COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary

EDITOR’S NOTE: This piece from Propublica presents a graphic depiction when Government tries to fix a problem that they don’t understand. Add to that the fact that the pro-banking lobby is enormously powerful (the “oligarchy” according to Simon and Johnson and others) and you get a hodgepodge of band-aids that can’t possibly cover the cavernous wound inflicted by Wall Street.


What is clearly missing is an equal treatment of all the players. From the bailouts to the bankruptcy laws, the homeowners has been left out of the relief packages. In doing that, the entire economy of the country and the U.S. dollar itself is in dire peril. Very few media outlets are carrying stories about the weakness of the economy, the weakness of the dollar and the continuing fraud perpetrated in the courts and out of court (non-judicial states) wherein Wall Street puppets grab the property, even after squeezing out tens of of thousands of dollars from a homeowner for a trial modification. AND virtually nobody is seriously considering the fact that those who are foreclosing are getting a “free house.”

Consider the fact that around half of all mortgages were refinance transactions, and that a substantial portion of the remainder were with homeowners who made down payments ranging from 5%-30%, and compare that to the way in which homeowners are depicted in the press — deadbeats with nothing to lose and everything to gain by fighting the foreclosures on “technical” grounds. Just how technical is it to say YOU didn’t loan me any money, I have no contract with you, and you have not paid for this in any manner shape or form?

The FREE HOUSE is going to Wall Street, not the homeowners. Wall Street used investor money to fund the so-called loans and then grabbed the houses and the proceeds of the mortgages. They left investors and homeowners holding the bag, and for their efforts they were rewarded with trillions in bailout money. Yes the promise was broken.


by Paul Kiel and Olga Pierce
ProPublica, Feb. 4, 2011, 8:48 a.m.

Before he took office, President Obama repeatedly promised voters and Democrats in Congress that he’d fight for changes to bankruptcy laws to help homeowners—a tough approach that would force banks to modify mortgages.

“I will change our bankruptcy laws to make it easier for families to stay in their homes,” Obama told supporters at a Colorado rally on September 16, 2008, the same day as the bailout of AIG.

Bankruptcy judges have long been barred from lowering mortgage payments on primary residences, though they could do it with nearly all other types of debt, even mortgages on vacation homes. Obama promised to change that, describing it as exactly “the kind of out-of-touch Washington loophole that makes no sense.”

But when it came time to fight for the measure, he didn’t show up. Some Democrats now say his administration actually undermined it behind the scenes.

“Their behavior did not well serve the country,” said Rep. Zoe Lofgren (D-CA), who led House negotiations to enact the change, known as “cramdown.” It was “extremely disappointing.”

Instead, the administration has relied on a voluntary program with few sticks, that simply offers banks incentives to modify mortgages. Known as Home Affordable Modification Program, or HAMP, the program was modeled after an industry plan. The administration also wrote it carefully to exclude millions of homeowners seen as undeserving.

The administration launched the program with a promise that it would help 3 million to 4 million homeowners avoid foreclosure, but it’s likely to fall far short of that goal. The Congressional Oversight Panel now estimates [1] fewer than 800,000 homeowners will ultimately get lasting mortgage modifications.

Low Number of ModificationsThe number of modifications has remained dramatically low compared to the number of homeowners falling behind. (Source: LPS Applied Analytics and HOPE Now)

Over the past year, ProPublica has been exploring why the program has helped so few homeowners. Last week, we reported how the Treasury Department has allowed banks to break the program’s rules with few ramifications [2]. The series is based on newly released data, lobbying disclosures, and dozens of interviews with insiders, members of Congress and others.

As the foreclosure crisis grew through 2008, the large banks that handle most mortgages were slow to offer modifications to struggling homeowners. Homeowners were left to navigate an onerous process that usually did not actually lower their mortgage payment. More than half of modifications kept the homeowner’s payment the same or actually increased it.

Many in Congress and elsewhere thought that mortgage servicers, the largest of which are the four largest banks, would make modifications only if they were pressured to do so.

Servicers work as intermediaries, handling homeowners’ mortgage payments on behalf of investors who own the loans. Since servicers don’t own the vast majority of the loans they service, they don’t take the loss if a home goes to foreclosure, making them reluctant to make the investments necessary to fulfill their obligations to help homeowners.

To force those servicers to modify mortgages, advocates pushed for a change to bankruptcy law giving judges the power not just to change interest rates but to reduce the overall amount owed on the loan, something servicers are loath to do [3].

Congressional Democrats had long been pushing a bill to enact cramdown and were encouraged by the fact that Obama had supported it, both in the Senate and on the campaign trail.

They thought cramdowns would serve as a stick, pushing banks to make modifications on their own.

“That was always the thought,” said Rep. Brad Miller (D-NC), “that judicial modifications would make voluntary modifications work. There would be the consequence that if the lenders didn’t [modify the loan], it might be done to them.”

