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Barney Frank: TARP Recycling Okay If Money Goes To Small Banks

2009-05-19T17:25:15Z

Now that some bailout recipients have begun sending checks back to the Treasury Department, the question has become: Whose money is that?

Deficit hawks, during the initial bailout negotiations, pushed for language that would return the funds to the Treasury to be used for debt reduction. And Treasury officials assured that this would happen. Neel Kashkari, former assistant to Treasury Secretary Henry Paulson, said that the department "has no plans to recycle funds from the $700 billion Wall Street rescue package to make more capital injections into financial institutions," as the Wall Street Journal reported in November.

Current Treasury Secretary Timothy Geithner has other ideas. Geithner announced recently he'd be recycling the money back into the financial industry by pumping it into community banks and other smaller lending institutions.

House Financial Services Committee Chairman Barney Frank (D-Mass.) told the Huffington Post that while the ideal scenario would see Troubled Asset Relief Program funds repaid, he's open to recycling funds, if it would benefit small banks.

"I'd like to get it back into Treasury and into debt reduction," Frank said. "On the other hand, there was a delay in getting some of the money to community banks, and that's where it could do us the most good."

But some lawmakers and economists say it's illegal to recycle TARP funds. The law governing the bailout says that revenue from the sale of troubled assets "shall be paid into the general fund of the Treasury for reduction of the public debt."

For the past few weeks Rep. Brad Sherman (D-Calif.) has been railing against Geithner's recycling plans, saying the administration seems to be following an "it's not illegal if Wall Street wants it" philosophy. Last week Attorney General Eric Holder told Sherman he'd look into the matter. A spokesman for the bailout's Congressional Oversight Panel told the Huffington Post that the panel is looking into it as well.

Asked if it's legal for Geithner to recycle funds, Frank said, "I don't know. I'm looking at that. I thought they had to send it back, but apparently there's a difference between the dividends which has to go to Treasury, and the TARP money. But the smaller bank piece is very important, because they're the ones who lend it."

A Treasury spokeswoman told the Huffington Post on May 7 that principal repaid by firms participating in the $250 billion Capital Purchase Program under the TARP is eligible for reuse, whereas dividends and warrant income from CPP investments in preferred equity goes to the general fund.

"As long as you don't read the statute, you'd come to that conclusion," Sherman told the Huffington Post on Monday. "Just go through the statute and work your way through it."

The law defines a troubled asset as a mortgage or instrument based on a mortgage, or any "financial instrument that the Secretary... determines the purchase of which is necessary to promote financial market stability."

"If this preferred stock isn't a troubled asset," said Sherman, "then the whole $250 billion purchases of stock are illegal."

The Treasury has not answered requests from the Huffington Post to respond to Sherman's interpretation.

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Short Sales: Treasury Department Follows Lead Of HuffPost Readers

2009-05-15T17:50:52Z

Last Friday the Huffington Post invited readers to share stories of short sale woe.

In a short sale, a distressed homeowner avoids foreclosure by selling his home for less than the value of the mortgage. While the lender loses money on the sale, it is less costly than if the bank forces the homeowner to go into foreclosure.

But lenders, preferring to delay hits to their balance sheets and to avoid disentangling complex securitized bundles of loans, tend to stick with the more familiar foreclosure process, losing money for everybody.

Art David, a realtor in Naples, Fla., wrote to say that the government ought to do something about the problem. He suggested a short sale credit "to break open the logjam of properties that are being held up from being sold as a result of the banks' reluctance to deal with them." The Huffington Post reported his suggestion on Tuesday.

Tim Geithner is apparently an avid HuffPost reader.

On Thursday, the Treasury Secretary announced a new program to give lenders and mortgage services some incentives to do short sales: up to a thousand bucks for a successful short sale. It's not quite what David had in mind, but it's better than nothing.

"It's a positive step," David told the Huffington Post.

David was one of more than 50 readers and counting -- real estate agents, homeowners, would-be buyers -- who wrote in to share their stories.

Here are just a few of them:

HOMEOWNERS

William and Theresa Taylor of Sacramento, Calif. had a $372,000 mortgage with Countrywide. They got an offer for $325,000. The bank dragged it out and the buyer walked away. Now offers are coming in at around $300,000. Bank of America, now the owner of Countrywide, is rejecting them.

