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THROUGHOUT the foreclosure crisis, Washington has done little to help people hang on to their homes. All those programs that were supposed to help — HAMP, HARP, Hope for Homeowners — have mostly failed.
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Times Topics: Gretchen Morgenson | Foreclosures

So many were skeptical when the Office of the Comptroller of the Currency announced yet another program in April. This one was intended to provide reparations to homeowners who’d been hurt financially by foreclosure abuses at banks.

As the details trickle out, the program looks like more of the disappointing same. “This is just the next program that’s getting people’s hopes up,” said Alys Cohen, staff attorney at the National Consumer Law Center in Washington. “Not only will it not help people, it could easily harm them.”

The program arose out of a regulatory review in late 2010 of loan servicing practices at the nation’s largest banks. The review followed the robo-signing scandal that erupted after consumer lawyers — not regulators, mind you — identified numerous apparent forgeries and other improper foreclosure documents filed with courts by banks and their representatives.

Last April, the banks agreed to fix problems found in the review and were required to hire independent consultants to audit their practices in 2009 and 2010. JPMorgan Chase engaged Deloitte, while Citibank and U.S. Bancorp hired PricewaterhouseCoopers. Three other banks hired Promontory Financial.

On Nov. 1, letters started going out to more than four million borrowers who were ensnared in the foreclosure process in the two years covered by the program. Those people were told how to request reviews of their cases. The letters also described 22 types of financial harm they might have experienced. Borrowers have until April 30 to request a review.

Obviously, this program has a lot of moving parts. But many of them are flawed, according to Ms. Cohen and other foreclosure experts.

Some of the problems were aired at a Senate subcommittee hearing on Dec. 13. Three Democrats — Robert Menendez of New Jersey, Jeff Merkley of Oregon and Jack Reed of Rhode Island — expressed doubts about the program to Julie L. Williams, chief counsel at the comptroller’s office. The senators were especially vocal about the potential for conflicts of interest among the consultants hired to conduct the reviews.

This is a real defect since the consultants were chosen by the banks that are paying them. And companies that have done work for these banks in the past, or that hope to do more work for them in the future, were not barred from taking on the assignments.

According to Ms. Williams, the comptroller’s office closely vetted the consultants to disqualify any that posed a conflict.

BUT Michael Olenick, a specialist in mortgage research, said he spotted a conflicted consultant after one hour of digging. Allonhill, a smallish firm appointed by Aurora Bank, a mortgage servicer, is headed by Sue Allon, whose previous small firm acted as credit risk manager in a 2003 mortgage pool for which Aurora oversaw the loans’ servicing. The prospectus on that deal noted that Murrayhill, Ms. Allon’s former firm, would “monitor and advise the servicers with respect to default management of the mortgage loans.” It also said that Murrayhill would make recommendations to the servicers regarding delinquent loans.

Now, under the comptroller office’s program, Ms. Allon’s firm may be analyzing the treatment of borrowers on whose loans it acted as credit risk manager. “This conflict is so deep and so obvious, how could anybody have missed it?” Mr. Olenick asked.

A representative for Ms. Allon wrote in an e-mail that Allonhill “focuses on a different area of the mortgage industry than Murrayhill did.” She said the foreclosure information Allonhill was reviewing for Aurora was “outside the scope of what was provided to Murrayhill.”

Aurora did not comment.

JPMorgan Chase’s hiring of Deloitte to analyze foreclosure practices also raises questions. Deloitte was the auditor not only for Washington Mutual, the huge mortgage lender that collapsed in 2008, but also for Bear Stearns, another defunct firm. Both WaMu and Bear were acquired by JPMorgan, so any loans they made may come under scrutiny by the same firm that audited their books.

Nye Lavalle, a foreclosure fraud expert who began warning bank executives about bad lending practices back in 1999, is troubled by this situation. “This review process is a wink-wink, nod-nod,” he said.

JPMorgan and Deloitte declined to comment.

Robert Garsson, a spokesman for the comptroller’s office, said the regulator was satisfied with its vetting process. “We were particularly focused on situations where consultants and law firms may have previously worked on issues they would be called upon to evaluate in the review process,” he said in a statement. “If we identify conflicts that were not apparent at the time the engagement letters were signed, we will take steps to address them.”

Beyond the potential for conflicts, Ms. Cohen pointed to other flaws in the program. For instance, she said the years under review were not when most subprime loans were put into foreclosure. Many predatory loans are likely to be excluded from the analysis.

Even more problematic, Ms. Cohen said, is the fact that the program has left troubled borrowers who participate in it unprotected against further damage. For example, participants in line to get remuneration may be asked to give up their rights to defend themselves if they get into financial trouble again.

“This process is not meant to fix the original lending practices, so people need to hang on to their right to challenge the original loan later,” she said.

