealth,  it led to having the majority of homeowners pay for their graft with higher taxes, unclear titles and depreciated home values.  If you recall, the Great Depression brought similar results when the market was not regulated properly.

Wow, I can’t believe the insensitivity here!!  Not all are irresponsible homeowners; elderly, children and people with life-debilitating illnesses are living in these homes, as well as people that have lost jobs they have had for many years.  Have we no heart anymore??!!

Way too little - far too late - AGAIN - NO political will to write down mortgages to 80% of current appraised valued. Reckless risk taking was the source of all their profits - NOW they need to do the right thing and reduce the loan amounts to market…the Obama plan(s) are an insulting act of political appeasement. People who are current on conventional mortgages arranged PRIOR to the bubble are now collateral damage (underwater) due to the systemic mania that provided the froth to the bubble. Entire neighborhoods, communities, regions - and YES - a Nation - continue to slowly suffocate under the weight of debt that the bubble collapse has indiscriminately cinched around the throats of families across the nation!!! It’s time for tangible across the board revaluations of mortgage principal to 80% of current appraised value - with monthly payments re-amortized and interest rates at market - IMAGINE - U.S. homeowners with vastly more monthly expendable income - and a deep sense of gratitude for elected officials who have enacted legislation to systemically right an historic economic injustice - for which nobody has been held accountable…with Congressional approval ratings at/about 10% - its high time for them to do a deal for American mortgage obligors - and stop the partisan bickering that has only postponed the requisite justice the American people so desperately deserve.

funny how the banks got BAILED OUT but they won’t refi a mortgage to lower rates easily!

just one reason why the economy/job growth is pretty much stalled.

I bought my house in as it was on the rise, rebuilt the whole house- from top to bottom. I’m a contractor and my work is tied to the building trades. My wife was going to nursing school when the rug was pulled out from under our ‘American Dream’. No work, wife in school, prices dropped 50% around my neighborhood in two years… Filed for bankruptcy, finally getting back on our feet.

This was a financial tsunami! Don’t you get it? My family, along with millions of others were wiped out not by being reckless with our money. But thinking that the game was fair, not rigged with banks getting a royal flush everytime a new hand is delt…

Gene is right. It is a fixed game where only the 2% can win. The remaining 98% of American people always get the short end of the stick.

Remeber the bail out? Goldman CEO Blenkfein received his $67.5 million salary from the Bail out. As well as many others on Wall Street received hundreds of billions the same time when the American Taxpayers gave 800 billion dollars to Wall Street.  Wonder what would of happened tho these guys if our government would not gave them a dime.

But it doesn’t matter, as long as the top 2% doing fine. After all they are the big political contributors in the USA and they are the one who dictate how to run our government. The politicians just there as pawns.

The U.S. housing market has two fundamental problems that are not talked about:

1)  The old paradigm - if you have a work ethic, you’ll have job security and (thanks to income increases commensurate with the effort you put forth) the ability to take on a 30-year mortgage and save the money to launch the kids out into the real world with a decent education - is dead…murdered with forced oil addiction, “flood-up/trickle-down” economics, deregulation, inequitable free trade, and the corruption of campaign finance.

2)  The pool of eligible home buyers is being driven down by those policies…the middle class is shrinking.  See image:

See story:

thinkprogress.org/economy/2012/01/12/403324/krueger-income-inequality-envy/?mobile=nc

See this image from above story in particular:

thinkprogress.org/wp-content/uploads/2012/01/middleclassshrink.png

Read the big old source PDF for the above story from Alan Krueger:

http://www.americanprogress.org/events/2012/01/pdf/krueger.pdf

As ThinkProgress condenses same into a useful sentence, I will quote the former:

“According to Krueger, the shift in income inequality over the last three decades is the equivalent of moving $1.1 trillion of income from the 99 percent to the top 1 percent every single year.”

The American people are losing a war; we must accept the fact that housing and home values are collateral damage.

(Trivial note appended to #1:  That is the reason that I tell people that Facebook has a bright future.  The Republicans in particular have had amazing success at destroying those “American values” they profess to be the champions of:  The lack of job security destroys home ownership which destroys community which destroys community values like school and church involvement, neighbor relationships, etc.

In short, the Republicans have destroyed physical community and continuity.  Without job security and economic mobility - both successfully obliterated by Republican greed - an American family doesn’t know where they will go tomorrow…where they will end up.  Enter Facebook:  The murder of “the American Dream” makes Facebook the heir, for wherever you go Facebook maintains your community…your continuity.  A helluva note…or end, rather.)

Charles Fetters

Feb. 14, 2012, 9:23 p.m.

Both political parties are fighting to keep their heads above water.
They will lie to the citizens and deny that any of them are part of the destroying the Glass Steigal Act. They are all in bed with the banks and wall street which was obvious from the documentary “Inside Job”.
When will they start admitting they are the cause of their our crisis.
When I learned that my own Senator Diane Fienstien dealt $25 billion for her husband to buy up the foreclosures in America. I knew then that they are were liars.
I predict this will be a long hot summer of riots in the streets, because the homeowners are getting fed up with being lied to over and over again.
They must think we are stupid.

It’s worth pointing out that the two biggest parts to this, and the ones moving the fastest, exist purely to move taxpayer money to people trying to cheat the system.  And I don’t think it’s a coincidence that all the programs are flops except these two.

