To David Axelrod
From Bob Kuttner
Re: Saving Harry Reid
Unless the administration picks up its game and delivers more and better jobs, and more help to the housing sector, the Democrats face a blowout in November. That would leave the President heavily reliant on Republican votes for his program, and even less able to deliver a strong recovery in time for his own re-election in 2012. It would make Clinton's unfortunate era of bipartisan triangulation look positively resolute by comparison.
But you knew that. What baffles me is why you are not acting more vigorously to change the dynamics.
Geithner and Summers I get. Geithner thinks you fix housing by rescuing Wall Street. Summers considers persistent unemployment a "lagging indicator." But I think you are enough of a political strategist to understand unemployment and the collapse in housing values as a human tragedy and a dagger pointed at the heart of this administration.
If you want the longer version of this memo, it's in my newly published book, A Presidency in Peril, an advance copy of which is moldering somewhere on your desk.
For now, I'd like you to consider the precarious situation of Harry Reid, your faithful Majority Leader in the senate, among the most vulnerable of Democrats up for re-election this fall. Senator Reid happens to be from Nevada, the state hardest hit by the foreclosure crisis.
Nationally, one in four homeowners owes more on its mortgage than the current value of the house. In Nevada, the nation's most extreme case, the figure is 70 percent--nearly three homes in four homes under water, according to the Congressional Oversight Panel. The are entire swaths of Nevada, in places like North Las Vegas, where empty homes stretch as far as the eye can see, and even homeowners who are current on their payments are finding their home equity vanishing into the desert wind.
In this context, voters are rightly depressed and disgusted with the incumbent party. Your administration has made several false starts at serious mortgage relief. But every single shift in the program has been hobbled by the same basic problem--it is voluntary to the bankers.
As a consequence, while some 2.8 million homeowners received a foreclosure notice in 2009 and 6 million more are currently 60 days or more delinquent on the mortgages, just 168,000 had received loan modifications under the Administration's main program, the Home Affordable Modification Program (that's not a typo; it's just bad syntax in the original), as of the most recent tally in February. And at least half of these modified loans are expected to go back into delinquency because the relief is not enough. Of those newly in delinquency, only 30 percent are even eligible for help under the government's guidelines.
So the foreclosure catastrophe is still increasing far faster than your program of help. You can read all about it in the Congressional Oversight Panel's April 10 report, which is the definitive critique of the failure of the Treasury mortgage program. The panel writes:
"The typical post-modification borrower still pays about 59 percent of his total income on debt service, including payments on first and second mortgages, credit cards, car loans, student loans, and other obligations. Furthermore, HAMP typically does not reduce the total principal balance of a mortgage, meaning that a borrower who was underwater before receiving a HAMP modification will likely remain underwater afterward."
Wow, 59 percent of total income going for debt payments after government aid! You can just imagine the gratitude of these citizens for the Administration's help.
Here's how the Oversight Panel evaluates your HAMP program:
"Most borrowers who proceed through HAMP will face a precarious future, but their resources will be severely constrained. With a majority of their income still tied up in debt payments, a small disruption in income or increase in expenses could make repayment almost impossible. Many will have no equity in their homes and are likely to question whether it makes sense to struggle so hard and for so long to make payments on homes that could remain below water for years. Many borrowers will eventually redefault and face foreclosure. Others may make payments for five years under a so-called "permanent modification," only to see their payments rise again when the modification period ends. The redefaults signal the worst form of failure of the HAMP program: billions of taxpayer dollars will have been spent to delay rather than prevent foreclosures."
To read the report is enough to make you want to join the Tea Party. The past 15 months have been a story of one bureaucratic tweak after another, piling new embellishments onto a failed approach. Just listing the acronyms alone of all the programs and their variants would consume all the words in this column. But the innumerable programs have two things in common--they are not getting the job done, and they are all basically voluntary to the lenders.
This continuing failure, in turn, is the consequence of two fateful decisions by your economic team. First was the decision by Summers, Geithner and company to prop the big banks up rather than clean them out. As a result, the Treasury and the Fed have as their main objective rebuilding bank balance sheets rather than requiring banks to reduce mortgage payments and take losses so that homeowners can get relief. Second, the administration has consistently rejected a bolder approach to helping homeowners -- namely mandating a reduction in the debt owed so that homeowners can have some hope of getting back in positive territory.
As long as homeowners owe significantly more than the value of the house, it makes no sense for them to faithfully pay down the mortgage, because they can never hope to accumulate positive equity. In these circumstances, millions of homeowners are quite rationally walking away, and finding rentals.
