The New Land Lords

The financial elites behind the 2008 financial crisis and housing market meltdown, predictably, have their hands in the housing "recovery":

"Why are we rushing to get rid of Fannie & Freddie?"

Barkley Rosser @ Econospeak:

"How many Virginians does it take to change a light bulb?
Five: One to change the bulb and four to talk about how great the old bulb was."

I think I am turning into my late father, a conservative in the old traditional way of defending existing institutions and practices.  Here I go, about to defend Fannie Mae and Freddie Mac, whom all Very Serious People know should go as soon as possible.  President Obama thinks they should go, and we have two bills in Congress that will lead to that outcome, one in the Senate co-sponsored by Dem Sen. Warner of VA (my state) and Rep Sen. Corker of TN, both VSPs in good standing, while in the House Banking Chair Hensarling (R-TX) also has such a bill.  I mean wow, we have both the president and VSPs from both parties in Congress on this.  It must be great.  I mean, we all know that they were responsible for all the problems in the housing market that led to you know what!

Well, except maybe not.  Buried in the Saturday Real Estate section of the Washington Post today we have Kenneth Harley raising some questions.  Yes, indeed, both of these entities are most certainly open to serious criticism.  To varying degrees they have had histories of mismanagement and even corruption.  They were buying lots of subprime mortgages at the peak of the housing bubble.  Republican critics even claim that they were prime instruments in getting the whole bubble going because they supposedly pressured banks to lend to inappropriate poor minority home buyers under pressure from Clinton, although most observers do not buy this case.  Furthermore, they essentially went belly up with the bust and needed to be bailed out by a government takeover.  The case looks pretty strong for at least reforming them, if not outright getting rid of them.

However, Harley notes that they are now making money and paying off their loans.  Furthermore, not only have they been funding many housing market deals during these recent years of a desperately weak housing market, they were the only entity in the US that was doing so at the pit of the crash (a point Harley does not make).  Indeed, Harley reports that "Economists at Moody's Analytics estimate that dumping the companies and switching to a plan advocated by Sens. Bob Corker (R-Tenn) and Mark Warner (D-VA) 'would increase the interest rate for the average mortgage borrower' by one-half to three-quarters of a percentage point."  And, it should be noted that in contrast to the Hensarling plan in the House, the Corker-Warner plan actually does propose putting in place a housing market equivalent of the FDIC to provide insurance for housing lenders in the absence of the evil Fannie and Freddie.  Presumably the rates would go higher under the no-backdrop-at-all-plan of Hensarling.

Inside a Subprime Mortgage Bundle...6 years later

Peter Eavis @ NYT's Dealbook:

A subprime deal came back to haunt Fabrice Tourre, a former Goldman Sachs trader, when a federal jury in Manhattan found him liable for civil securities fraud.
He is not the only one feeling the pain of a subprime transaction six years on.

Hundreds of thousands of subprime borrowers are still struggling. Some of their mortgages ended up in another Goldman deal that was done at the same time as Mr. Tourre was working on his own financial alchemy.

In February 2007, just before everything fell apart, Goldman Sachs bundled thousands of subprime mortgages from across the country and sold them to investors. This bond became toxic as soon as it was completed. The mortgages slid into default at a speed that was staggering even for that era.

Despite those losses, that bond still lives. It has undoubtedly left its mark on ordinary borrowers. But the impact of the deal spread ever further. It touched the bankers who sold the deal. It even landed on taxpayers, who ended up owning a large slice of the Goldman bond.

Justice for all...

The Daily Show on "Too Big To Jail"

The Daily Show with Jon Stewart
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The Daily Show with Jon Stewart
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Ratings Agency Fraud & the Financial Crisis - Who knew?

Matt Taibbi talks with Chris Hayes about the collusion between ratings agencies
and banksters that fueled the financial crisis.  The question remains - will anyone
go to jail for this fraudulent conspiracy?  Not likely.

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Stephen Colbert explains the current housing market

The foreclosure horrors continue

More than a year after the national mortgage settlement over robosigning crimes, the systematic abuses continue. Bloomberg:

Bank of America Corp. (BAC), the second-biggest U.S. lender, rewarded staff with cash bonuses and gift cards for meeting quotas tied to sending distressed homeowners into foreclosure, former employees said in court documents.