First, we have principal reduction, to help the “underwater” people, whose biggest (only) problem is that they can’t sell their house at a profit.  Don’t worry about people being foreclosed on or people struggling to make payments, just make sure their bad investments don’t take a loss.

Second, we have the Foreclosure to Rental program, where a bank can keep all the mortgage payments made so far, claim the rest of what you allegedly owe as a loss (possibly getting an insurance pay-out along the way), and then sell the house to a developer, who will then rent it to someone who was booted from their home.  Do we think it’ll be low-price housing to get these people back on their feet, or will it be mostly luxury, high-margin housing?  Banks profit three times, developers monthly henceforth, and taxpayers foot the bill.

Yeah, those are the people we need to protect.  Good thing Obama’s on top of that…

Frank,
they were bailed out because of the mortgage crisis, and the government has been trying to work with banks, who naturally are tight-fisted, can you imagine if everybody who banks with them takes all their money out of their accounts? That’s how we can take back power from these greedy banks!

We have a few extra billion laying around to give, not loan, Egypt, Israel, and other countries (the list is longer than you think), put that on hold and invest in the people who provided the money in first place, THE AMERICAN TAXPAYERS!!! HELLO WE COULD USE SOME REAL HELP HERE, RECALL ALL LOANS AND AID AND GIVE IT BACK TO US!! WHEN WE CAN TAKE CARE OF OURSELVES A LITTLE BETTER THEN MAYBE WE WILL HELP EVERYONE ELSE!!  EVERYONE STOPS PAYING TAXES ! STOP GIVING OUR MONEY AWAY TO OTHER COUNTRIES!!

@John:  “First, we have principal reduction, to help the “underwater” people, whose biggest (only) problem is that they can’t sell their house at a profit.”

Not “only”.  In a nation facing job uncertainty and wage suppression and decline, leaving those underwater mortgages as is risks another massive round of foreclosures.

As I have said repeatedly, the Republicans and neoliberal Democrats have destroyed the old paradigm wherein you could safely assume that hard work would be rewarded with income increases.  On the other hand, increases in the cost of living - particularly energy and food - is a “gimme”.

Have you forgotten the role the 2006-2008 artificial run-up in energy prices played in revealing the nature of the loans that were supposed to be the foundation of all of those financial instruments?  Those underwater mortgages are a delayed-action bomb just waiting for the next time someone takes advantage of 40 years of Republican success at keeping America addicted to oil to levy private taxes in the form of either speculation in oil (which is going up right now, by the way) or a supply restriction/disruption by/in the OPEC nations to go off.

At any second we could again face a situation where those Americans who have underwater loans face the choice of buying the gasoline to get to work to earn the money to pay the mortgage or paying the mortgage - but not both.

What do you reckon will happen then?  What happened the last time?

Well Daniel I have to say I agree with you 100%. Not that I want to see anyone cut off from help but the need here in our own Country should come first. I don’t see any other Country careing or giving anything to help us. Take, Take, Take is all I see.
Argue with that, anyone.
Oh and by the way I am a widow on SS who’s 2 grown sons came home to live and are jobless. No one helps me, I help them and keep them off welfare all on my SS check.

Safely assume income rising meant unions pressuring businesses to pay more for the most unproductive…. how much longer did you think businesses would pay someone $5K/month to mate a screw with a nut?

Unions brought down steel, autos, and many other industries by not only demanding higher wages but work rules that kept these industries too unproductive for too long.

We are in a world economy where labor competes for jobs and how it happened simply does not matter any more.  This is where we are and in order to play the game in the new paradigm as you call it requires individuals to take charge of their own destinys and if they don’t they are toast!

Right now, 800K construction workers nationwide are sitting around waiting for work.  When many construction workers finally accept reality they find an inability to pass simple mathematics and other exams required to operate today’s higher technology machinery found on factory floors in USA.

Its time for everyone to stop whining about the past.  What good does it do?  Pick yourself up, dust yourself off, and start on any path that will allow to have better charge over your own destiny.  It is going to be a long slog out of this economic morass and the sooner Americas pick themselves up the better.

Funny, no one seems to be aware that the government has been backstopping mortgages and banks since the 1930s - this isn’t new territory by any means!

I’m also a bit surprised at the writer’s comment that “this will be the first time that FHA has had to go to Treasury for subsidy in its 70-year history”, with no mention of the fact that heretofor, Treasury had been the recipient of FHA’s gains.

Wow…say something about attempting to “form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity” and the group that wants to bring down the American people and - consequently - the United States of America comes out of the woodwork.

Steve, we may be talking about different definitions of “underwater.”  The owners can still pay, they just can’t sell at a profit.  That’s all the term means, as I understand it:  Owing more than the market value.

What you describe isn’t limited to those mortgages, nor is it limited to homeowners.  As a matter of fact, if it hadn’t for a long renting relationship with my very understanding landlord, I would have been making that choice regularly just two years ago after a few employment setbacks.

My point is that, if you’re complaining that your house is underwater, you bought it as an investment, not a home, and your failure in investing shouldn’t be Washington’s (or my or your) problem.  That it is tells me that the goal is more about high housing prices than keeping people in homes.