When Obama unveiled his proposal to stem foreclosures a month after taking office, cramdown was a part of the package [4]. But proponents say he’d already damaged cramdown’s chances of becoming law.

In the fall of 2008, Democrats saw a good opportunity to pass cramdown. The $700 billion TARP legislation was being considered, and lawmakers thought that with banks getting bailed out, the bill would be an ideal vehicle for also helping homeowners. But Obama, weeks away from his coming election, opposed that approach and instead pushed for a delay. He promised congressional Democrats that down the line he would “push hard to get cramdown into the law,” recalled Rep. Miller.

Four months later, the stimulus bill presented another potential vehicle for cramdown. But lawmakers say the White House again asked them to hold off, promising to push it later.

An attempt to include cramdown in a continuing resolution got the same response from the president.

“We would propose that this stuff be included and they kept punting,” said former Rep. Jim Marshall, a moderate Democrat from Georgia who had worked to sway other members of the moderate Blue Dog caucus [5] on the issue.

“We got the impression this was an issue [the White House] would not go to the mat for as they did with health care reform,” said Bill Hampel, chief economist for the Credit Union National Association, which opposed cramdown and participated in Senate negotiations on the issue.

Privately, administration officials were ambivalent about the idea. At a Democratic caucus meeting weeks before the House voted on a bill that included cramdown, Treasury Secretary Tim Geithner “was really dismissive as to the utility of it,” said Rep. Lofgren.

Larry Summers, then the president’s chief economic adviser, also expressed doubts in private meetings, she said. “He was not supportive of this.”

The White House and Summers did not respond to requests for comment.

Treasury staffers began conversations with congressional aides by saying the administration supported cramdown and would then “follow up with a whole bunch of reasons” why it wasn’t a good idea, said an aide to a senior Democratic senator.

Homeowners, Treasury staffers argued, would take advantage of bankruptcy to get help they didn’t need. Treasury also stressed the effects of cramdown on the nation’s biggest banks, which were still fragile. The banks’ books could take a beating if too many consumers lured into bankruptcy by cramdown also had their home equity loans and credit card debt written down.

While the Obama administration was silent, the banking industry had long been mobilizing massive opposition to the measure.

“Every now and again an issue comes along that we believe would so fundamentally undermine the nature of the financial system that we have to take major efforts to oppose, and this is one of them,” Floyd Stoner, the head lobbyist for the American Bankers Association, told an industry magazine.

With big banks hugely unpopular, the key opponents of cramdown were the nation’s community bankers, who argued that the law would force them to raise mortgage rates to cover the potential losses. Democratic leaders offered to exempt the politically popular smaller banks from the cramdown law, but no deal was reached.

“When you’re dealing with something like the bankruptcy issue, where all lenders stand pretty much in the same shoes, it shouldn’t be a surprise when the smaller and larger banks find common cause,” said Steve Verdier, a lobbyist for the Independent Community Bankers Association.

The lobbying by the community banks and credit unions proved fatal to the measure, lawmakers say. “The community banks went bonkers on this issue,” said former Sen. Chris Dodd (D-CT). With their opposition, he said, “you don’t win much.”

“It was a pitched battle to get it out of the House,” said Rep. Miller, with “all the effort coming from the Democratic leadership, not the Obama administration.”

The measure faced stark conservative opposition. It was opposed by Republicans in Congress and earlier by the Bush administration, who argued that government interference to change mortgage contracts would reduce the security of all kinds of future contracts.

“It undermines the foundation of the capitalist economy,” said Phillip Swagel, a Bush Treasury official. “What separates us from [Russian Prime Minister Vladimir] Putin is not retroactively changing contracts.”

After narrowly passing the House, cramdown was defeated when 12 Democrats joined Republicans [6] to vote against it.

Many Democrats in Congress said they saw this as the death knell for the modification program, which would now have to rely on the cooperation of banks and other mortgage servicers to help homeowners.

“I never thought that it would work on a voluntary basis,” said Rep. Lofgren.

At the time that the new administration was frustrating proponents of cramdown, the administration was putting its energies into creating a voluntary program, turning to a plan already endorsed by the banking industry. Crafted in late 2008, the industry plan gave banks almost complete freedom in deciding which mortgages to modify and how.

The proposal was drafted by the Hope Now Alliance, a group billed as a broad coalition of the players affected by the mortgage crisis, including consumer groups, housing counselors, and banks. In fact, the Hope Now Alliance was headquartered in the offices of the Financial Services Roundtable, a powerful banking industry trade group. Hope Now’s lobbying disclosures were filed jointly with the Roundtable, and they show efforts to defeat cramdown and other mortgage bills supported by consumer groups.