"My husband and I honestly do not care at this point if it goes into foreclosure because we felt that we did the best we could and we were even trying to do the right thing by the bank, by getting a real estate agent to help us short sale the house," wrote Theresa. "The banks have screwed us, and it is time for us to stop participating in their economy."

Wendy Piersall of Illinois wrote that an investment property she owns appraised at $285,000 in 2006. Two years later, her renters stopped making payments. After six months of no mortgage payments, Piersall wrote her banks to say that she had "solid offers" for $225,000 and $220,000. The offers didn't go through: "The mortgage companies took so long to respond we lost both offers," she wrote. The lenders eventually agreed in November to sell the home for $185,000.

"We bought the home in 1999 for $130K and did over $100K in renovations to the property," Piersall wrote. "So it was a huge waste of everyone's time and resources to go through this and have it end like this."

John and Debra Shutz, down in Palm Beach Gardens, battled with Countrywide. At the same time that the Shutz' bought their home in early 2006, for $320,000 with $45,000 down, John injured himself in a motorcycle accident. Out of work, they tried to sell the property into a sinking Florida housing market.

Countrywide encouraged them to try to short sell it, while also bombarding them with debt collection calls. The condo was eventually appraised at $160,000, but the couple managed to get a $200,000 offer. The deal would only go through, however, if the family could come up with $50,000.

"Hello, if I had $50,000 I wouldn't be in this mess," wrote John. "The phone calls stopped for awhile then I got one that just about made me start laughing it was so sad. The caller represented Bank of America. They bought Countrywide and they wanted to know why we weren't making payments on the property!"

A perfectly succinct story from KP, a Maryland reader:

We bought our property back in 2006 for $300,000. I lost my job January 2009. We started the short sale process and received an offer for about $225,000. The bank declined it and said they need at least $255,000. Another offer came in soon after for $255,000 and then the bank declined it and requested $259,000. The buyer walked away. Now the bank wants to foreclose. They are only days away from starting the process and we received a third offer last week and the bank doesn't even want to talk to us or the real estate agent. They are not responding to our calls and faxes. Our mortgage is at Wachovia.

Clinton Wheeler wrote:

Good friends of mine lost their home to foreclosure. They had taken on more than they could afford and when they tried to refinance the market had already begun to crash and their home was worth less than what they owed. They held mortgages for about $400,000 and couldn't keep the home. They had listed it on the market and the best offer they received was for $265,000 which the bank declined. The initial offer was less but they were able to talk the prospective buyer into offering a bit more. After foreclosure the house was auctioned for only $165,000. At that price the new owner got quite a bargain at only about $55 per square foot when the average home in that area was selling for over $100 per square foot the year before.
I can't even begin to understand how a bank can be profitable when they are dragging their feet on short sales and losing quite a bit of money in the process. Luckily my friends were able to get into another home but they are now in the process of filing bankruptcy and I can still remember how excited they were when the staff at KB Homes had told them they were able to afford the home of their dreams. The financing was an ARM and the payment went up before they even set foot in the house and when the property taxes kicked in after the first year they didn't have a chance at making the mortgage payments anymore. In their subdivision about half of these brand new homes are sitting empty waiting to be auctioned, some even before the new homeowners could move in.

Roberta Banks:

"The mortgage company talked me into a 'sweet deal,' as the loan officer says. My home was appraised at $580,000 [in 2006] and I ended up with a $460,000 ARM loan, with the intention on selling the home after the renovations," wrote Banks. She then became the victim of credit card fraud, which tanked her credit and complicated her finances, and she couldn't work due to an illness. The house didn't sell as the market plummeted. Once she got into short-sale territory, the bank began blocking sales.

Wrote Banks: "We have had many offers and it has taken almost a year and the offers have come and are gone because the bank has been dragging its feet on it. Now my home has been vandalized and lots of fixtures were stolen and the beautiful home with custom cabinets, beautiful pine wainscoting, designer kitchens and baths, in-ground tile swimming pool, beautifully landscaped, and many other amenities are now going for a mere $185,000. My credit is completely shot and so is my health. I now live with my daughter and grandchildren and have no health insurance."

BUYERS

Hugh and Roshni Freebairn have an offer in with Washington Mutual with proof of funds. They've been waiting a month, a short time judging by the standard wait we're hearing about. "If the bank doesn't approve we will just give up on short sales and try to find a decent foreclosure, but that is difficult since most foreclosures are really trashed out. We looked at one where the previous owners had poured concrete down the drain as an act of spite against the bank."