Bruce, if your suggestion is for Americans to lower their standards of living beneath that of the Chinese, I suggest you lead by example.  We’ll catch up with you later, when you’ve found a replacement for uncensored Internet access and reliable electric grids.

Or, we could take back the manufacturing with automated factories and acknowledge that the manufacturing jobs themselves are obsolete (except mostly for artistic purposes).

Malcolm_McLean

Feb. 15, 2012, 5:15 p.m.

I can’t read any more of this gibberish.

Obama worked for ACORN and was one of the many ‘community activists’ that pushed lenders to give ‘poor black folk’ mortgages - when they could not afford them.

Now in South Chicago - most black folks are homeless because they didn’t understand what they were getting into. Just took the check, then complained they got swindled.

The HAMP program is a failure - criminal act of fraud, insurance fraud, banking fraud and every type of financial fraud has taken place under Obama’s nose.

Including Freddie and Fannie administrators giving him the finger.

Now what more can I say.

The president get’s the bird from fannie and Freddie.

LOL!

For HAMP he wanted home owners to be 2 months delinquent - 7 million are now ‘2 months delinquent’ - you don’t say!

Now he has a refi program for people underwater - but they must NOT be delinquent. You Don’t say!

Wow!

Anyone awake at the White House?

I loved the quote from Dr. Bernanke ” homes may no longer prove to be a investment”.

Tell it like it is Doc!

LOL!!

@Malcolm_McLean:  Suggest you read this Bush speech…and note the date:

archives.hud.gov/remarks/martinez/speeches/presremarks.cfm

Fannie and Freddie are like guns…created with good intentions, but susceptible to abuse if they fall into malicious hands.  Democrats may have had a lot to do with creating Fannie and Freddie, but it took Republicans to pervert them so that a few could profit at the expense of the United States of America.

John,

You don’t have to live below anyone’s standards if you work, save, and invest for the future.  I started like everyone else setting aside a little bit here and there…. added a little bit to my mortgage payment…. put little amounts into retirement.  In 30 years with power of compounding, picking the right investments, paying off your house… you can get there.  Took my wacks in the 2008 stock market but stuck with it and have recovered to 91% of pre-crash market.

The culture in this country doesn’t want you to take that path.  For big business it meant that I didn’t spend every dime I ever earned on things that over the course of 30 years would represent nothingness.  I bought what I wanted but I saved more than I spent.  For the political class anyone that can stand on their own not making demands on government for largess represents a defeat as both parties endeveor to get all of us on the entitlement express.

I didn’t buy the biggest best house.  I bought in very good neighborhoods that were well established.

Am I some extraordinary individual.  NO!  I am just like any of you except I was raised to believe debt was a very bad thing and you only take on as much debt as you know you can afford to payback.

Too many excuses by too many people.  It was easier to spend every dime you earn than to squeeze and find a way to save just a little every week.  It was easier to buy the biggest house rather than live below your standard and rid yourself of a mortgage sooner.

I don’t think some of you are seeing the whole picture.  Not eveyone has been lucky with their investments.  Not everyone is asking for debt forgiveness.  Millions like myself jumped into the housing market thinking we may never get a chance otherwise, only to immediately lose the vast majoirty of value in our homes.

I live a in a home worth 50% less than paid for it with an ARM.  I’ve never missed a payment, but GMAC will simply not refinance me.  I’m not asking for anyone to forgive any portion of my loan.  I just want a fixed rate so I can gain some stability.  GMAC accpeted a sickening 17 Billion in bailouts.  Now their old shareholders are profiting from the bailout money.  Yet I can’t get my rate fixed?

Bruce, I agree with your second comment, just not your first.  It sounded like you were implying that we’ve been undercut in salary by the Chinese and we should take those jobs back by working for even less.

If I misinterpreted you, I apologize.

However, it’s worth pointing out that the economy has changed a lot in, say, fifty years.  Economies of scale and centralization used to rule the roost, but today?  They’re failing, and companies are acting like caged animals, and the workforce is suffering for it (as is the marketplace, but that’s another story).

Andy, my point (I can’t speak for anybody else) is that the government seems hell-bent on trying to get your debt forgiven instead of giving you what you need.  I agree with your solution to the problem, and might even go so far as to say you shouldn’t be paying interest at all, depending on the circumstances of how you got the loan.

It concerns me greatly that we agree that the principal is fixed, but Washington does not.

Let’s Talk PROSPECTIVE SOLUTIONS shall we?

What seems to be missing from the U.S,=China dialog is the voice of the American consumer. I happen to be one – so – I decided to write the following letter to Xi Jinping:

Dear Mr. Vice President.

We have a suggestion. Here ya go:

1.  Let’s be honest – we need each other. China’s health depends upon America’s health – and vice-versa. If the American consumers capacity to buy the goods China manufactures is diminished – China gets hurt.

2. The American consumer’s capacity to buy Chinese manufactured goods has diminished. This is primarily due the way our government used the funds (U.S. treasuries you purchased) to bail out the big banks – yet kept American consumers on the hook for inflated home mortgage balances when the real estate valuations collapsed. By the way, most American consumers don’t have a sub-prime mortgage – no matter what you’ve read. The health and confidence of the American consumer are in the long-term strategic best interests of China.

