Foreclosure Buzz

With none of the fanfare that usually attends a big bill becoming law, President Bush signed the housing bill in private.

Update of July 30, 2008: President Bush signed the bill into law (now called the Housing and Economic Recovery Act of 2008). Source here.

Update of July 26, 2008: Senate passed the bill (they worked Saturday) sending it to the President.  The media continues to buy the spin of the banks that wanted this bill all along.  Just read this Julie Hirschfeld Davis piece from the AP here.  Is she lying?  Is this the “most significant housing legislation in decades”?  Probably.  But, it just could have been something that would last long past this crisis.  This bill is temporary (only for loans made recently), and lenders do not have to participate.  The vast majority will be left out in the cold.  This bill is one thing — better than nothing at all.

Update of July 23, 2008: House passed the bill, but added the authority to bail out Fannie and Freddie should it be necessary.  Estimates are $25 billion will be needed (NPR story here).  See Speaker Pelosi’s comments here.

Update of July 11, 2008: Senate passed the bill, and it goes back to the House for consideration. See Washington Post article.

—Original article below—

Borrower advocates hate to say this aloud, but the federal housing rescue bill now dubbed the “American Housing Rescue and Foreclosure Prevention Act of 2008″ is a rescue alright — of the banks.  It was written by the banks, for the banks.  See Washington Post article.  Surprised?  Let’s think about it.  What might a bill look like if it were written by the banks:

• No new laws prohibiting or even deterring dangerous lending products
• No new laws prohibiting unfair, abusive lending practices
• No right to mediate workouts of delinquent loans
• No right to make the loans affordable in bankruptcy court
• No reform whatsoever, so the industry can continue unabated
• Give BILLIONS to lenders in another voluntary program

Yep, that’s a lender bill alright.  The banks will pick and choose the loans to refinance that make them the most money — not necessarily the loans that should be put into the program.  “That means the housing bill will have ‘little or no impact on the number of foreclosures,’ according to O. Max Gardner III, a Shelby, N.C. bankruptcy attorney who works with homeowners who are trying to modify their mortgages.” MSNBC article “Little Foreclosure Relief Seen From Housing Bill” here.  But wait, FHA will be guarding the program.  What a relief.  See “FHA Chief Warns Congress on housing rescue bill” here.)

The New York Times took a strong position in support of the bill, kinda:

The foreclosure prevention bill is not a cure-all, by any means, but is a way to try to break the cycle. It would allow many troubled borrowers to exchange their unaffordable loans for new mortgages guaranteed by the federal government — as long as the lender agreed to reduce the existing loan balance to 85 percent of the home’s current value. It is questionable whether lenders would be willing to take the loss, and there’s nothing in the law to prod them to do so.

Still, the bill’s passage, which should be the Senate’s priority next week, would be an overdue acknowledgment that the foreclosure mess requires government intervention. Lawmakers could build on the effort as needed, but it is unconscionable not to take the first step.

NYT Editorial, July 1, 2008 (here)

Obviously, nobody in support of the bill wants to call it a bailout but that is exactly what it is.  It is a bailout of banks, but spun to make it appear to be for borrowers.  The banks have lined it up as a Democratic bill with some Republicans against it.  Then people naturally think it must be a bill to really help people.  Brilliant strategy and it is working.

Regardless of which party claims it, the bill just falls pitifully short to be good.  It makes no changes in the law that will prevent this problem again.  Are taxpayers just supposed to keep giving money to the banks time after time?  There are many other alternatives that do not involve a bailout.  Banks and others made a lot of money before things crashed.  So, the banks make huge profits when things are good, and the government bails them out when things don’t work out for them.  Perfect.  The banks do not have to change their playbooks.

Did I mention that of the 3-6 million households who will face foreclosure, it is estimated the bill will help approximately 140,000 families?  See article.  What about the others?

The bill also gives tax dollars to the banks’ favorite government sponsored entity, NeighborWorks, to do loan counseling.  NeighborWorks and its HOPE Hotline is hardly a friend of borrowers despite their glossy ads.  Their advisory board is made up of: Countrywide (RIP), Citi, etc (here).  Stay tuned for more on their great programs.

NYT is pushing this bill even if it is severely flawed.  It can be fixed essentially is their reasoning.  However, this is very likely going to be the only bill passed by the federal government that addresses the lending crisis — a crisis that has ransacked the world financial markets, and three million US families.  Of course, the indirect impact of the crisis has thrown the US into recession and harmed millions more.  This bill is the answer?  Once this nightmare of a bill becomes law and the flaws are better known, people will then jump ship and scream the government cannot do anything right.  But many quietly know it was flawed from the start.  The banks know it, and something tells me Congress does to.

The right answer is to scrap it and talk about something meaningful.  Solutions do not have to be the creation of another multibillion dollar program that will be poorly implemented, leave the majority out in the cold, and do nothing to prevent these problems in the future.

Filed under: National Foreclosure News