That's a solution of a sort, but one that wipes out the home equity of the middle class.
Which brings me back to Harry Reid. In Las Vegas, the average house declined 20 percent in value last year, and the foreclosure crisis keeps feeding on itself.
What's needed is a bold program reducing principal and interest, to make it possible for people to stay in their homes, and to re-employ workers securing and fixing up abandoned properties so that they become attractive rentals or affordable homes for new buyers. But except for a few pilot programs, that's not on offer.
In February, the White House announced a new $2.1 billion Hardest Hit Fund, targeted to five states that suffer both from high rates of unemployment and from very high mortgage defaults. Nevada is one of the five, along with Arizona, California, Florida and Michigan. The money is to be spent by state housing agencies, to encourage innovative approaches. But the pace of approvals is glacial.
One such approach is being pioneered in California by the coalition One Los Angeles, working with Los Angeles Legal Services and the Industrial Areas Foundation. In LA, 98,000 homeowners are in some stage of foreclosure. The idea is to give homeowners a publicly financed low-interest second mortgage, whose proceeds would go to the lender in exchange for a commitment to reduce the outstanding loan balance to its current market value, thus dramatically cutting monthly payments.
I recently interviewed several of the organizers and experts who came up with the idea. They have approval to do a small pilot program, but were told by HUD Secretary Shaun Donovan to let him know whether the bankers supported it before the program could be taken to scale.
So despite the disgrace of Goldman Sachs, and the Senate's belated progress on financial reform, when it comes to mortgage relief we still have government-by-banker. In Nevada, efforts for bolder relief keep bumping up against similar HUD and Treasury red tape.
Meanwhile, foreclosed or abandoned houses are becoming the object of speculation by hedge funds--making quick money from the housing disaster a second time. What we need instead is aid for community groups to help people stay in their homes and renovate abandoned properties, working from the neighborhood up rather than the bank and hedge fund down, as well as a direct federal presence.
In similar circumstances, Franklin Roosevelt's Home Owners Loan Corporation used direct government loans to refinance one mortgage in five, sparing millions of Americans from being dispossessed. In that era, government worked and citizens valued it.
A variant proposed by Howell Jackson, a law professor who is expert in eminent domain, would have the government buy up bundles of securitized mortgages at their current depressed market value, around 40-60 cents on the dollar, and then turn them back into whole loans, using the savings to reduce the principal and interest to homeowners.
David, the Obama administration is going to be damned by the right as socialist whether you use government well or badly. So if you are going to deploy government help to people devastated by this economic collapse, you might as well do it effectively. HAMP, its alliance with bankers, its paltry relief and endless red tape, epitomizes everything that causes people to turn against government.
If the Obama administration fails, it will not be for trying too much but for achieving too little. And your key legislative allies like Harry Reid will pay the price this November.
Oh--and a happy May Day to you. May Day, you will recall, is both the international worker day of solidarity and the international signal of distress. Mayday, Mayday!
Robert Kuttner's new book is "A Presidency in Peril."
He is co-editor of The American Prospect and a senior fellow at Demos
The banks should fund the deflation in the housing market with their excessive profits; the so-called "Toxic Assets" wouldn't exist but for their staggering "creativity" in new product creation. I say fu@kit, let the banks fail, and we'll see those motherfu@kers down here in the trenches with all of us.
Bring it!
I also think that it's not fair that homeowners who are underwater who put money down are in the same boat as those who put nothing down.
I had heard that B of A was going to have some sort of program for principal reductions if the home owner was more than 120% underwater, or something like that. I may not qualify for this program just because I put down 20%.
I spoke to B of A about the program - B of A thinks the value of my home much higher than the value I see on Realtytrac and Zillow. (Like over $50K difference). However, they could not tell me what information source they are using for home values.
*thinking out loud here*....so if something is done, who will decide what home values really are?
CONSERVATIVE RECORD
From 1945 to 1980 each President worked to reduce WWII Debt.
Each percentile gained, almost evenly, in Wealth and Income.
It was the Great Middle Class Years.
Then from 1980 to 2010 we had, mostly, Conservative Control.
Three Presidents for 20 years--18 years Senate-12 years House -- 6 years of Total Control of Government
They took a 600B Budget to 3600B. Less Clinton number.
They took 1000B of Debt and added on 9000B.
Their policies were “designed†to enrich the very rich.