3. Imagine how you might feel if you were obligated pay a mortgage balance say around $200,000 – when the current value is $100,000. In America, we call this an “air ball.” Imagine (one more time) if American consumers had their mortgage note amounts reduced to the current appraised value of their primary personal residence…re-amortized…to produce market-value mortgage obligations – with monthly payments reduced accordingly — do you realize how this would tangibly recapitalize the American consumer? We American consumers would have a whole heck of a lot more discretionary income – meaning – money to maintain our increase our appetite for Chinese manufactured goods!!! Good for China and hood for the U.S. right? Well, hang on a minute…

4. There’s NO WAY the U.S. has the capital to support this type of across the board revaluation the American consumers so desperately deserve. Furthermore, if we asked our banks to take these write-downs, they’d be insolvent and we would just be creating another problem. So, we have come to you – for a little give and take – Like I said above, “Let’s be honest – we need each other.” We need China’s help. China has made a ton of money off the U.S. over the past several decades… a vastly greater sum than the U.S. side of the relationship selling to China. Here’s how we suggest you help us out:

A. For the U.S. $4.5 trillion in U.S. debt currently held by China, we need you to allow the U.S. to stop paying interest on $3 trillion for 20 years.

B. Each month (if that’s how we pay China interest on U.S. Treasuries you hold) the U.S. government will set aside the monthly interest payment on the $3 trillion to fund the Chinese American Recapitalization Treaty (CART). We’ll use this fund to fund the principal write-downs of the American consumer mortgages held by our banks. Yeah, we know…American banks get another good deal. Actually, it’s China and America working together to arrange a solution that will benefit BOTH countries.

C. Oh yeah, the American banks will write down all their mortgages to current appraised value – even if they’re Freddie, Fannie or FHA backed loans…Each bank will create a (CART) account whose total will be the cumulative sum of the American consumer mortgages they write-down to current appraised value. The U.S. government will let them hold this off-balance sheet. Every month, the interest reserve will be distributed pro-rata to each bank’s CART account – repaying the balance in the Cart over the 10 year term.

This is the solution that will benefit both of our countries – although no politician in the U.S. has the courage to talk with you about this. Right now, we have the CART before the horse in this country. We need your help to rearrange this backward arrangement that continues to degrade the financial wherewithal of China’s most important customer – The American Consumer.

With a recapitalized American consumer, vastly increasing discretionary income in the U.S. – unemployment and productivity levels will rebound much more rapidly. U.S. tax revenues will increase. We will commit as a nation,  that we will NOT run a budget deficit over the next 20 years either. We’ll approve a constitutional amendment declaring the same. Hey, we may have to borrow a few billion bucks as this program – and its positive impacts – work their way throughout our economic system.

P.S. – Imagine the goodwill China would create around the globe with a strategic move like this! Finally, you can even suggest that this was “your idea” because no elected official in this country is capable of imagining multilateral solutions to clearly global economic problems.

We look forward to hearing from you.

Your Customer

“The American Consumer”

John,

On the contrary.  Those jobs that come back, net on net, require higher skills and will pay higher wages.  One of the major carpet makers.. I cannot recall if it is Mohawk Industries, announced they would be opening a textile plant in N. Carolina again.  What they said was the plant will employ 10% of the workers who by in large will be operating and managing specialized equipment to make carpet but those workers will earn more money than the former textile workers.

This is our new paradym.  Industries coming back taking advantage of labor saving, productivity enhancing equipment paying more to people with high technical skills to operate/maintain said equipment.

Win win except to those that want to go back to a time when textile workers were paid top of the world wages for limited skills and then wondered why their union jobs were moved to far east.

We have a remarkable opportunity to gain back hundreds of thousands of new era manufacturing jobs.  Maybe in time a couple of million jobs.  The reasons include higher skills of workers and cheap energy prices.

Workers have to decide whether they want to win in the new paradym by getting into companies that need these higher skill sets or whether they want to continue to cry a river with Obama and settle for government largess payments for years to come.

What we really need is an RTC-equivalent entity that could take in these homes from banks, take in the mortgages, and allow banks to carry at remaining net value and then get these homes rented back to their present owners.  The present owners would share in some way as yet undefined in return for keeping the property well maintained in its appearance.

The preference for this entity would be taking in recently built homes so the issue of immediate capital needs is several years away.  In this time those homes could realize some value to the extent we speed up the process of getting to a bottom.  Let the renters buy back the home at some real value with a real fixed rate mortgage at a real market rate IF they stay 5 years and make all rent payments timely…. maybe even allow some credit of each month’s rent.

There are many ways to skin this cat… we just don’t have what used to be called “elder statesman” out there and the children in the executive and legislative branches do nothing but behave like children.

We need the likes of the late Bill Siedman step up and put forth a big idea to get all this housing in crisis off the banks’ books and into an entity that can become a master landlord.

The union-demonizing is bogus…just a method of demanding that the 99% accept a lower standard of living while the 1% continue to be one of the larger costs restraining our economy (what does that cheap labor in China really do?  Offset the cost of our 1%‘s greed). 

