comments_image Comments

Why the Banks are Thrilled That the Media and the Obama Administration Have Failed on the Foreclosure Crisis

Stressed homeowners twist in the wind as home values, and the economy, continue to stagnate.

Continued from previous page


As Waldman indicates, there is a blindingly obvious reason why the IRS inquiry is a coverup. If the IRS were to find any of the questionable practices to be violations, they’d lead to widespread and large assessments against mortgage investors. That in turn would spawn the mother of all litigations by investors against the originators and trustees. That would blow up the mortgage industrial complex and put us back in a financial crisis. That is the last thing the officialdom wants to happen."

And this is EXACTLY why the Treasury had leverage. It had at least one nuclear weapon it could aim at recalcitrant servicers and tell them it was only out of their generosity that they weren’t throwing the book at them, and in return, they had better get off their duffs pronto and get religion about rescuing borrowers that could be salvaged. And if that cost them money, too bad.

And that brings us to the Big Lie in the piece: that the Administration was too conservative and didn’t want to be seen as helping undeserving borrowers. The reality was that all Treasury cared about was the banks. (See Neil Barofsky pointing this out on "Morning Joe").

And if you know the terrain, you can see how skewed the reporting is. HAMP, the abortion of a program that had people who might have been able to keep their homes, admittedly under strain, told to default by servicers and often losing their homes as a result, isn’t mentioned by name. There is an interactive graphic, but the omission of the word “HAMP” looks an awful lot like a deliberate effort to steer clear of the issue most often discussed in connection with HAMP: not how few were helped, but how many were affirmatively harmed.

Nor is the heinous “get out of liability for almost free” card known as the mortgage settlement. How can you talk about Obama’s housing policy and dodge the two biggest programs undertaken on his watch? Instead, the article depicts a HOLC-style massive mortgage program and bankruptcy cramdowns as the only alternatives. And it does present the waving off of cramwdowns a mistake, but again offers excuses:

But he also repeatedly pressed the pause button. When proponents sought to add a cramdown to the Emergency Economic Stabilization Act in September 2008, Mr. Obama, who had flown back to Washington from the campaign trail, persuaded them to postpone the “partisan” effort as an example to Republicans, who said the measure would violate existing contracts.

This is stenography masquerading as reporting. First, bankruptcy is a court of equity, not law. Contracts ARE put aside in bankruptcy; that’s the whole purpose of the exercise. Second, as for borrowers who had not declared bankruptcy, the servicers are specifically obligated to service the loans in the best interests of the certificateholders. A real threat of bankruptcy by specific borrowers would change the servicer’s obligations. And I strongly suspect that the real issue was bankruptcy cramdowns would lead more borrowers to declare bankruptcy, which would lead to more second mortgages being wiped out…which would lead to more questions about the solvency of the banks, particularly Bank of America.

What’s appalling about this story isn’t just the spinelessness and dishonesty of the Administration. It’s that it’s matched by many of the reporters on this beat.


Yves Smith is the founder of Naked Capitalism and the author of "ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism."