CA Politicians Pander on Foreclosures

JAN. 27, 2011

By WAYNE LUSVARDI

On the eve of President Barack Obama’s State of the Union address, 16 California House Democrats pleaded for more relief for homeowners in foreclosure.  It was all show and no go, however. It was all meant to posture and pander before TV cameras and fawning newspaper reporters covering the State of the Union speech.

Dataquick real estate data service reported 61,517 more Notices of Default on delinquent home loans were filed in California during the fourth quarter of 2011.  But newspapers headlines are portraying that the delinquents’ elected representatives are “doing something” to save them.  Nothing could be further from the truth.

Of the 61,517 new Notices of Default filed in the fourth quarter of 2011, 60,289 were because borrowers were in default on multiple loans.  For example, a borrower could owe on a primary mortgage and a line of credit on the equity in his home.  There is very little any relief program can do when 98 percent of those delinquents are also in default on more than one loan.  Homeowners were pulling money out of their homes to live on as if it was a money tree. When all the leaves were plucked, the tree died. When the whole forest died, the economy died.

According to Dataquick, homeowners were typically nine months in arrears on their loan payments when the lender filed a Notice of Default.  The typical borrower in default owed $19,949 on a home with a $333,036 mortgage.  Most of the loan delinquents were in lower income areas where most households don’t pay income taxes.  So households that don’t pay income taxes added nearly $20,000 of debt.  The debt has created a hole in the state budget that can’t be plugged.  Lower income homeowners went on a feeding frenzy of “greed” that no pop journalist wants to write about.

Obama’s speech mentioned nothing about how homeowners saving $3,000 a year on their mortgage would even dent the foreclosure crisis in California. It would only help homeowners who are already financially responsible. But politics is a game of creating a perception that government can save you after it created a problem in the first place, in this case the Housing Bubble.

Foreclosures Decreased but Were Offset by Short Sales

Short sales reflected 19.8 percent of all the re-sales of homes in the fourth quarter of 2011.  A short sale is where lender is willing to sell a home for less than the loan on the property.  Over the last four years, the percentage of short sales his climbed from 16.4 to 19.8 percent of sales.

Notices of Default and actual foreclosure Trustees Deeds recorded have somewhat declined. But this has been offset by the increase in short sales.

John Walsh of Dataquick said, “We are certainly seeing a lower level of foreclosure activity than a year or two ago.  The question is how much of that decline is due to market conditions, and how much is due to policy changes that try to address economic distress and lower home values.  Strategies now include short sales, refinances, interest rate changes, principal reduction as well as just plain waiting longer.”

Politicians want banks to delay foreclosures so the pols can stay elected. The banks seem to prefer just waiting it out until the next election cycle is over to find out what policies will be implemented. Then they can proceed.

The Continuing Stark Reality

Unemployment is still running 11.1 percent in California.  There are still 281,142 initial unemployment insurance claims.  About one third of all home re-sales — 33.7 percent — were foreclosures in the last quarter of 2011 (down from 57.8 percent in 2009). Loan delinquencies remain clustered in areas with the lowest home values.  Nothing Obama or the Democratic contingent in Congress from California is doing is going to change this reality.  But the newspapers are reporting that your representative is “doing something.”

Into this stark reality, redevelopment agencies are absurdly bemoaning that yet more affordable housing is needed.  Owner-occupants bought about 70 percent of all foreclosed homes. Thus, the market, not government, was generating its own affordable housing.

Investors bought the other 30 percent of foreclosures.  They apparently returned the properties to affordable rental housing.

CA’s Democratic Congressional Posturers

Despite all of the above, California Democratic congresspersons complained that the foreclosure crisis was somehow worsened by the Republicans blocking the appointment of the head of the Federal Housing Finance Agency.

Said Rep. Dennis Cardoza, D-Merced, “The administration has been playing footsie on this topic.”

Cardoza is probably right. The president has been playing political football with foreclosures.  But that is probably not what Cardoza meant. The term “political football” refers to a problem that doesn’t get solved because of the politics involved.

Not to be outdone in political posturing and pandering, Rep Mike Thompson, D-St. Helena, said, “It’s not good enough to keep people in their home.”  Well, he’s right on that.  Just the 61,517 delinquencies filed in the fourth quarter of 2011 would equate to $20.48 billion in loan defaults. That would be the equivalent of the California state government’s structural $20 billion budget deficit all by itself.

Executive Action

But it was Rep. Jerry McNerney, D-Pleasonton, who probably “takes the cake” for his call for Obama to take executive action without Congress.  McNerney called for a “real plan for reducing the principal owed on underwater homes.”

Asked how much that would cost, Edward De Marco, the acting director of the Federal Housing Finance Agency answered, “$100 billion.”  It’s probably more like $1 trillion; $100 billion would be about five months of loan defaults in California alone.