One "concerned house shopper in Fort Meyers, FL" wrote of the rampant fraud he and his wife have uncovered as they search for a home in the epicenter of the foreclosure crisis. Their story is a reminder of how far the market had spun out of control, and how the banks sometimes become victims of the slap-happy culture they fostered.

"On our most recent offer on a house that is being sold in a short sale, we put a reasonable offer on the house but the woman that owns it would not sign the contract. What is odd about her situation is that she had the house completely paid off a couple of years ago, only to then take out a mortgage of about $330,000, after which she is now in foreclosure. We were told she bought a house in Kentucky and does not care about the house in Fort Myers. My guess is that she borrowed the money for the Fort Myers house, bought the house in Kentucky outright, and is now stiffing the bank for the balance."

Michael Levin put in a $180,000 short sale bid on a house in Columbus, Ohio. He upped it to $200,000 and a bank in California, which held the note, asked for $209,000. He agreed. So they asked for $219,000. The house had deteriorated over several months, as had the market. He said no and walked away. It's now on the market for $209,000 and falling.

"Every day, I thank whatever person or force was responsible for the agent who represented the California bank to ask for $219,000. If the California bank had accepted our final offer, then we would have been boned. I remain baffled by the California bank's behavior," he writes. "Why did the bank not accept our October 2008 offer?"

Margan Green wrote:

My son placed a full price, *all cash* offer on a house for sale in Fredericksburg. It was a short sale, so the bank needed to approve the offer. The bank ignored the offer, and the house was scheduled for foreclosure two weeks ago. My son was there, with his certified funds, to bid on the house. But the auction was postponed, because they said Freddie Mac had a moratorium on foreclosures. So time passes by. No one can tell my son what will happen, and I'm sure he will find something else, because he is motivated and he has the cash.

REAL ESTATE AGENTS

Bruce Lucas with Keller Williams Realty wrote to say that while banks are taking time to decide, "the property remains active on the Multiple Listing Service and is still being shown to other potential buyers who may submit offers that are more profitable for the bank than yours. So after waiting all of this time someone can come in at the 11th hours and have their offer accepted over yours and you have to begin the process all over again."

Lucas said he and other realtors have noticed a pattern with short sales and other efforts at mortgage modification. "It seems that the paperwork has to be submitted several dozen times only to finally get a response saying the modification was canceled because either the paperwork was missing or is now outdated."

Candice Sullivan, a realtor with Country Estates in Solano County, Calif. wrote of one family who bought a place for $825,000 in 2005. They put $200,000 down and took out a standard 30-year fixed-rate mortgage. The family ran into trouble three years later when the father left. The bank blocked all efforts to modify the mortgage or work out a short sale. The mother of two has a good-paying job and could have a afforded a modified mortgage, but instead it's on the way to foreclosure, where Sullivan guesses the bank will be lucky to get $400,000. Subtract from that the legal expenses of foreclosure, and the bank is costing itself hundreds of thousands of dollars needlessly.

"The irony in all of this," wrote Sullivan, "is that if the lender had just initially worked with Beth on a mortgage workout none of this would have happened. She is an educated woman with a good income and could easily have afforded her mortgage if they had worked with her. In markets where homes values have declined up to 50 percent the mortgage crisis hits everyone. The solution is simple the government needs to mandate lenders to rewrite mortgages with 3-5 year pre-payment penalties if seller is to sell at a profit. Their faulty loans become A+ paper, it costs banks nothing in comparison to all of the fees and commissions paid in either a sort sale or foreclosure, not to mention the emotional and economic toll it takes on all parties and communities involved. Then again, the banks and government obviously don't care."

Robert Searcy, a realtor in Houston, sent in a listing for a property now going for $190,000. The bank, he said, previously rejected a $209,000 offer. He gave up and doubts, at this point, that they'll get what they're now looking for.

Ulysses Torassa, a realtor in Northern California:

"I'm a real estate agent in northern California and have seen how horribly banks have acted in the short sale process -- passing up the chance to get 75% of their money back only to find they end up with 50% or less many months later because they wouldn't agree to the short sale."

While the market burns, some lenders and servicers are doing whatever they can -- legal and otherwise -- to grab a few bucks on the way out the door before the whole thing goes up in flames.

From Peter J. Pike, an attorney in Florida. Follow along, this one gets interesting:

The price offered (after being on the market for years, constantly dropping the price until offers came in, which is truly the only way to determine what the true fair market value is of a home), was not enough to pay off the first mortgage. After about three months of negotiations (actually, just waiting - negotiations indicates that we were going back an forth on issues, the only back and forth involved Wells Fargo losing our file on more than one occasion), we were told that FHLMC [Federal Home Loan Mortgage Corporation] would approve the short sale, allowing the second mortgage to be paid approximately $3,000.00 (10% of the amount of the second mortgage) out of their proceeds. They also wanted the Sellers to bring $10,000.00 to closing, to make up some of the deficiency. My clients were able to borrow the $10,000.00 from their parents and siblings.

Not so fast, said Wells Fargo Home Equity. They also wanted $10,000.00, not $3,000.00. When I pointed out that the first mortgage holder (remember, also Wells Fargo) would not allow us to make any additional payments on the second mortgage as part of this transaction, they suggested that the Sellers borrow more money from their family, and just "make a pre-payment of principal on the second mortgage, before closing. There's nothing illegal about doing that, is there?" I pointed out that under Federal Regulations, it felt to me that they were suggesting that we commit bank fraud, so, I asked them to give my clients a get out of jail free card, in the form of a letter, on Wells Fargo letterhead, spelling out exactly what it was they wanted my clients to do, and opining that there was nothing fraudulent about it. Not surprisingly, they were unable to put anything in writing. I then asked them to speak with the negotiator from Wells Fargo Home Loans (the first mortgage holder), to work out a way that we could pay the additional $7,000.00, without breaching any ethical, moral or legal boundaries. They had the nerve to lie to me (okay, not out and out lie, just fail to tell me what really happened) by saying that "the only way we can get approval on this deal is if your client makes the pre-payment of principal prior to closing". I had already spoken with the first mortgage's negotiator, who told me in no uncertain terms that Freddie Mac would not allow any payments to the second mortgage holder prior to closing. The only thing they would allow would be for my clients to sign a promissory note at closing (which, my clients were willing to do, and offered to do).

Adding insult to injury, Wells Fargo Home Equity (second mortgage holder) sent an approval letter, stating that they would allow the short sale only if they got $10,000.00, but, they would not forgive the balance of the debt. Rather than getting $3,000.00 honestly, or even $10,000.00 dishonestly, they put the end to the entire deal, since I had no explanation for my clients when they asked, why should we borrow $17,000.00 from family, that we will have a really hard time paying back, when we will still owe over $20,000.00 that we cannot pay back?

I am appalled at the severe conflict of interest at Wells Fargo on this (and I am certain many other) transactions. Their refusal to act honestly (in the name of generating more money for Wells Fargo), cost our federal government (we do own Freddie Mac now, right?) the maximum amount of money we would see on repayment of the first mortgage. It also should (but, try to find the right people to tell this to) cost Wells Fargo their servicing contract with Freddie Mac (after all, they forgot their fiduciary responsibility as servicing agent on the first mortgage, in order to try to line their own pockets at that first mortgage's expense).

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Neal Wolin, Top Geithner Pick, Joins The March From Wall Street To Treasury

2009-05-11T23:00:21Z

As Dick Durbin watched his effort to stave off home foreclosures get slaughtered in the Senate by bank lobbyists earlier this month, he concluded that the financial industry "frankly owns the place."

They obtained that ownership partly through tens of millions of dollars in campaign contributions to members of both parties. But they also buy the staff, a crucial investment when a few words deep in the text of a bill can mean billions to an industry.

Staffers aren't bought outright with manila envelopes filled with cash. Instead, they see for themselves what fruit awaits a staffer loyal to the banking industry. And then they return to lawmaking.

On Tuesday, the Senate Finance Committee takes up the nomination of Neal Wolin to be Timothy Geithner's number two at the Treasury Department. During the Clinton administration, Wolin worked under Larry Summers as the Treasury Department's top lawyer, where he helped write the deregulation bill -- Gramm-Leach-Bliley -- that undid Depression-era reforms and is partly blamed for the financial meltdown.

The Bush years were good to Wolin, who became head of the lobby shop at Hartford Financial Services Group, where, according to the company website, he "oversaw the company's legal, government affairs, [and] corporate relations." Now Geithner wants him back in the administration.

"Neal wasn't on Wall Street. He was in the insurance industry," said Treasury spokeswoman Stephanie Cutter in an e-mail.

