"Reviving his populist re-election message," says the Washington Post about tonight's State of the Union speech, "President Barack Obama will press a politically-divided Congress to approve more tax increases and fewer spending cuts."
Messages like that are always welcome, although we think of them more as "common-sensical" than "populist."
But messages only go so far in an economy where more than 35 million people stil live in underwater homes and millions of people are unemployed.
"The Homeowner Stimulus"
Fortunately there are immediate, concrete steps the President can announce in tonight's speech which will help struggling homeowners while at the same time stimulating the economy and promoting job creation.
More than $1 trillion in homeowners' money is underwater, much of it tied up in bank payments for housing value that has disappeared. The right Presidential actions will free up billions of dollars in homeowner obligations, enabling them to spend that money in the equivalent of a a new multi-billion-dollar stimulus to boost the economy and create jobs.
Here are nine steps the President can take todayto create the "homeowners' stimulus." They're practical, they're "populist," and best of all they can be done right now.
1. Spend the rest of the HAMP money.
The Administration has only spent roughly $4 billion of the $29.9 billion Congress allocated for struggling homeowners.
Economists speak of a "fiscal multiplier," which is the added economic benefit the economy receives from government spending. As even the traditionally conservative IMF has acknowledged, that figure is higher during difficult economic times like these -- especially for programs targeted to cash-strapped populations like underwater homeowners.
The President should declare that these funds will be used by the end of the year as direct aid to struggling homeowners.
2. Clean up the HAMP scandals.
At the same time the President should announce an investigation into the terrible abuses associated with the HAMP program. He should announce that he will direct the Treasury Secretary to put an immediate stop to "dual-tracking," a bank scam in which homeowners are told that they qualify for assistance while the bank secretly continues foreclosure proceedings against them.
That's part of a cruel overall pattern known as "extend and pretend." It's allowed banks to squeeze thousands more from homeowners, take advantage of a government program meant to keep people in their homes -- and then foreclose on them anyway.
Banks have also exploited the program to trap homeowners in loans under unfavorable terms for the borrower - but which are very favorable for them. They've turned a homeowner assistance program into yet another bank bailout.
As the National Consumer Law Center notes, "HAMP's failure to reach its intended scale has one root cause: massive servicer noncompliance." This underscores the need for national mortgage servicing standards, which the President should announce as a priority during the State of the Union.
If whistleblower reports are correct, banks like Bank of America hace also fraudulently abused the program. The President should announce that all such reports will be vigorously investigated.
3. Monitor and enforce the so-called "$26 billion settlement."
From the start, the much-celebrated and misnamed "$26 billion settlement" for massive bank foreclosure fraud has proven to be a disaster - and worse, another Wall Street hoax.
Banks have falsely claimed to meet the settlement's goals when they agree to a short sale on a home in lieu of foreclosure - even though they would have done the short sales anyway for financial reasons. Homeowners are still turned out of their homes, which makes a travesty of a policy that's supposedly intended to keep them in those homes.
Banks have also claimed credit for mortgage relief paid for with other people's money, declining to give borrowers relief on bank-owned loans and instead cutting deals on those they've already sold to investors.
They're also allowed to keep defrauding customers, albeit at a slower rate. Attorney Abigail Field has documented the provisions of the settlement which set the standards for acceptable levels of ongoing fraud, which she's summarized in "The Mortgage Settlement Allows Banks to Systematically Overcharge You and Wrongfully Take Your Home."
These facts cast a doubtful light on reporting like this from CNN Money, which claimed last November that "More than 300,000 homeowners have received $26 billion in relief under the big foreclosure." And with 3.4 million homes foreclosed upon in the last four years, a figure like 300,000 only highlights the trivial nature of the exercise.
The President should announce that, starting immediately, these abuses will be ended and the program will be redirected back to its intended purpose: restitution for the banks' millions of victims.
4. End the state-level hijacking of homeowners' money.
$2.5 billion was given to the states for the purpose of helping distressed homeowners, but as of last report some of those states had diverted nearly a billion dollars of that money into the general fund. (ProPublica)
They're hijacking money that was supposed to help homeowners and using it for their own purposes - especially to give more tax breaks to the wealthy. That's the net effect when you take money that was provided for a specific purpose and use it to offset the impact of those tax breaks for the already-prosperous.