Mortgage workers falsified records and were told to delay U.S. loan-assistance applications by requesting paperwork that the Charlotte, North Carolina-based bank had already received, according to statements from ex-employees filed last week in federal court in Boston. The lender improperly disqualified applicants to the Home Affordable Modification Program, or HAMP, according to a May 23 statement from Simone Gordon, a loss-mitigation specialist who left the company in 2012.

Bank of America Corp. is being sued by homeowners who didn't receive permanent loan modifications after making payments under trial programs, according to court papers. Photographer: Davis Turner/Bloomberg 

“We were regularly drilled that it was our job to maximize fees for the bank by fostering and extending delay of the HAMP modification process by any means we could,” Gordon said. Managers instructed staff to “delay modifications by telling homeowners who called in that their documents were ‘under review,’ when in fact, there had been no review,” she said.

The end of Ed DeMarco and help for underwater homeowners?

Good discussion of the Federal Housing Finance Administration on "All In W/ Chris Hayes":

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Visit NBCNews.com for breaking news, world news, and news about the economy

Dr. Krugman v. GOP Starlet Rubio

The Professor @ New York Times:

"Marco Rubio Has Learned Nothing"

Because his party has learned nothing.

Kool-Aid?

OK, back up: this morning the papers and the web are full of nuance-sniffing, as people try to find omens in the SOTU and the GOP response. I don’t think I can add anything useful to all that. But there was one important point in Marco Rubio’s remarks that I don’t think has been highlighted. It’s true, as Andy Rosenthal says, that Rubio mainly reminded us that Republicans don’t like government or taxes; surprise! But he also reminded us that Republicans don’t like reality.

Here’s the passage:

This idea – that our problems were caused by a government that was too small – it’s just not true. In fact, a major cause of our recent downturn was a housing crisis created by reckless government policies.

OK, leave on one side the caricature of Obama, with the usual mirror-image fallacy (we want smaller government, therefore liberals just want bigger government, never mind what it does); there we go with the “Barney Frank did it” story. Deregulation, the explosive growth of virtually unregulated shadow banking, lax lending standards by loan originators who sold their loans off as soon as they were made, had nothing to do with it — it was all the Community Reinvestment Act, Fannie, and Freddie.

Look, this is one of the most thoroughly researched topics out there, and every piece of the government-did-it thesis has been refuted; see Mike Konczal for a summary. No, the CRA wasn’t responsible for the epidemic of bad lending; no, Fannie and Freddie didn’t cause the housing bubble; no, the “high-risk” loans of the GSEs weren’t remotely as risky as subprime.

The Debate over mortgage debt

It seems the administration's economic team - most notably Tim Geithner and Larry Summers - just never got the centrality of "underwater" housing debt in putting brakes on a recovery.  This is an interesting piece in The Washington Post on how the "debate" unraveled on the inside, how it continues with what appears to be total denial on Geithner's part - and the lingering impact of the mortgage crisis:

One year and one month before President Obama won reelection, he invited seven of the world’s top economists to a private meeting in the Oval Office to hear their advice on what do to fix the ailing economy. “I’m not asking you to consider the political feasibility of things,” he told them in the previously unreported meeting.

There was a former Federal Reserve vice chairman, a Nobel laureate, one of the world’s foremost experts on financial crises and the chief economist of the International Monetary Fund , among others. Nearly all said Obama should introduce a much bigger plan to forgive part of the mortgage debt owed by millions of homeowners who are underwater on their properties.

Obama was reserved in response, but Treasury Secretary Timothy F. Geithner interjected that he didn’t think anything of such ambition was possible. “How do we get this done through Congress?” he asked. “What could we actually do that we haven’t done?”

The meeting highlighted what today is the biggest disagreement between some of the world’s top economists and the Obama administration. The economists say the president could have significantly accelerated the slow economic recovery if he had better addressed the overhang of mortgage debt left when housing prices collapsed. Obama’s advisers say that they did all they could on the housing front and that other factors better explain why the recovery has been sluggish.