He'll join Mark Patterson, Geithner's chief of staff, a former top lobbyist with Goldman Sachs. (Cutter points out that Patterson also worked for former senator Tom Daschle. "He's got an extensive policy career," Cutter writes.)

Goldman Sachs didn't have to look far for a lobbyist to replace Patterson. It tapped Michael Paese, who has been a top lobbyist for the past year for the Wall Street trade group SIFMA -- the Securities Industry and Financial Markets Association. A Goldman spokesperson confirmed the Paese hiring but declined to comment further.

Before joining the bankers' lobby, Paese wrote laws for Democratic Rep. Barney Frank's House Financial Services Committee. In 2007, he and Rick Delfin, another Democratic committee aide, worked closely with SIFMA to neuter a bill aimed at preventing banks from bundling up and selling fraudulent, subprime loans, according to Business Week (jump to page four) and confirmed by the Huffington Post.

The changes to the bill requested by SIFMA effectively gave banks operating in the "secondary market" a get-out-of-jail-free card for making, bundling and selling bad loans. The bill was watered down and the market for the securitized loans was allowed to continue as it was. The secondary market was almost completely exempted from rules governing liability for bogus loans.

It is the securitization process that prevents homeowners from selling their home for less than is owed on it, forcing them into foreclosure instead. Securitized loans are at the very heart of the financial collapse, as the process allowed banks to shed responsibility for bad loans by bundling them and shipping them off.

After their work on SIFMA's bill, Delfin and Paese went to work for SIFMA. Often in Congress it is the prospect of future riches -- rather than money already delivered -- that can have the most impact. It's a drunken conga line snaking through the party, starting at the staff level, shuffling to K Street and then shaking it over the White House. All a staffer needs to do is get up and dance.

"We are grateful for the opportunity to have provided insight and input throughout the legislative process," Marc Lackritz, SIFMA president and CEO, said before the vote on the bill. Regrettably, he said, he still couldn't support it, because it might cramp the subprime lending market.

"The bill could severely restrict home loans for a segment of consumers striving to reach the American dream of home ownership," he said. "Firms may choose to abandon the market for making loans to individuals with less than perfect credit -- an end result that would restrict credit to the very borrowers this legislation aims to help. It's regrettable that such a well-intentioned bill, if made law, could have the adverse effect of constraining the mortgage credit market, making it harder for families to own their own home."

The bill was a total failure and led to but a handful of mortgage modifications. It did not stop or even slow the subprime lending market, which continued to burn hotly, right up until it scorched the global economy.

After it passed a similar but undeniably tougher mortgage reform bill last week, the House Financial Services Committee patted itself on the back, saying that if "Congress had enacted these long overdue mortgage lending reforms, which Democrats have been advocating since 1999, the subprime lending meltdown could have been avoided altogether."

But the Center for Responsible Lending, in an otherwise laudatory press release, pooh-poohed the bill for coming up short on securitization.

The bill "does not sufficiently fix the misalignment of incentives throughout the mortgage market that led to the current crisis," it said. As they did at the last dance, the industry found a way to carve out generous exemptions for itself. "Moreover, in some very important ways, the bill exempts from its scope those loans that have been bundled into mortgage-backed securities -- the very loans that are proving most problematic as we try to address the foreclosure crisis."

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Short Sales: Banks Blocking Way Out Of Foreclosure Crisis

2009-05-08T20:35:03Z

Brett Ellis, a real estate agent in Fort Myers, Fla., was thrilled when he got an offer for a property in Bell Tower Park in May 2008.

"It was a gorgeous property on the corner lot," Ellis told the Huffington Post. The owner, who had lost his job, wanted to sell the apartment for a loss rather than go into foreclosure, a strategy known as a short sale.

The offer was for $350,000, and Ellis, who is a certified distressed property expert trained in executing such sales, knew it was as good an offer as he was going to get in this market. He immediately sent the paperwork into the bank.

He waited for four months. The bank finally told him it wouldn't take anything less than $400,000 -- a price Ellis was sure he could never get. In September, the buyer's agent called to say, "You know what, we gotta move on, we gotta buy something else."

Now the property is sitting vacant as it slides into foreclosure. Its former owner's credit is destroyed, and the house is losing value every day. "God knows what the condition is today," Ellis said, adding he'd be surprised if the property is worth more than $290,000 when it resurfaces on the market. Add in the legal expenses involved in a foreclosure, and the bank cost itself a hundred thousand dollars more that it otherwise would have.