Top 1% had 20% of Wealth in 1980—36% in 1989 --(an 80% increase in eight years of Reagan Tricklenomics ---60% Tax Cut for top 1%).
In 2008 the (1% owned 43% of Wealth) --(10% owned 70%) --( 20% owned 93%.)
80% owned 7% which was 120,00,000 of Middle Class Workers Not Wall Street.
They created 99,000 Net New Jobs Per Month compared to Carter-Clinton record of 222,000 per month. They gave us Great Depression and Great Recession with same Ideology.
They got us involved in nine conflicts compared to Carter-Clinton one.
They created two illegal horrid invasions in two of most destitute, unarmed nations on earth.
They changed friendship of America to hatred by 1500 Million Muslims.
Deaths of over 500,000 humans, men, women, and lil' children.
Where are the Christian prayers for all those widows and children without parents. Where are the prayers for thousands maimed for life, lil kids with no legs or arms and brain damage?
By your own numbers, Dems controlled the House 18 of the last 30 years, the time in which the national debt greatly increased. (The House creates the budget bills.) And it was the Republicans who controlled Congress in the 2nd half of the 1990's when the growth rate of the debt slowed (the fed debt still increased every year, and there was NO surplus). Look up the government's own numbers. Of course, then the Repubs went on a wild spending spree.
As for starting wars, LBJ was a Democrat. Truman, a Democrat, got us in Korea.
Ideology blinds people to the facts.
Credit, like the family car, can be used for good purposes or a foll can use it as a murder weapon. Credit like the family car is not inherently bad.
we went NO WHERE,( didnt need to, we LIVED in "paradise") rented ONE dvd per week and ate alot of bologna, drove old clunkers, had no cable, sattelite, internet, etc.
I was TOLD by a few millionaires that " if you DOUBLE your hose payment EVERY MONTH from the day you sign your mortgage, sometime in year 5, you will have it PAID OFF"
What did i have to loose ?
May 2003, I made my FINAL home payment !!
NOW all the partiers THINK I am Rich....NOT...I just LISTENED to those who were WHERE I wanted to be...I am MUCH healthier ( financially) for it.
I lost money in rental properties...but saw the writing on the wall and sold em for enough to pay the note off and walked away...THANK GOD !!
ANOTHER valuable, and Ex$pen$ive lesson learned !!....maybe I should have READ MORE before I jumped into housing ( it wasn't folly at all, I just knew enough to make me stupid).
KY didn't have the "BOOM" but we sure are feeling the "BUST"
there was nothing of substance driving the housing market, there was no industrial boom, hell jobs were being loss everyday, American income was as flat as it could get so how was the housing market tripling, how were people who were making no more, buying three times the house.
2008 U.S. median income - $50K +/- 2008 U.S median home price - 213K +/-
But we all have to admit we all spend too much. But our crisis has gone far beyond the spenders seeing their last spending sprees. Average middle class with college degree, these are the people hurting the most. What do we see everyday, those who need it the least get the most. Bailing out every cororation that was crying poor mouth to bush and then right away with obama.
End bailouts. period. Give the middle class a break, a chance to catch a breath, chance to add to the economy because now they have more than $5 left in the bank. Time to pass the cramdown bill.
Let the judges decide what is fair and legal.â€
This family's experience is not at all unique. It is actually part of nationwide lending behavior - get homeowners in a HAMP, run up some thousands of dollars in "arrears," then deny the HAMP, demand payment on "arrears," and rapidly slide into forclosure.
http://www.conyerslaw.com/home-affordability-modification-program-the-troubling-reality.html
http://www.complaintsboard.com/complaints/wells-fargo-home-mortgage-c189658.html
Here is a site for help counseling on home affordability modification scams:
http://www.freddiemac.com/news/archives/corporate/2010/20100423_modifications.html
The HAMP program has been perverted into a lender tool for forciing families out of their homes and their homes into auction strictly to maximize lender income. They are utterly indifferent to the destruction of personal lives.
The public is not at fault for this. The real cause of this mess is the same cause as the financial collapse of 2007-2009:
Greed. Pure unadulterated greed in the financial sector.
He and his family got a HAMP trial period. Then that was suddenly retracted. Then they got a full HAMP package that reduced their mortgage payments $1,000 a month. Suddenly they could make ends meet ... then the HAMP package was retracted after 5 months.
And suddenly the lender was demanding payment for "arrears."
The family wrote to executive management. Management intervened and stopped foreclosure proceedings. The family got another trial package ... that reduces the mortgage payment by a mere $100 a month.