The Hope Now plan aimed to boost the number of modifications by streamlining the process for calculating the new homeowner payments. In practice, because it was voluntary, it permitted servicers to continue offering few or unaffordable modifications.

The plan was replaced by the administration’s program after just a few months, but it proved influential. “The groundwork was already laid,” said Christine Eldarrat, an executive adviser at the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac. “Servicers were onboard, and we knew their feelings about certain guidelines.”

As an official Treasury Department account of its housing programs later put it, “The Obama Administration recognized the momentum in the private sector reflected in Hope Now’s efforts and sought to build upon it.” It makes no mention of cramdown as being needed to compel compliance.

Ultimately, HAMP kept the streamlined evaluation process of the Hope Now plan but made changes that would, in theory, push servicers to make more affordable modifications. If servicers chose to participate, they would receive incentive payments, up to $4,000, for each modification, and the private investors and lenders who owned the loans would also receive subsidies. In exchange, servicers would agree to follow rules for handling homeowner applications and make deeper cuts in mortgage payments. Servicers who chose not to participate could handle delinquent homeowners however they chose.

The program had to be voluntary, Treasury officials say, because the bailout bill did not contain the authority to compel banks to modify loans or follow any rules. A mandatory program requires congressional approval. The prospects for that were, and remain, dim, said Dodd. “Not even close.”

“The ideal would have been both [cramdown and HAMP],” said Rep. Barney Frank (D-MA), then the chairman of the House Financial Services Committee. But given the political constraints, HAMP on its own was “better than nothing.”

“We designed elegant programs that seemed to get all the incentives right to solve the problem,” said Karen Dynan, a former senior economist at the Federal Reserve. “What we learned is that the world is a really complicated place.”

The program was further limited by the administration’s concerns about using taxpayer dollars to help the wrong homeowners. The now-famous “rant” by a CNBC reporter [7], which fueled the creation of the Tea Party movement, was prompted by the idea that homeowners who had borrowed too much money might get help.

Candidate Obama had portrayed homeowners in a sympathetic light. But the president struck a cautious note when he unveiled the plan in February 2009 [8]. The program will “not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans,” said Obama. “It will not reward folks who bought homes they knew from the beginning they would never be able to afford.”

While the government had been relatively undiscriminating in its bank bailout [9], it would carefully vet homeowners seeking help. HAMP was written to exclude homeowners seen as undeserving, limiting the program’s reach to between 3 million and 4 million homes.

In order to prove their income was neither too high nor too low for the program, homeowners were asked to send in more documents than servicers had required previously, further taxing servicers’ limited capacity. As a result, some servicers say eligible homeowners have been kept out. According to one industry estimate [10], as many as 30 percent more homeowners would have received modifications without the additional demands for documentation.

A lot of the program is focused on “weeding out bad apples,” said Steven Horne, former Director of Servicing Risk Strategy at Fannie Mae. “Ninety percent is not focused on keeping more borrowers in their homes.”

14 Responses

  1. Any of you folks who are still wondering how this bubble could have mysteriously appeared, read the following article entitled Straight Talk with Catherine Austin Fitts: We Are Victims of A Financial Coup D’Etat. Fitts is a government insider, not some whacked conspiracy theorist. She knows what she’s talking about. Some quotable quotes:

    However, the federal government lacks sovereignty. It lacks financial sovereignty – it is financially dependent on the banks that control its depository and slush funds, create the currency through the Federal Reserve and manage the accumulated capital of the same syndicates outside the government. It lacks information sovereignty as its data, information, and payments systems are controlled and operated by private corporations, primarily defense contractors. If we could dig out the true ownership of both banks and defense contractors, my guess is that it would look identical. Finally, the members of the Administration have no way of guaranteeing their safety and the safety of their families if they defy orders of those who have the weaponry and power to enforce their will by any means necessary.


    The first step to resolving the root causes are to bring transparency to the situation. What happened and why did it happen? Such transparency has not happened.

    The second step is to identify what assets or equity has been stolen and to recapture and return them. That is, determine what money and property has been stolen and get it back. Such recapture has not happened.

    The third step is to hold the people and institutions responsible accountable. This has not happened.

    The fourth step is to determine appropriate permanent institutional reforms and integrate them. This has not happened either.

    Let’s look at what has happened:

    What happened and why it happened is not generally understood.

    Essentially no money or property has been identified or returned.

    Other than Bernie Madoff, essentially no one has been indicted or convicted. Indeed, the people who engineered the housing bubble and related policies have been rewarded with numerous public and private positions as well as financial compensation. We are watching record bonuses on Wall Street.

    The institutions that engineered the housing bubble and the financial crisis have been richly rewarded with $12 trillion in bailouts, expanded access to the federal credit, and government assumption for the debt and liabilities of Fannie Mae and Freddie Mac.