She also noted that borrowers in the process of having their cases reviewed could still lose their homes under the program. “O.C.C. has said their policy will involve an escalation process and expedited review of people in a certain proximity to a foreclosure sale,” Ms. Cohen said. “But the sale itself is not being stayed in any systematic way.”

None of this surprises Ms. Cohen or others familiar with the regulator. “This is the O.C.C . that we’re talking about,” she said. “It has a long record of favoring banks over homeowners.”

by : Jonathan Alter

The root canal Americans experienced over the averted government shutdown may seem painless compared with the operation that’s coming: debate over raising the debt ceiling followed by House Budget Committee chairman Paul Ryan’s plan to overhaul the government. The political fates of President Barack Obama and most of Congress depend on the outcome. While the stakes for the 2011 budget skirmish has been over a few billion dollars, the next fight—over the debt ceiling—is about several hundred billion. Then, Ryan’s proposed rewrite of the nation’s social contract will be about several trillion dollars.

So all the eye-gouging and hair-pulling over spending for the current fiscal year may be just a warm-up for what’s to come. Or it may move Congress to its senses. Then raising the debt ceiling can once again be a routine technical vote (as it has been for generations) and tackling entitlements and the tax code can move to the centre of a spirited but rational debate.

For now, it isn’t hard apportioning blame for the month’s unpleasantness. Five years ago, when the shoe was on the other foot—when Democrats were determined to pursue an ideological agenda and cut off funding for the war in Iraq—they didn’t threaten to shut down the government in order to get their way.

Today’s Republicans are so determined to defund Planned Parenthood, gut the Clean Air Act and go to the mat on their other ‘riders’ (amendments that have little budgetary impact) that the usual incentive for politicians to cut a deal on budget numbers has become clouded by ideology. The only remedy is to fix blame squarely and publicly where it belongs. If the Tea Party is seen as responsible for hundreds of thousands of delayed paychecks, weakened local economies and tourists not getting to see the pandas at the National Zoo, then the “Shut It Down!” crowd will have less leverage next month when Congress has to raise the debt ceiling.

This may be wishful thinking on the part of Democrats. They remember the 1995-96 government shutdown as the episode that secured President Bill Clinton’s reelection when he outfoxed Republican House Speaker Newt Gingrich. But blame for that crisis could have easily gone the other way. During the first of two shutdowns (one for five days in November of 1995 and a second for three weeks around Christmas), Clinton’s poll numbers dropped sharply. It was only after Gingrich earned “Cry Baby” headlines around the country for complaining about having to deplane from the back of Air Force One that the president emerged a winner.

As the 26-day Clinton era furloughs suggest, the political consequences of these events are greater than the economic ones. Contrary to claims by the White House, a short shutdown wouldn’t short-circuit the recovery. But according to almost every economist, banker and government official, failure to raise the $14.3 trillion debt ceiling would be disastrous. Treasury secretary Tim Geithner said in a letter to congressional leaders that Congress must act before May 16 or bring “severe hardships” to the US economy. This is brinksmanship; in truth, the Treasury Department has the power to put off the reckoning for a few weeks if necessary. But by early summer, the political posturing will be like playing with dynamite.

“Default by the US is unthinkable,” Geithner wrote to congressional leaders on April 4. Freshman Senator Marco Rubio of Florida, a likely 2012 vice-presidential nominee for any Republican candidate, is thinking it. He has come out against raising the ceiling. Rubio doesn’t mention what would then be required to avoid default: cutting spending by $738 billion in six months. Not even the most fire-breathing Tea Partier has suggested how to do that.

Cutting that kind of money over a longer time frame isn’t only doable, it’s essential. That’s where the plan unveiled last week by Paul Ryan comes in. He deserves points for courage and leadership, but not for seriousness. Ryan is still so much in thrall to the tax-cutting religion of his party that he reduces the top marginal tax rate to 25%, thereby undermining the deficit reduction that was supposed to be his ‘cause’. Unless you believe in supply-side economics, Ryan’s plan doesn’t add up.

The recommendations of the Simpson-Bowles commission—also denounced by the Democratic left—make a much better starting point for dramatic reductions in the deficit. Even on entitlement reform, Ryan falls far short. Politically, his plan to end the wildly popular Medicare programme is a dagger pointed at the heart of the Republican Party. Substantively, his voucher plan would do little to rein in costs, while shifting more tax money from the struggling middle class to the affluent elderly.

I hear from inside the White House that after the shutdown and debt ceiling debates have ended, Obama will finally weigh in with his own long-term deficit reduction ideas, and not wait for the election. A few common sense if politically dicey remedies (like raising the retirement age for non-manual labourers) are what the doctor ordered. No major surgery required.