A little quote from McClatchy in their article Indiana’s new right-to-work law could prompt copycats at http://www.mcclatchydc.com/2012/02/16/139095/indianas-new-right-to-work-law.html

Quote:  “Back in 2001, before Oklahoma became the first state to enact a right-to-work law in the post-NAFTA global economy, a site consultant said 80 percent to 90 percent of businesses were ruling out locating in the state, Lafer recalled. The consultant claimed that a right-to-work law would lead to an eight- to tenfold increase in new businesses for Oklahoma.

But 11 years later, the number of new companies opening in Oklahoma has declined by one-third, Lafer said. That’s partly because the profits of companies most attracted by right-to-work laws depend on lower wages. But these companies have long since moved their jobs to places such as China, Mexico and Vietnam, where labor is much cheaper.”

End quote.  Anybody who spends time demonizing unions isn’t thinking about America and the American people <i>at all; they’re just thinking about hurting unions - and the Americans who belong to them.

Spare me the 99% and 1% crapola.

Unemployment among college educated who by in large do not belong to unions nor do they ever want to belong to unions is 4%.... high school educated unemployment around 14% so please do not sit here and talk about all the good that unions have done for us.

There was a time and a place for unions.  Unions overreached crashing and burning the industrial US.

The reality is not 99% and 1%... it is more like 20-25% and 70-75%... it may sound PC to do the 99/1 but to most Americans who have grown sickened by seeing lazy OCCUPYERS recognize that we are in very bad times but there will be better days ahead.

As far as Oaklahoma goes the fastest growing businesses are oil and gas jobs which pay over $60K/year for lower level jobs and $120K/year for higher skilled jobs….. hardly the stuff that is indicative of claims about right to work states.

Oh but the libs do not want to focus on this because they think oil and gas drilling is beneath us as a nation preferring to force cap and tax and stupid green technologies down our throats.

At least Chrysler woke up today and refused a government guaranteed loan because it required them to build little green coffin cars.  We will get past the green insanity that is Obama.

On that topic of green jobs they pay an average of $14/hour while oil and gas is paying so much more…. I suppose you would accept the lower wages for an entire class of energy workers if there is some greater idealistic politic good….. as you see it.

I take great pleasure in being able to make right-wing activists shed their artificial patina of reasonableness and reveal that they’re actually just intent on getting Americans to support ideas that will hurt Americans-other-than-themselves.

Can’t blame them…it worked with “flood-up/trickle-down” economics, itself enabled by B.S. slogans like “You’ll Take My SUV from My Cold, Dead Hands!” which enabled the right to keep us addicted to oil and provided the economic shocks when made voodoo economics palatable…

This president has no shame. He say anything to spin an issue. He is the
classic politician at every turn. Anything and everything to get elected. He did it the 1st time, was basically non existant for 3 years, then time to campaign again, “he’s back”.
Anyone can clearly see all his actions are about divide and conquer. Scapegoats and finger pointing. He is like Hitler in that repsect. Find a group to get the masses to blame and rally against. Come to think of it he is also a Jew hater.
Buying votes with taxpayer dollars and public debt. And blame blame blame. Then take money for campaign etc from those you blame. In public beat up the banks then in closed doors strong arm them for the money. He is a dictator. He is a clear picture of what is wrong with most politicians.
This man does not deserve a second term. He is a horrible role model. He never even had a job. It is an insult to all working taxpaying citizens

Unless you have the intellect of a child surely you realize that government has NEVER been able to override fundamental economic concepts like supply and demand and creative destruction.

It has all happened over the past thirty years and the reasons for the beginning of a reversal of outsourcing has ZERO to do with Obama or government.

It has always been about fundamental economic principles and those with the power to decide where they will put their wealth in order to make the greatest return.

I suppose you are one of those that will go to your grave believing trickle down never worked.  It works every minute of every hour of every day that an employer hires a new employee.  Each employee then has to decide for themselves if they will live out their lives as worker bees or whether they will rise above to the next rung and someday become an employer.

Always with the insults…a body would think some have learned that emotion is the premier way to succeed at “Divide, and conquer.”

Me, I like reality…the facts…the numbers.  What has been the true impact of “flood-up/trickle-down” economics?  Those who are interested might peruse articles such as thinkprogress.org/economy/2012/01/12/403324/krueger-income-inequality-envy/

from which I extract the following quote:

“the shift in income inequality over the last three decades is the equivalent of moving $1.1 trillion of income from the 99 percent to the top 1 percent every single year.”

and would refer the reader to that article’s chart:

thinkprogress.org/wp-content/uploads/2012/01/middleclassshrink.png

“Flood-up/trickle-down” economics is naught but a lie…a lie with a goal:  The impoverishment of the American people and the creation of a hereditary aristocracy that limits all opportunity and economic mobility to themselves.

ThinkProgress is nothing but a socialist organization that believes in full on wealth redistribution.

Typical liberal zero-sum economics assuming that the bottom tier is being held down by some aristocracy…..

The bottom tier held themselves down when they decided to go to work out of high school and settle for dead end jobs.  Or they got into high wage union jobs thinking that gravy train would go on forever.

We live in a society where the top 20-25% are growing their wealth by working, saving, and investing.  It doesn’t fit your storyboard there are 10 million families in the US that are millionaires.  There are millions more with net worths of $500K and millions with $250K.

But that doesn’t fit your angry populist narrative.  You may know a great many of these people in your day to day living but would never know how well they have done because of fear that angry populists like you would demand they forfeit all their wealth for some greater social good….. that was Europe and the end of their socialist model is happening as we speak…..