It's a scenario that plays out constantly, everywhere in the United States. In a time of collapsing real estate values, where one in five homes are now under water, a short sale is increasingly the only option before foreclosure. It is less damaging to credit scores and spares the homeowner the shame of foreclosure.

It is also a better option for banks: According to one analysis, short sales resulted in loan losses of only 19 percent, compared with an average loss of 40 percent on homes sold after foreclosure.

So why aren't these sales more widely used?

The broad answer is that the American financial system simply can't handle a collapse of this magnitude. The fates of the banking and real estate industries are intertwined. But they don't work together -- and the result is that they end up working against each other.

The more precise answer is related to securitization, the method by which banks bundle together different mortgages and slice them up and sell the pieces to various investors. Securitization makes negotiating a real estate sale that results in a loss nearly impossible.

"The most significant aspect is that so many of the banks' mortgages have been securitized, put together and bundled, sold off to Iceland or China or some godforsaken place," said Dave Liniger, founder and chairman of global real estate company Re/Max, in an interview with the Huffington Post. "The bank has to go through all of the various people who are stakeholders and it becomes a very lengthy process, and the bank is turning off the realtors by not even getting answers back to them, sometimes for months."

Banks have little incentive to untie those bundles. Since mortgages are listed on the banks' balance sheets at the value of the original loan, if they complete a short sale they must record a loss on their balance sheets. That would explain why banks drag the process out as long as possible. In Ellis' case, the property is sitting vacant a year after the first offer, allowing the bank to list the original value on its balance sheet all along.

According to research firm Campbell Communications, only 23 percent of short sale transactions are actually completed. "Three out of four potential short sale transactions fail, principally because the mortgage servicer takes too long to respond to the offer," said Tom Popik, author of a February survey of real estate agents. "When these same properties are later sold it further depresses real estate prices."

Congress has had as much success untangling this mess as real estate agents.

"We've been trying to figure out probably for close to two years now why so few mortgages are being modified when it seems to make absolute business sense for the person holding the mortgage to modify rather than foreclose or to take a smaller loss selling it rather than a bigger loss foreclosing on it," said Rep. Brad Miller (D-N.C.).

Miller points his finger at securitization. Once the mortgages are bundled and sliced up into different pieces, known as tranches, the owners of the pieces get paid back according to a certain pecking order. Senior investors get paid back first and if there's a loss, the most junior investors won't get anything. It's those investors who are blocking short sales.

"The people with the least senior tranches have no reason to agree to the modification because they take a complete loss and the people in the most senior tranches don't lose anything. So they've managed to structure their mortgages in a way that makes it almost impossible to modify or sell short," said Miller.

Miller sponsored legislation to reform the bankruptcy code to allow judges to rewrite those contracts, taking away the ability of junior investors to sue and encouraging them to negotiate. But the House-approved measure died in the Senate, 51-45, killed last week by Republicans and 12 Democrats, leaving it 15 votes short of the 60 needed to overcome a filibuster.

Dave Liniger of Re/Max said the provision would have changed the bargaining landscape. Lenders would have had much more of an incentive to take a loss on a short sale rather than see a judge unilaterally change the terms of a mortgage.

"It was a negotiating ploy more than anything," Liniger said.

"It's disappointing," said Financial Services Committee chairman Barney Frank (D-Mass.) of the banks' tendency to foreclose rather than agree to a sale. "I've heard that and I've been trying to press the banks not to do that."

Without bankruptcy reform, the only power the government has is persuasion.

"In the absence of bankruptcy [legislation], you're talking about contracts that we cannot abrogate," he told the Huffington Post. "That's why bankruptcy was so important."

Is there any chance Congress will return to it?

"Excuse me, what planet were you on last week? The vote was 45 to 51. Why would you ask that? Do I think there's a likelihood we could overturn 45-51? No," said Frank.

"I wish it weren't the case," he added. "Maybe there's some kind of compromise."

Sen. Dick Durbin (D-Ill.) isn't confident. "The purpose of the debate last week was to try to create some impetus for the banks to start renegotiating these mortgages in a positive way and the industry fought it," Durbin, who last week concluded banks "frankly own the place," told the Huffington Post. "I think many of the banks have not operated in good faith when it comes to this mortgage foreclosure issue."

Homeowners are the big losers of the banks' battle against the bill. But real estate agents are now losing real money as commissions fall through, making them a potential lobbying counterweight to the banks.