Now there’s a true political panderer for you. The country and the state are already broke from the Housing Bubble.  And a congressman wants the president to wave a magic wand to give a $100 billion bailout to delinquent homeowners.  But we live in a system in which the president has to share power with the Republican-controlled House of Representatives that holds the purse strings.

Politics in California is mostly symbols and not substance.  But the newspapers and broadcast networks take it seriously. And the California electorate keeps electing them. And why not?  If you could get a free 20 grand and live in a home rent free for a few years until your home is foreclosed on, wouldn’t you vote for those who created such a plundering of wealth of the savings and pensions of the middle class?

While California burned, Obama and 16 California members of congress played a fiddle to the media.  At least their tune was in harmony with their constituents.

12 comments

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  1. Beelzebub
    Beelzebub 27 January, 2012, 12:32

    This is like everyone standing around looking at the barn door that’s wide open with all the horses gone. All of them are scratching their heads and trying to figure out a way to find the horses. Not one of them is demanding that they track down the bastard(s) who let the horses out in the first place and hang them from the highest tree. So what’s the incentive not to open up the barn door again at some later date? There is none.

    Reply this comment
  2. cacheguy
    cacheguy 27 January, 2012, 13:17

    What I really hate is the fact that we are looking to bail out people who were irresponsible regarding their homes. They will get the benefit of a bail out while those of us who were responsible will have to pay for it in increased taxes.

    Reply this comment
  3. Beelzebub
    Beelzebub 27 January, 2012, 13:29

    “What I really hate is the fact that we are looking to bail out people who were irresponsible regarding their homes”

    What about those who deliberately provided mortgage loans knowing that the customer had no chance in hell of paying the loan back????

    Who is more responsible? The one provided the loan or the one who took it??? I contend the one who provided the loan. They are bound by law to follow lending standards. Knowing that they would sell the loan to someone else before the ink was dry gave them a reason not to give a damn whether it was a bad loan. Then it became someone else’s problem. And that’s how the meltdown started.

    Reply this comment
  4. Wayne Lusvardi
    Wayne Lusvardi 27 January, 2012, 15:34

    Beelzebub
    Fannie Mae and Freddie Mac had to accept the NINJA and Sub-Prime mortgages that were packaged and sent to them by the commercial banks. Why did they accept them? One reason is that the Basel II Accords, approved by Congress, mandated quotas for the proportion of home mortgages in the portfolios of commercial banks. So if you’re going to start a witch hunt, trace the crime back to its “Godfather” – Congress and government secondary mortgage market enterprises.

    The commercial banks were merely being compliant with government to keep their bank charters and comply with bank regulators. By the way, if the commercial banks were out for nothing but “greed” why did they invest in the mortgages which offered the lowest rates of return? Commercial banks were complicit in what happened. But they didn’t invent NINJA and Sub-Prime loans “whole cloth” so to speak.

    Unless you “whack” the crime boss – not just the small business being extorted by the Mafia for “insurance payments” – you will end up going in circles. But whacking the commercial banks will make those anti-business types in the Knowledge Class feel better. But it won’t bring justice to the perpetrators or to the so-called victims who went on a feeding frenzy for five years with the pension and savings of those who are retired or about to retire (i.e., the “Tea Party”). This is what partly fomented the Tea Party into existence.

    The unstated policy by Congress at the time was to pump up family formations that underpin Social Security and Medicare for the elderly. But the policy failed because there weren’t and still aren’t enough young intact two-parent-two children families who are self-sufficient to prop up the retirements and entitlements of the elderly. The government tried an “easy money” fix. It failed and made the situation worse. This wouldn’t have occurred if the secondary mortgage market was not politicized. But who is going to go after Congress when they are the “lawmakers?” As the Roman writer Juvenal once said: “who guards the guardians?”

    “Criminalizing” the banks or shaking them down for reparations won’t do much but offer political symbolism that the criminals were given “justice.”

    The politicos would love for the banks to be criminalized while they get off Scott free. The banks can always pony up, say, $25 billion in reparations which is a mere drop in the enormous ocean of bad loans out there. Few will go to jail because what they were doing became the new “norm” for lending during the Housing Bubble.

    I understand your viewpoint on this and realize you will strongly disagree. But for others listening in to this discussion this my counter viewpoint. We can only clarify our differences in viewpoints.

    Reply this comment
  5. Beelzebub
    Beelzebub 28 January, 2012, 23:07

    W. Lusvardi – The argument here seems to be who is most responsible for a bank robbery? The guy who cracks open the vault or the guy who enters the vault afterwards and steals the money? I contend BOTH are equally culpable. And I have always maintained that BOTH the government and Wall Street banks were equally culpable in the biggest financial heist the world has ever known. Why? Because all the evidence indicates that the heist could have never happened without BOTH acting in concert to steal trillions of dollars from ordinary Americans.

    Some of your claims appear to be misinformed.