Free people in this country will wake up to Obama’s motives of trying to socialize the USA.  Only problem is he is trying to what Europe knows never worked and is in the process of being undone.

Cry all you want about aristocracies….. the reality of America is endless opportunities for those that strive to achieve…... there is always room for more wealth to be created regardless of who presently holds the wealth…. that Facebook founder started with no concept of what Facebook would become…. now he is paying the State of CA $2B in taxes….. that is what makes America great…. not cryers like you who clearly had no desire to achieve beyond that of a worker bee.

Ever notice that giving the American right cold, hard numbers - just the facts - and offering them the opportunity to refute those facts only yields you emotion-laden propaganda?

@ibsteve2u-Duly noted and not unexpected.

Here’s a thought. Canada does not have massive government backed security engines like Fannie, Freddie and Ginnie Mae, and the rest of the Wall Street crowd. Canada does not have 30 year mortgages that the securities market enables. Canadian mortgages are all short term balloon payments (whether fixed or adjustable rate). Canada does not have mortgage interest deduction which distorts the price of home ownership with tax subsidies. Canada does not have banks teetering on the edge or over the edge because they are better regulated. Canada does not have the crazy 18th century land title system, because the Torrens systems of public title holding is much more stable and vastly better administrated. So, Canadian real estate must be a model of moderate, evenly priced market perfection, right?

No, actually it is way over priced and still climbing. Those big banks are better regulated because there are so few of them. They have been too big to fail since the country began and watch accordingly. But they have flooded the market with money to pay those ridiculously ever increasing house prices. Securitization, the ultimate game of over stimulating the money supply within the real estate market is coming into the picture. But mainly by making mortgages short term, the big money boys minimized their risk, shifted it to the borrowers, and flooded the market with way too much money (the same role played by securitization in this country but by a different means). Ironically Canadian real estate is more market driven than in the American market, but finally drowndng in the same pool of too much easy money financing an unsustainable mountain of personal debt. Although the Canadian bubble is several years behind this country the slightest down turn in natural resource prices will expose the over leverage debt burden of Canadians who work for a living.

The moral of the story is that the Americans get so wound up in the details of of their system, they fail to see the big picture that applies everywhere. Any commodity in over supply will be squandered. In this case the commodity is money. It has been squandered by artificially low interest rates and by asset inflation which effectively devalues money relative to the inflating asset, i.e. the price of the asset increases without any increase in the underlying value, thus the same amount of money buys less and less. By funneling so much money into real estate it created a bubble. Asset inflation corrodes just as much as wage inflation or any other form of inflation that increase price without increasing value.

Ultimately the house of cards (so to speak) collapses because there is not enough real value flowing in which in the case of real estate means the wages of working people earned from the production of goods and services. The wage destroying spiral of the last thirty years (take note of your legacy Reaganites) finally popped the bubble when people who work and produce things could no longer shoulder debt at the core of the whole scheme.

Capitalism needs lots and lots of indebtedness, but it needs the debtors productive enough to carry the debt. The sub-prime melt down was just the sentinel market. The main show was unemployment that made the debt unsupportable. Acute concentration of wealth and the globalizing workforce used as scab labor created the conditions that ironically undercut capitalism itself. Every unemployed person was one less to prop up the debt owed to the big money who had been living off the now extinguished cash flow. Every laid off worker was a lost customer to 100 other companies. And thus the vicious circle swirls.

Rob,

Remarkable post on your part.

To boil it down at least to my thinking is the Canadian system did not allow the housing industry and all of its derivitive parts (real estate sales, financing, title, inspection, etc.) drive an agenda that suggested housing was not just a great investment but a store of value to tap into for something called “the better life”.

Consumers’ incomes falling led to this nightmare of turning one’s home into an ATM.

The US system then went to the logical extreme in this last cycle.

We should eliminate or seriously curtail the mortgage interest deduction.  Canadians still buy homes however homes are not seen as much for their investment potential as it is simply a place to live your life.

Ironically, here in Las Vegas and North Las Vegas (seperate city) the number two group of buyers of distressed properties for 100% cash each month are Canadians.  Because of the favorable exchange rate Canadians pay 15-20% less for US properties and see Las Vegas as a great long term investment and are patient enough to hold as long term rentals.

Rather than eliminating or curtailing the mortgage interest deduction, we should roll back “flood-up/trickle-down” economics and eliminate tax credits for offshoring jobs.

The “American Dream” of home ownership was in great shape until the 1% paid to have the tax structure changed to better reward their insatiable greed…ever since they’ve been attacking every aspect of American life that makes it possible for the 99% to pursue that American Dream.

Man, these comments run all over the map. Look, guys, it is highly implausible, to say the least, that the administration can mandate over 11 million cramdowns en masse. For one, who takes the hit financially? Fannie & Freddie are taxpayer owned, so if this were done, we the people foot the bill. The"streamline refinance,” which has been a feature of FHA loans for years, is merely being applied to agency loans. It does not solve the entire problem. The mistake is thinking something will.  The homeowners who refinance should plow their savings into their homes, and deleverage further.

11M cramdowns will not happen.  If it does, say goodbye to banking for the middle class as banks merge and consolidate and pursue customers that can pay their mortgages easily rather than ever bet on anyone again.