The National Association of Realtors wants the rules changed: "We are advocating measures that would help streamline the process when using FHA, Fannie or Freddie," said NAR spokeswoman Mary Trupo in a statement to the Huffington Post. "We are hoping that new process and regulations are put in place."

Fannie Mae just wrapped up a pilot program to test a process for streamlining short sales by partnering with local listing providers in Arizona and Florida to pre-approve 400 properties for short sales. The government-backed mortgage firm is still evaluating feedback from brokers, but overall the program was a success, and a new short sale initiative is in the works for this year.

"Short sales are one of the tools to avoid foreclosure if all other workout options are exhausted. It's always in the best interest of the homeowner, the community, and the investor to avoid foreclosure," said Fannie Mae spokeswoman Amy Bonitatibus in a statement to the Huffington Post.

Liniger says Re/Max recently trained 5,000 employees in short sales.

Lita Smith-Mines, a lawyer who specializes in real estate on Long Island, told the Huffington Post she and her colleagues often see short sales turn into foreclosures because the bank won't play along--even when losses are as small as $25,000 and the offer is as high as it will get. And much higher, in this market, than the bank will get from a foreclosure auction. The legal costs of foreclosure alone typically run to $50,000.

"There's no common sense when it comes to lenders. They have their paperwork and if you don't slot perfectly in, they just say no," she said.

"A lot was taken on the front end [during the housing boom], but they're not giving anything back on the back end," she said. Smith-Mines, though, said she isn't surprised. "If they actually cared about borrowers, we wouldn't be in this mess in the first place."

HuffPost readers: Has the bank foreclosed on your home after dragging its feet on a short sale? Have you given up on a short sale after making an offer and waiting months? Email us your story at submissions+foreclosure@huffingtonpost.com

Ryan Grim is the author of the forthcoming book This Is Your Country On Drugs: The Secret History of Getting High in America

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Tent Cities: An American Tradition

2009-03-19T16:58:15Z

A couple weeks ago a reader shared word with the Huffington Post of a tent city in Virginia, about an hour outside of D.C., where tons of middle class people had put up stakes after getting ousted from their homes.

The tip was reporter's gold and seemed entirely plausible. Foreclosures are surging, and those people have to live somewhere. But calls to five Virginia counties turned up nothing; the original tipster conceded it might just be a rumor.

The five county sheriffs all told the Huffington Post, though, that they'd heard of a tent city in Sacramento, California -- one that had been featured on Oprah Winfrey's show.

NBC Nightly News followed up with a "sign of the times" piece on the Sacramento shantytown. Apparently recently-employed people were shown cooking soup in coffee cans and living out of tents along the American River. The report said tent cities were also popping up in Seattle, Reno, and Nashville. Several other news organizations jumped on the story, all linking the tent city phenomenon to the recession. A UK Times Online headline declared that "America faces new Depression misery as financial crisis worsens."

What those reports didn't say is that Sacramento's tent city has been a part of the landscape for years -- at least five, according to a spokesman with the Sacramento mayor's office. Those people weren't all washed onto the banks of the American by a recent wave of foreclosures.

On Friday, the Huffington Post asked readers to let us know if there were tent cities in their own areas. Readers responded with tips on over a dozen improvised communities across the country, from Olympia, Washington, to Camden, New Jersey. Our follow-up reporting showed, however, that the camps tend to predate the current foreclosure crisis.

There's nothing new about tent cities in the United States. There's nothing new about poverty in America. Some folks will be living in improvised shelters in public space whether we're in a recession or not. And with food stamps, unemployment benefits, and pension funds -- things unavailable at the onset of the Great Depression -- there's a safety net that can catch the unemployed and foreclosed, giving them time to get back on their feet before they're living under the stars. Moreover, a widespread consumer item that wasn't available to our great-grandparents' generation -- the RV -- assures that we'll see waves of people living out of their massive vehicles before communities of middle-class families start sleeping in Wal-Mart tents.

"It's a little early for us to get victims of the economy," says Dick Lawrence, pastor of the St. Vincent de Paul church in Baltimore. For now, "people double up, take each other in."

Lawrence is intimately familiar with the type of people who wind up in a tent city. His church has been by Baltimore's inner harbor since 1840. As the surrounding neighborhood has revitalized in recent years, the church has stayed the same, and so has its adjacent "Bum Park."