The family can't sustain that kind of payment. They still face the risk of default and forclosure.
This same dynamic is playing out all across the country. Lenders are not approving HAMP modifications:
http://agentgenius.com/real-estate-news-events/home-affordability-modification-program-failing-horribly/
http://blog.expresshomebuyers.com/tag/home-affordability-modification-program/
(cont'd)
"Here are the criteria a homeowner must meet. If a homeowner meets these criteria, thery'e in, and you, Mr. Lender, have no say in it. Period."
A well-written, topical, and timely article.
This article:
http://www.parade.com/news/2010/05/02-help-for-struggling-homeowners.html
states that the actual success rate for HAMP modifications is 261,000 out of 6 million. That is only a 4.35% completion rate.
Clearly, the HAMP program is not accomplishing its stated goals. The question is "why not."
I know someone who is in the Home Affordability Modification Program. He was a lead engineer for a major world-wide company. He made good money and his family bought a home well within their means with their income verified by the lender. He and his family have 56% equity in the 2009 appraised value of their home.
Then he came down with leukemia. He tried keeping up for for 4 months and finally had to stop working. Went on short-term and then long-term disability. On long-term disability, CIGNA arbitrarily decided they could cut his disability benefits by 47%. He and his family didn't have the income to fight CIGNA in court.
With their income slashed, he and his family saw their medical expenses balloon from $100 a month to $1.000 a month with drastically increased copayments and COBRA insurance. Caught between the pincers of lost income and rising expenses, they appealed to their mortgage company for help.
(cont'd)
You have essentially said " Forget about the fact that you signed a contract, have a mortgage and made a promise to pay the money back."
From Washington to New Jersey to California to Nevada...and even Greece, it is becoming more and more apparent that living beyond ones means is OK. I disagree with you about how to fix the problems caused by bad lending practices and bad borrowing practices.
Unfortunately, I do not have a solution that is "politically correct".
#2
WHY are Corporations the ONLY " person" NOT "morally" obligated to a contract ??
It's just "BUSINESS" if THEY renig on a contractual OBLIGATION...the "peeons" are, supposedly, the ONLY people BOUND ???
I DON'T THINK SO !
Present mortgage at 38% of income. Qualify for enhanced government modification. Mortgage Co. stalling...one entire year later.
The Loan Modification program is designed to give a borrower enough rope to hang with. If a borrower is deemed unqualified, you are left holding a bag of debt which is insurmountable. Caveat Emptor.
.Bankers have to accept as they were also responsible for the mess and got bailed out.
The banks however, were over inflating the prices of houses to make money and potentially giving million dollar homes to people who work at Mc Donald’s. Loans they did not verifiy income with documentation, because the banks were just going to sell the loans to Wall Street and leave the American Tax Payer holding bag.
There are two parties responsible for creating a mortgage agreement - the want-to-be-homeowner and the "bank" / institution writing the loan agreement.
Before a loan is approved, the bank (or institution writing the mortgage agreement) have the house appraised - if the appraisal looks good, and the want-to-be-homeowner qualifies for the loan, then the loan is made. If the appraisal doesn't look good, or the borrower doesn't qualify, the bank would not (should not) agree to the loan.
The burden of declining values and defaults (due to many factors of our current economy) should not be the sole responsibility of homeowners and taxpayers when the banks had a part in creating those loans and agreeing to them.
Quite right. When I said I wanted to buy this house at this price because I was betting that the value would go up, and you said "okay here is my money, as long as you agree to pay me back," I didn't mean that I would give you your money back if I lost my bet. Now that I have lost your money, it is not rational for you to expect me to pay you back - my best course is to stiff you and wait a few years until some other sucker will loan me money to bet with. I hope, next time, I will win the bet and, if I do, I promise I will pay the next loaner back. Of course, if I lose again, I will stiff him too.
Ronald Reagan and his successors through G W Bush II have transformed this country into something almost unrecognizable, especially for the average American. The disparity between the have and the have-nots increases every day. This is Reagan's legacy and it is why the common man/woman can no longer attain the American Dream. Prison inmates have a better chance at a college degree than our kids.
Now is the time for the Dems to step up for the American people and say no to the corporate takeover.
As a result, we exist in a country where the wealthiest continue to get richer, while the middle class is stagnant. Get over the hand out meme, spanky. That argument is always advanced by those who've never walked a mile in another's shoes...nor suffered the consequences. We are the UNITED States of America, not wally world for the rich.