All Obama and Reid are doing is assuring that this mess will take 15 years to work thru instead of 5 years.  Time for people to give up their rent free homes and move into rentals and let the market go thru the necessary correction.

First off my comments about Canada were ones of irony. Having owned on both sides of the border, the system sucks, just in different ways that ultimately are details. Mortgage interest deduction would be hard to remove cold turkey but it is an unfair tax subsidy that distorts prices upwards. However, once adjusted for its influence, mortgage interest not does cause further inflation. So the hyper inflation of housing assets did not primarily come from that. Canada’s title system though clearly superior will not save it from the bubble either. It just won’t have those title registeration complications as part of the hang over.

The problem behind the bubble was too much money flooding the market making it too easy to get financing for escalating ever inflated buying prices. Money supply has an effect on a specific market sector as well as on the overall macro economy. All that extra money sloshing around enabled real estate asset inflation. Ironically the government programs since the 1960s intended to increase the money supply to financing housing. As a matter of public policy, they succeeded. The problem was that they overshot what was healthy. Wall Street eventually picked up on that and went on a fat feeding binge largely outside of government review. Now that was truly bad public and private policy.

Unless you are an idiot Libertarian no-brainer you can see the game involves private excess exploiting public policy that itself needed better goals and knowledge of its limitations. Nobody had the guts to say when housing inflation exceeds a target amount, that monetary controls will cut in to reduce or eliminate the housing inflation. Which is very, very, odd- when it comes to wage and consumer price inflation the Fed and other central banks (including the Bank of Canada) move in quickly. But asset inflation favors the the wealthy who control the banking system and they are not about ruin their own game even though eventual they explode the whole mess with their unenlightened greed. Ah yes, and let’s remember the co-opted public who think their ever increasing “equity” from housing inflation is some how sustainable over time.

Short term (6 months to 7 months) balloon mortgages in Canada although apparently as different from the US system are just as deadly as all the US government led securitization by Fannie, Freddie and Ginnie Mae plus the excesses of Wall Street’s own securitization mess. Too much money in one place drives up prices by its very presence. For market purists, the excess inefficiencies of the financial markets disturbed the fundamentals of the housing market as being the balance between wages and the provision of shelter. It takes an idiot to think markets always work but the paid off economist came up with absurd mathematical models purporting to “prove” that. Pure crap, but it got them Noble prizes because their colleagues financed by Wall Street were in on the delusions. Of course the Libertarians and assorted haters pick some favorite target to blame, never once seeing their own beloved “free market” dogma and reality denials as front and central to the mess. Part of the irony of my comparison to Canada is that Canada, generally attribute to have evil socialist tendencies, in some way is much more “free market” in real estate and for precisely the that reason heading for its own burst bubble.

Some body does have to take a hair cut. So far the speculative investor who contributed nothing but trouble have been able to socialize the losses and keep unearned private gain. That was massively stupid. The only way for a healthy market driven correction to take place is for the investors to take the loss by admitting their secured collateral has deflated and move on. That’s the simple mechanics.

Morally I think the investors should take the hit because they don’t do anything more than push paper and expect everyone else to work hard to reward them. That and the incredible concentration of wealth means they have lots of room to take the hit rather than acting like engorged leaches full of tax payer money.

Yeah Mit, that means you. Take a loss or even let some of your assets go bankrupt like you want for everyone else. We want to fire your kind from leaching off the rest of the economy. You haven’t done any work for fifteen years, even your investments aren’t done by you, so where is your value add? It’s time you took the bitter medicine instead of pawning it off on everyone else.We can’t afford your over inflated pension scheme.

@max:  I’m accustomed to that level of arrogance-combined-with-contempt from the right; in fact, I would call it both a qualification for being and a characteristic of a member of the modern American right.

But what surprises me is the fact that they’re so willing to show the American people that they not only think of themselves as a modern aristocracy, they intend to replace democracy with neofeudalism…to transform America into a place where opportunity and economic mobility are a function of heredity rather than talent and drive.  (What was the point of Citizens United if not to leverage the wealth of the few into control of our country?)

They might argue that fact, but it is a simple truth that it takes money to make money - and when the tax structure encourages the taking of all of the money you can even through diverting the flow of wealth away from your employees and any other American you can affect, then the likelihood that anyone from “the many” will be able to make money naturally decreases over time as the few consolidate their grip on all wealth.

It is rather dismaying that they profess surprise when their perspective is dismissed out of hand…it is as if they expect the American people to willingly go like sheep to slaughter.

The external haircuts have been dispensed by shareholders that have abandoned all financial stocks, sending them cratering 60-90% lower than their peak valuations and already take into account the realization of the haircuts that have to be taken on their balance sheets.

Bank executives thinking they had more than enough stock to retire are now wiped under.  Investors that invested in other financials that thought CDOs, CMOs, and the minageree of three-letter securities have also lost significant amounts.  I count myself among them and have had to significantly alter my own expectations.

States like CA, IL, MD, MN, FL, NY have seen the ranks of million dollar income earners fall so far so fast that the tax revenues received from those that had million dollar incomes has drained government coffers of much needed revenues.