    Financial reform legislation has generated lots of make-work and expenses for thousands of companies and financial institutions without providing any meaningful reform.

    So what does this all mean? The “strong dollar policy” – including the housing and debt bubble, trillions in financial fraud, and the suppression of the gold price – was part of a intentional plan to move trillions out of North America, both overtly and covertly. I refer to this as a “financial coup d’état.”

    Wall Street and Washington issued trillions in fraudulent securities, used it to gain control over trillions in assets, and then were able to engineer the taxpayers refinancing out the fraudulent paper. Think of this as a leveraged buyout of a planet.

    To the victors go the spoils. That is why we are seeing the people who engineered the coup so richly rewarded.

    Richard Dolan has referred to parts of the military industrial complex as “the breakaway civilization.” That is a good description as we now have groups that have stolen trillions and are confident in their ability to keep it.

    Good read:

  2. Just keep swimming . You so stop. You drown. Simple as that

  3. Barak is just like the dictator Mubarak. He makes promises that he wont keep.

  4. David, you got that right. After my equal signs, last one should include=debt=forever. I’ll say it again, get out of debt at all costs. Throw away those credit cards. They are instruments of debt slavery and mass destruction, even if you pay them off every month, stop feeding them with their little fees imposed on merchants. Do not buy cars on credit, nothing. Buy second hand. They even tried to turn the Automobile market into a throw away limited life span commodity – Cash For Clunkers – another way to get you/keep you in debt under the guise of a good thing.

  5. I’m not going to quote Jefferson, we’ve heard it many times. I firmly believe this is an attack by the bankers. The dollar is not money, it is an instrument of debt and used as a weapon. The goal is enslavement or a feudal system of rich and poor.

  6. As Worf, the Klingon would say, It’s a glorious day to do battle.

  7. While this article gives us more insight to Washington, It completely diverts attention from the scam to begin with. Article focus’s on help after the fact. and Washington’s effort to help focus’s on AFTER the fact of the scam to begin with. One can not solve a problem until you know the source of the problem. We know the source of the problem – mortgages defaulting, is Wall Street = Banks = Government=securization=false inflated market. The housing boom should never have been to begin with, it was created falsely. The economy at the time was not booming, there was nothing going on to provide cause for all of the sudden people buying homes left and right. Where are the people buying homes now? There is an excess of inventory of homes that are empty. Where are all the people? If the housing boom occurred during the time of the dot-com boom, one could understand, lots of money was floating around, people were getting rich, lots of jobs. One could equate that with demand for housing since income was going up for lots of people even though the dotcom era is another scam story. But there was nothing going on to support a housing boom – it was created for the same effect, get money transfered into Wall Street and banks.
    Cramdown on mortgages, it ain’t gonna happen. We will have to do it ourselves. I say go for it, what do you have to loose. If you can’t afford a lawyer who gets it, then do it yourself. Fight, have the courage to try to keep your home. Grow some balls and just do it. If enough people jam the courts, great, that is the effect needed. We are on our own folks. there are more of us then them in Washington and Wall Street. They need us, we don’t need them. You have the power. I have come to the conclusing that whatever comes out of Washington/Wall Street/Banks, the opposite is true.

    The game plan is to try to get your house on your terms, not their terms. And if you can’t, then stay in as long as possible rent free and make them convict you. Don’t take it so seriously, have a new view and have fun with the experience. Get out of debt completely and stay away from the banks, don’t ever borrow and keep credit as a second cushion.

  8. Anon – if your house was sold you should ask for the original note to be returned to you per Calif Civil code 2941 and 2939 and it should be recorded. If they can’t or won’t do this it might give you an in for discovery in the courts.

  9. Government is in bed with these THIEVES, both are crushing the Homeowners.People know the problems and also know how to fix it, but no one wants to do it, because the bed is warm?????

  10. We need an Egypt style revolution in this country against the banksters and their govt agencies…

  11. Now I don’t like Obama (not even a tiny bit), but this is THE prime example of MEDIA PROPAGANDA. You should take kindly to notice that much of the analysis focuses on events that took place in around the 2008 time and shortly thereafter (the beginning of Obama’s pResidency).

    Do you really think it took them 3 years to figure this stuff out? NO. This is meant to be used as a campaigning tactic to scare us into electing the next ‘false messiah’ hopeful of 2012.

    Why do we keep allowing ourselves to believe that we need any such ‘necessary’ or ‘lesser of two’ ‘evils’ in any of all Three Branches of Government?
    The American People should not be forced to suffer under any dictatorship repugnant to the Constitution and the Rule of Law and/or conflicting with the Will of the People and their general Welfare.


  13. No wonder the government did nothing when I sent my horrendous story through their website! Chase sold my home with no notice AFTER loan mod approval. I received final papers to sign but the escrow figures were wrong. They were asked to change them before I signed but instead sold my home with NO notice!

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