On May 20, 2009, Congress got some sense — stop foreclosures until these newly created government programs start working:
It is the sense of the Congress that mortgage holders, institutions, and mortgage servicers should not initiate a foreclosure proceeding or a foreclosure sale on any homeowner until the foreclosure mitigation provisions, like the Hope for Homeowners program, as required under title II, and the President’s ‘‘Homeowner Affordability and Stability Plan’’ have been implemented and determined to be operational by the Secretary of Housing and Urban Development and the Secretary of the Treasury.
PL 111-22, Division A, Title IV, Sec. 401(a), S. 896 at 24.
There are two problems however. First, a “sense of Congress” means nothing; it is effectively non-sense. See article explaining a sense of Congress here. Some members of Congress wish the financial industry would stop foreclosing and instead work things out with borrowers, but the borrowers don’t have the sympathies of most of the Congress, hence, all they get is “sense” while the industry gets trillions in taxpayer cents. Thus far, the industry has successfully blocked Congress from allowing bankruptcy judges the authority to modify even some of the most abusive mortgages out there (although it is allowed if the loan is for the second home of a borrower so industry executives can access it in case their subprime shops take them down). It was even easier for the industry to prevent Congress from temporarily haulting foreclosures.
With billions at stake, the industry’s spin machine has served it well.
Although the industry invented collateralized debt obligations (CDOs), “no doc loans”, and option ARMs where the borrower pays what they want (meaning they can negatively amortize) and make billions for years, now they have the guts to claim none of this is their fault — CDO transactions were too hard for them to figure out and value, borrowers lied when they used no doc loans to their shock and horror, and option ARMs were used by irresponsible borrowers who wholly did not care to understand the transaction.
Hypocrisy? Hardly. More like a multinational, multitrillion dollar scam on the world economy.
In short, the public and its leaders don’t understand the financial world, and are scared of it. Congress and the Executive Branch merely talk about capping financial industry executive pay, meanwhile suggest that specific car lines be closed, union benefits cut and individual improvements be made to the cars and plants that remain. Article here. People get what a good car company should do and are less scared to have an opinion. The financial industry has by default or design kept us in the dark, and the so-called regulators are just wolves in sheep’s clothing. Hank Paulson vs. Tim Geithner? Separated at birth.
The other reason the moratorium suggested by the sense of Congress sounds so ridiculous is that the government programs designed to mitigate foreclosures are not working and likely never will because the industry does not want them to work. Article here. It may be that one of the many industry pieces of the puzzle does not benefit enough from the programs to push meaningful modifications of loans. Industry players may be hoping some segment gets modified while they sit and watch and make even more money when things turn back around. See discussion here and here.
Of course the industry puts up its spin machine to allege that a lot efforts have been made to curb foreclosures, but borrowers are too embarrassed to call and get help (discussion here), or when they do call they are totally unemployed and there is nothing to do. And, the industry claims it is too time consuming to modify a borrower’s loan quickly (they can originate a loan in less than two weeks with a guy and a copy machine if they want, but to modify a nonperforming loan takes months and many more personnel). Article here. And, they claim that the modifications they have done that resulted in raising the payments of the borrower was a good thing (about half of the mods at one time increased monthly payments), and they cannot understand why the redefault rate is so high — must be the borrowers lying again. See discussion here.