Foreclosuregate: BofA Thanks WH For Caving
Gosh, that was so much easier than the whole TARP thing, wasn't it? We should send the White House a thank-you note!" That must have been what the brass was thinking down in Charlotte, NC after Bank of America announced it was preparing new affidavits for 102,000 pending foreclosure actions and is now ready to proceed with foreclosures in the 23 states, where court approval is required on foreclosures.
Let's talk a step back and review how the White House has done on the foreclosure crisis. It's widely accepted that the Obama Administration's Home Affordable Modification Plan or HAMP plan has been a total unmitigated disaster. HAMP was supposed to be the government's answer to help struggling homeowners stay in their homes. It basically paid mortgage holders a fee to modify the note, but didn't penalize banks that didn't participate. In other words, the plan used carrots without sticks and what resulted was a voluntary plan allowed banks to maintain control over the mortgage modification process.
Enter the "robo-signing" disaster--here was a chance for the White House to use the banks' missteps with foreclosuregate to help homeowners. But with the election only weeks away, there was a deafening silence. In fact the President chose to veto a bill that could help banks escape charges of fraud in connection with foreclosures.
And so, with a big assist from the White House, it now looks like foreclosuregate won't morph into a thornier and costlier problem that may be the "biggest issue facing banks," according J.P. Morgan Chase analysts. They were talking about the idea that if there were errors not only in the foreclosure paperwork, but in the original documentation and conveyance of these loans when they were originated during the boom, it could cost the banks dearly--here's how.
Once the loans were written, they were sliced and diced and sold to investors--that's how some bank in Iceland ended up with rotten mortgages on its books. If investors of these bundled loans were able to prove that the loans were improperly originated, they could force the banks to repurchase them, a potentially costly hit to the banks -- that's why bank stocks lost $57 billion in value last week. The folks at JPM put the potential cost of potential "putbacks" of these loans in the range of $55-$120 billion, which would surely put a hefty dent in bank profits...and tragically, just before bonus season!
But the banks had little to fear. For as much as the White House engaged in name calling in the aftermath of the financial crisis (remember President Obama calling them "fat cat bankers" on 60 Minutes?), here comes Geithner and Axelrod, saying that a foreclosure freeze would be "very damaging"and would "do far more harm than good" to the housing market.
Maybe that's true, but I can't help but think we're been here before. We uncover a big problem, only to kick the can down the road instead of making the hard choice to fix it. For all the jawboning about a new way of doing business in Washington and on Wall Street, it sure does feel familiar, doesn't it?
Image by Flickr User stickwithjosh, CC 2.0