The author is a national correspondent for Newsweek and has published ‘The Promise: President Obama, Year One’

WASHINGTON – The U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of the Treasury today released the February edition of the Obama Administration’s Housing Scorecard. The latest housing figures show increased existing home sales as home affordability remains high, but officials caution that the market remains fragile, as prices are unsettled.

“In the face of the deepest economic recession and housing crisis in decades, the Obama Administration has taken unprecedented action to promote stability in the market – keeping millions of families in their homes and helping millions more to save money by refinancing. But the data clearly show that the market remains extremely fragile,” said HUD Assistant Secretary Raphael Bostic. “While we cannot stop every foreclosure, we know that many responsible homeowners are still fighting to make ends meet. Through the broad range of programs this Administration has put in place, we can put help in reach to those homeowners as early as possible.”

“Our housing market remains fragile. We know this from data, but homeowners across the country can feel it too. That’s why this Administration remains committed to helping eligible homeowners avoid foreclosure where it makes economic sense to do so,” said acting Assistant Secretary for Financial Stability Tim Massad. “Every month, HAMP continues to help tens of thousands of additional families in a cost-effective manner. And by setting affordability standards and developing a framework for how mortgage servicers provide assistance to struggling families, HAMP has established critical protections for homeowners and has catalyzed improvements in modifications industry-wide.”

Available online at www.hud.gov/scorecard, the February Housing Scorecard features key data on the health of the housing market including:

Housing market remains fragile as data through January paint a mixed picture of recovery. Existing home sales ticked upward in January, but remained below levels seen in the first half of 2010. Mortgage delinquencies continued a downward trend compared to early 2010 and foreclosure starts and completions remain below peak. However, as lenders review internal procedures related to foreclosure processing, many foreclosure actions have been delayed. The decline is likely to be temporary as lenders eventually revise and resubmit foreclosure paperwork in the coming months.

Administration efforts have been effective in blunting the effects of the deepest economic crisis since the Great Depression. Since April of 2009, record low mortgage rates have helped more than 9.5 million homeowners to refinance, resulting in $18.1 billion in total borrower savings. However, home prices remain unsettled at this fragile stage of the recovery. More than 4.2 million modification arrangements were started between April 2009 and the end of January 2011 – including nearly 1.5 million HAMP trial modification starts, more than 730,000 FHA loss mitigation and early delinquency interventions, and more than 2 million proprietary modifications under HOPE Now. While some homeowners may have received help from more than one program, the number of agreements offered was more than double the number of foreclosure completions for the same period (1.8 million). View the January HAMP Servicer Performance Report.
Given the current fragility and recognizing that recovery will take place over time, the Administration remains committed to its efforts to prevent avoidable foreclosures and stabilize the housing market.

Each month, the Housing Scorecard incorporates key housing market indicators and highlights the impact of the Administration’s unprecedented housing recovery efforts, including assistance to homeowners through the FHA and HAMP. The Obama Administration’s complete Housing Scorecard is available at: www.hud.gov/scorecard.

By Dina ElBoghdady
President Obama’s proposed budget includes $41.74 billion for the Department of Housing and Urban Development, about $1.1 billion less than what was enacted by Congress for fiscal 2010.

Programs designed to help the homeless and those in need of rental assistance got the biggest boost in this budget. The administration proposed roughly $2.3 billion for Homeless Assistance Grants, up from the $1.9 billion enacted in fiscal 2010. Another $9.4 billion was requested for project-based rental assistance, up from $8.6 billion in fiscal 2010.

“In this constrained fiscal environment, increases were made only for the neediest Americans,” the proposal states.

Funding was slashed by $300 million for the community development block grant program, which was funded at $3.98 billion in 2010. The grants are designed to help rehabilitate housing and invest in the economic development of primarily low-income neighborhoods. The budget also proposes about $172 million less for new housing construction for seniors and people with disabilities. The administration is requesting $953 million for that program.

Housing and Urban Development Secretary Shaun Donovan said the cuts would not have been made if economic conditions were stronger.

The Federal Housing Administration, which is part of HUD, insures its lenders against losses when mortgages default. To beef up the cash cushion that FHA uses to pay for unexpected losses, the administration proposes raising the annual premiums that FHA borrowers pay from 0.9 percent to 1.15 percent starting April 18. The premium is used to compensate lenders for loans gone bad. The annual premiums and other fees that FHA collects from borrowers are expected to generate $5 billion in fiscal 2012, up from $2.6 billion in 2010 but less than the $9.8 billion projected for 2011.

In a call with reporters, Donovan said the increase in annual premiums should generate $2 billion of additional revenue next year. The higher premiums will also help reduce the volume of FHA-insured loans, which should drop to $218 billion from this year’s projected $300 billion. That reduction is in line with the administration’s push to scale back the government’s involvement in housing finance.