"We've had this park beside the church 50 years and it's always had homeless guys during the day," says Lawrence. When Lawrence arrived at the church in 1973, he says, the bums were already here. Maintaining a stable community in the park next to the church is a matter of "staying on the knife edge between compassion and enabling."

When the city put the park up for sale in the 1990s, the church bought it to prevent unwanted development, says Lawrence. After the property changed hands, the police department lost its prerogative to clear people off the benches at night. Lawrence says he had no problem with letting people sleep in the park. He's not going to shoo them away, and he figures their presence in downtown Baltimore, just a stone's throw from city hall, gives good visibility to the problem of homelessness.

To discourage prostitution and drug-dealing, the church banned actual tents years ago. So denizens of Bum Park (what residents themselves call it) claim a bench, put their stuff under it, drape a tarp across the top, and call it home.

On Saturday, the Huffington Post visited Father Lawrence and Bum Park to investigate a reader's tip. Fifteen or so men and women were lying down or sitting on benches during a cold drizzle. About half the park's residents rested prone beneath their tarps, making the barren park seem like an alien landscape filled with bright-blue cocoons.

"Everyone gets along," says Reggie, 26, who's been living in the park since last June. "Sometimes people fight over food, especially when it's hot [outside]."

There's lots of food at Bum Park. Within a few blocks there are two organizations providing free lunch, and people frequently drive by the park to deliver goods. In the few hours the Huffington Post spent at the park, a man in a pickup truck dropped off several bags full of new clothes and the Salvation Army visited with hot food.

Lawrence says St. Vincent de Paul church splits the cost of a portable toilet with a nearby Protestant church. There's no shower or running water, though. The only sanitation service, he said, is a once-monthly "Chinese fire drill" in which parishioners ask park residents to vacate for a few hours and leave behind nothing they want to keep. The rest is scrubbed by the volunteer cleaners.

Some in the park are long-term residents, like Johnnie Hardy, 44, who has lived there for five years. Hardy says he's slept in the park under his tarp in ten-below weather. He might be crazy, but you can't tell from talking to him. He says he'd rather sleep under a tarp than stay in a shelter.

Pastor Lawrence says 40 percent of the park's residents have alcohol problems, 40 percent have drug problems, and 30 percent are mentally ill. There are no families in Bum Park, but there are in other east coast tent cities.

"We have several tent cities here," says Keanna Ralph, a spokeswoman for the Camden, New Jersey mayor's office. Ralph says there a few families living in the "main" tent city, which she says has existed for longer than two years. The city doesn't interact much with the tent dwellers because they're on state property, not city property.

On the west coast, tent cities are a movement, and the local government is forced to cooperate.

In Olympia, Washington, and some of its surrounding jurisdictions, a tent city called Camp Quixote rotates from church to church every 90 days with the approval of local residents and government.

It all started as a protest against a city ordinance to ban people from sitting or lying down on the sidewalk. A group of homeless people and activists set up a tent city on government property. The ensuing fight became a dialogue.

Anna Schlecht, the housing program manager for the city of Olympia, says the tent city there rotates from neighborhood to neighborhood, settling on the property of a difference church every three months.

"What we came up with is that these camps could be located on church property if as soon as they move, the church holds a neighborhood meeting," says Schlecht. Through the meetings, the neighbors become familiar with the camp residents, and familiarity breeds civility. With each new location, Camp Quixote initiates a new permit process with the local government. After three months the permit process gets prohibitively expensive, Schlecht says, so Camp Quixote moves to a new host site and starts over.

"Camp Quixote is an alternative model for communities of poor people to live together in a safe, nurturing environment," says Selena Kilmoyer, a member of the Olympia Unitarian Universalist Congregation, the first church to host Camp Quixote. She says the tent city model harks back to the shantytowns of the '30s, "safe environments where poor people could be together and not be afraid."

There's a very similar setup in Seattle. Since 2002 the city has worked with local nonprofits to maintain a rotating 100-person tent city sanctioned by the actual city, according to a spokesman with the Seattle Department of Human Services.

Sacramento hasn't figured out yet what it wants to do with its celebrity tent city. But mayoral spokesman Steve Maviglio says they're trying to form a plan before the utility company that owns the land beneath the tents begins a scheduled development project.

Even though the population there "quadrupled in last year," Maviglio says, it's not the economy's fault. Maviglio estimates that 75 percent of the tent dwellers are chronically homeless, unlike the recently middle-class folks featured on Oprah. Maviglio says foreclosure victims "are not the usual suspects."