So there has been pain and payment by many more than you imagine.  There has been so many layoffs in NYC that my step-daughter who is a waitress with a bachelor’s degree has seen her tip income fall so much she barely makes her rent these days and is planning to move.

We all have these stories of people who have suffered the collateral and derivitive damage of this mess so let’s stop thinking that somehow the 1% got off scott free.  Bankers will never earn the kind of income that was previously earned because of Dodd-Frank.  FEB 2012 is judgement day and the bonuses really sucked.  Colleges for the first time in many years are seeing more people enrolling in engineering and sciences than in high finance…..

Steve,

If you want to pretend that we do not have a large cross-section of workers that settle for what is given to them and do nothing to better their own life circumstances so be it.

I did not make up the statistic that unemployment among college educated is around 4% and high school educated is 14%.... what is, is and that’s that.

Detroit is still dying and die-hard workers refuse to move from the rust belt to the sun belt where they could continue a career in the auto industry…. interviews with many of them say they would never work as a scab in a right-to-work state where autos are built.  Now you tell me if your skill is building autos why you would not go where the work is located rather than stay in a city like Detroit that has been dying a slow death for 30 years?  This recent lift in domestic autos will be short-lived and Detroit will go into decay again…. GM is adding more jobs in China than in the USA.

I watched my schoolmates in high school settle for local job right out of high school… they had the car, apartment, money in their pocket… while I went thru 4 years of college.  I was more than rewarded for the sacrifice.  The only question is just how much in taxes am I supposed to pay so that those who chose the easy path out of high school can be given second, third, and fourth chances to make something out of their lives once the wheels came off in the job categories they chose to work in?

Wow! Then it is really working: “Colleges for the first time in many years are seeing more people enrolling in engineering and sciences than in high finance….. ’ That is the first good news that I have head yet. Capitalism is a funny creature. It is messy, does really bad things at times, cycles up and down dispense joy and misery, but it is flexible.

And don’t get me going on the distinction between the capitalism related to the production of goods and service versus financial capitalism that at best greases the wheels of the other kind and at worst turns into debauchery of economically unsupportable excess, symbolic destruction of financial abstractions that leads to tangible destruction. Did you hear about the 3 hedge fund managers who were stranded naked and with nothing on a desert island? When rescued a year later they were all billionaires.

What do you think that globalism, flood of technology visas, outsourcing and the like is doing to the smug white collar knowledge workers with degrees? They are taking the largest hit of all, especially those with experience and hence cost more.

Wake up and smell the blood. It is easier to offshore reading an X-ray than a factory worker’s job where the capital equipment had to be transferred first. Radiologist were once gods, but they are eminently substitutable. Information Technology (IT) workers took a terrible hit from H1-B visa, especially those of us in independent consulting. H1-Bs and L1 brought what was happening to the working class into the middle class.

The deepest economic damage from people here to work and send money home rather than truly emigrate and join in this society is not from the bottom end illegals. There is more than a little truth they are taking jobs that otherwise no one would take. But draining the American labor force from the top has done more to drive the middle class down than any other factor during the last 30 years of Reaganomics. You don’t think Mexican farm workers cause white collar workers to lose them jobs and be unable to make their mortgage do you? Guess what does…

This country does not take care of itself through a coherent industrial policy and it does not take of its labor force either. Libertarian clap trap covers for the concentration of wealth. I have worked in a number of other countries where my visa was intended to transfer knowledge to the locals and get out. Here we bring in people, have the locals transfer knowledge to them, and the locals get out (of the job)! It may be such a stupid population deserves what happens to them, but please don’t blame the drop outs for your own passivity and the decline in the future opportunities of your children to stay in the middle class.

After 30 years of middle class shrinking through outsourcing of jobs we are closer to an equilibrium point with foreign source labor whereby the combination of American productivity and cheap energy now makes it possible for businesses to return jobs to the US.

The answer to the question as to whether my step-daughters can remain in the middle class is a function of their own ability to adapt to an ever-changing world.  Most of the industrial belt workers were unwilling or unable to adapt.  I sense that the younger generation is seeing all that is happening and forming their own way of staying relevant and more importantly remaining in the middle class.

20-25% are doing very very well regardless of this 1%/99% nonsense.  I am part of that 20-25% and I worked hard to stay there and I have the wounds and scars and health issues that 30 years of 60+ hour weeks in my profession has wrought.  I have loved every minute of the fight and the wars but with success comes the opportunity to dial down and begin my fade away from my career.

I am sure every generation has had similar or greater challenges over the course of our country’s long history.  I don’t think being melodramatic about change solves anything.  Your words suggest we should have unions so strong they can maintain a stranglehold over our economy the moment labor isn’t given what they want…. that time has passed.

This article is part of an ongoing investigation:
Foreclosure Crisis

Foreclosure Crisis: Banks and Government Fail Homeowners

Banks and the government have fallen short in helping homeowners in danger of foreclosure.

The Story So Far

Systemic failures at the country’s banks and mortgage servicers have exacerbated the most severe foreclosure crisis since the Great Depression, and government efforts to limit the damage have fallen short. ProPublica created an unrivaled database of homeowners who have faced foreclosure, opened a Facebook page to encourage homeowners to share their stories, wrote profiles of some of them, and incorporated their experiences into our reporting. We also provided a comprehensive rundown of the numbers behind the crisis.

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