The President should convene a meeting with governors - a public meeting - to discuss this abuse of funds at homeowners' expense. This is also an excellent opportunity to rebut the conservative canard that "states are better than the Federal government at administering these kinds of programs."
5. Enforce and monitor the $8.5 billion settlement.
Then there's the shocking mismanagement of an agreement made between a number of major banks and a regulator called the OCC. In 2011 the banks agreed to do a thorough review of their foreclosure records and help any homeowners who had been wronged. They pledged to that they would hire independent auditors and would not interfere with their work.
It now appears that they defrauded the government instead. Draft versions of a report from the Government Accountability Office reportedly show that the banks had paid billions to corporate consultants that were already depending on them for their revenue. They included accounting firms like PriceWaterhouseCoopers ,which behaved questionably - if not worse - during the worst of the AIG scandal and at other key times in the bank fraud crime wave.
So the banks and the regulators quickly cut a deal in which the banks would pay $8.5 billion to settle the charges. (There's more information here. And we highly recommend Yves Smith's exhaustive series exploring whistleblower reports covering Bank of America's extensive fraud in conducting the initial reviews).
The President should announce an immediate investigation into wrongdoing at the major banks, in this matter, and on any errors, mismanagement, and conflicts of interest at the OCC, with a public report to be delivered no later than the end of this quarter (March 31). He should appoint an independent overseer to monitor the OCC's handling of the new deal. And he should direct the Attorney General to investigate Bank of America, together with any other institutions where there may be compelling evidence of fraud or other criminal behavior regarding this settlement.
6. Direct all of Bank of America's Fannie Mae settlement money to homeowners.
Speaking of Bank of America: Last month it agreed to settle charges of fraud by its subsidiary Countrywide. That settlement requires BofA to pay Fannie Mae $3.6 billion and buy back $6.75 billion in bad loans.
The President should announce that this money - roughly $10 billion - will be used to aid wronged homeowners, and for no other purpose.
Of course, to do that the President will have to fire Ed DeMarco, the recalcitrant bureaucrat who has managed to keep control of Fannie Mae and Freddie Mac, along with the regulatory agency called the FHFA, because Republicans in the Senate are filibustering his replacement. While I don't see DeMarco as the key player others make him out to be, it would be nice to see him go.
The President could announce that in his speech too.
7. Reduce interest rates - and direct the Treasury Secretary to establish guidelines for principal writedowns.
In its State of the Union preview, the Post reports that "Obama is weighing whether to use his executive authority to give more of the country's nearly 11 million struggling homeowners a chance to refinance at today's ultra-low interest rates, according to the Treasury Department and others in talks with the administration on the issue."
On that issue, he can stop weighing and start doing. Removing DeMarco would help here, too. So would some very pointed face-to-face talk with leading bankers.
But even that wouldn't go far enough. The Administration has consistently dragged its feet on the issue of principal writedowns -- reducing that nearly one trillion dollars in loan amounts due for real estate value that has vanished. That needs to be part of the solution. The President should direct the Treasury Secretary to prepare a report on how to implement a principal writedown program, and to have it on his desk within 90 days.
8. Review past bank settlements for fraudulent behavior or other breaches.
The OCC experience shows that banks sought to defraud the government in their handling of the initial agreement. Banks have entered into many agreements with the SEC in which they promised to stop engaging in illegal and fraudulent behavior, only to repeat that behavior again and again. There's evidence they're doing the same thing with the (supposedly) $26 billion settlement.
Isn't an agreement null and void once one of the parties has violated its terms?
The President should announce that he's asked the appropriate attorneys to determine which bank agreements have been violated, and what other options might be open to the government as a result - up to and including criminal prosecution of the bankers involved.
9. Announce firm deadlines for action - and meet them.
Lastly, about that "weighing": The Post also reports that the President is "considering a series of new executive actions" (emphasis ours), but that "one White House official said the moves to boost housing, retrofit buildings, offer same-sex protections or issue new environmental rules were not imminent." Granted, the White House's definition of the word "imminent" is not always the commonly-accepted one, but in this case we assume the anonymous source means "later."
I'm not predicting a Presidential change of heart - or the absence of one. But he can and should take these steps immediately. If he doesn't, the public should demand them.
As for the timing : Respectfully, Mr. President, it's been four years since the banks ruined our economy. If not now, when?
(UPDATE: A spokesperson for the Government Accountability Office assures me that theGAO is working on its report and that the report will be issued in March as planned. Should be very interesting ...)