    Federal housing data shows that the private sector, not the government or GSE’s were behind the booming subprime loans business at the height of the crisis. In fact, in 2006 84% of the subprime loans were ISSUED by private lending institutions. And 2/3rds of the 84% were not sold to the GSE’s – they were sold directly to Wall Street investment banks that bundled the loans – got fabricated AAA ratings (for a price)- and sold the CDO’s to unwary investors. And the fact that the investment banks shorted the toxic investments soon after they were sold only highlights the inherent fraud which took place.

    You said:

    “The commercial banks were merely being compliant with government to keep their bank charters and comply with bank regulators. By the way, if the commercial banks were out for nothing but “greed” why did they invest in the mortgages which offered the lowest rates of return?”

    What are you talking about? The subprime loans were extremely profitable for the private lenders. The huge up-front ‘junk fees’ and add-on fees with high-interest rates turned the subprimes into a gold mine for the loan originators. It was all about “greed” and short term profit before it was sold off to the investment banks.

    ““Criminalizing” the banks or shaking them down for reparations won’t do much but offer political symbolism that the criminals were given “justice.”

    Why, pray tell, should we punish murder under criminal statutes, Wayne??? Why punish rape??? Why punish extortion??? Why punish car theft???

    Punishment deters others from committing the same criminal acts. What kind of message does it send out to the Wall Street banking community when they can rip off ordinary citizens for trillions of dollars and not one of them goes to jail??? Do you think immunity from the law will stop them from committing additional acts of financial fraud in the future???

    Sure, the politicians who conspired with Wall Street to bring down the global economy should go to jail too.

    From what I gather – you and I differ on this point: You think it’s all the government’s fault and that Wall Street was a victim of sorts.

    I think BOTH the government and Wall Street are equally culpable for what happened.

    Frankly, I don’t understand how anyone could blame one or the other and not both equally based on all the documented evidence that has been compiled over the last 4 years.

    Reply this comment
  6. stevefromsacto
    stevefromsacto 29 January, 2012, 14:40

    It is hard to believe that the Rabid Right, who are so quick to spotlight some poor person committing food stamp fraud, turn a blind eye to the massive fraud by Countrywide and others on Wall Street that led to the housing meltdown.

    The Countrywide folks were just honest, above board, objective lenders, right Wayne? They never tried to sweet talk, trick or coerce people into obtaining mortgages that Countrywide knew the customer couldn’t afford. They never sold mortgages just to pad their profit margins. Yeah, right, and Bernie Madoff was just a poor misunderstood commodities trader.

    The irony is that the right is now pushing for the same kind of no regulation, turn-a-blind-eye government policies that allowed this to happen in the first place.

    Reply this comment
  7. queeg
    queeg 29 January, 2012, 23:34

    How does a hotel maintenance man get a 500 k mortgage?

    Lies on application, phony cosigners, renting rooms to fictitious renters…including kitchen.

    They should prosecute some borrowers…mail fraud for starters..and phony applications…

    Reply this comment
  8. Beelzebub
    Beelzebub 30 January, 2012, 09:34

    “How does a hotel maintenance man get a 500 k mortgage?”

    By the bank ignoring it’s lawful lending standards to make a quick buck.

    Reply this comment
  9. Rex The Wonder Dog!
    Rex The Wonder Dog! 30 January, 2012, 17:25

    They should MAKE/ORDER all mortgage/trust deed lenders to service THEIR OWN loans, no more bundling and selling low grade D- crap as AAA rated securities on the secondary market to ususpecting investors.

    Once the lenders have some skin in the game moral hazard will be long gone.

    Reply this comment
  10. stevefromsacto
    stevefromsacto 30 January, 2012, 19:15

    There you go again, queeg, blaming the victim.

    Beelzebub and Rex are spot on.

    Reply this comment
  11. Beelzebub
    Beelzebub 30 January, 2012, 20:31

    “There you go again, queeg, blaming the victim.

    Beelzebub and Rex are spot on”

    Steve, a borrower who willfully falsifies a mortgage loan application is no victim. But the problem in 2004-07 was that the lies were actively encouraged by the ones who were supposed to be most responsible – the lenders. It was all about making a quick buck and then offloading the risk onto someone else before the fuse went off – and the ordinary middle-class taxpaying American got stuck holding the empty bag at the end of the day.

    Reply this comment
  12. stevefromsacto
    stevefromsacto 31 January, 2012, 12:07

    I am not talking about a borrower who willingly falsifies information. I am talking about the many cases where a borrower filled out the documentation correctly and–even though he or she clearly was not qualified–was approved anyway by lenders looking for some easy money. I’m also talking about the thousands of borrowers who were sweet-talked with such incentives as “teaser” rates into taking out loans they clearly couldn’t afford once the real rates kicked in.

    If the borrowers willfully lied, shame on them. But, as you said, they may have been encouraged to falsify information by greedy and corrupt lenders.

    Reply this comment

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