It’s Not About Jamie Dimon
We should look to markets, not men, to govern the economy.
14 May 2012
Mortgage-aid revisions paying off for lenders and some borrowers
Changes to streamline the Home Affordable Refinance Program are helping some underwater homeowners get lower-interest loans. Those still-above-market rates, meanwhile, are boosting banks' profits.By E. Scott Reckard, Los Angeles Times
May 9, 2012
The revisions to the Obama administration's 3-year-old Home Affordable Refinance Program have yielded mixed results for homeowners, analysts and mortgage professionals say.
Some responsible homeowners are indeed getting lower-interest loans despite owing far more than their homes are worth. But others have loans that don't qualify, or must jump through hoops the plan was supposed to eliminate, such as on-site appraisals and extensive paperwork.
What's more, critics say, homeowners who get new loans are being stuck with higher rates than necessary, often half a percentage point or more. That's because banks are refinancing only their own borrowers, instead of competing against one another, which would drive rates down.
"The banks should charge lower than the market interest rate because the new version of the program means less work and less risk for them. Instead, they are charging more," said Amherst Securities analyst Laurie Goodman, who titled a recent report on the program "And the Winner Is ... the Largest Banks."
The program is a key part of President Obama's efforts to bolster the ravaged housing market. Administration officials including Housing and Urban Development Secretary Shaun Donovan are pressuring Congress to pass a law enabling the program to be used to help more homeowners.
"There's a real urgency here because interest rates today are at the lowest level they have ever been," Donovan testified Tuesday before the Senate Banking Committee. "But as the economy continues to improve, the expectations are this window of record low interest rates may not last for a long time."
In response, Sens. Robert Menendez (D-N.J.) and Barbara Boxer (D-Calif.) said Tuesday that they would introduce legislation this week to extend streamlined refinancing to all underwater Fannie and Freddie borrowers and eliminate appraisal and upfront fees for homeowners using the program to obtain new loans.
The Home Affordable Refinance Program is less controversial than relief plans for delinquent borrowers. Few have objected to its goal of helping homeowners who pay their loans on time but can't refinance at today's record low rates because their home values have plummeted.
To qualify, borrowers must owe more than 80% of the current home value. They can't have missed a payment for the last six months and are allowed to have been late by 30 days only once in the last year.
As this year began, nearly 1 million loans had been replaced using the program, but only 1 in 10 had balances higher than 105% of the home value. The changes, phased in during the first quarter, aim to encourage refinances no matter how far underwater the loan is.
The program is for loans owned or backed by Fannie Mae and Freddie Mac, the government-supported mortgage buyers that handle 60% of U.S. home loans. It works by having mortgage customer-service providers, which are mainly arms of banks, refinance borrowers into new loans that are sold to Fannie or Freddie.
Because Fannie and Freddie already are stuck with the losses if the existing loans go bad, the thinking goes, substituting lower-interest new mortgages actually reduces everyone's risk. The homeowners have hundreds of dollars more each month, which makes them less likely to default — a boon to their local housing markets and a lift for the economy when they spend their extra cash.
The problem, Goodman said, is that the streamlined program minimizes processing costs for the existing loan servicers but not for competitors, who must collect nearly as much information about borrowers as though they were writing new loans.
The program also exempts existing servicers from having to reimburse Fannie and Freddie for losses on certain flawed mortgages — a multibillion-dollar problem these last few years for the big banks — while requiring competitors to bear that same risk.
President Obama envisioned a different scenario when he announced the revised program last fall.
"These changes are going to encourage other lenders to compete for that business by offering better terms and rates," he said. "And eligible homeowners are going to be able to shop around for the best rates and the best terms."
That wasn't the experience of Johnny James, who bought a Gardena condominium with a 20% down payment during the housing bubble and now owes $414,000 on a home Fannie Mae says is worth $266,000.
James and his wife, Yolanda Hatcher, have full-time jobs with Los Angeles County and excellent credit ratings. Since they hadn't missed payments on their Fannie Mae loan, they thought they were good candidates for a lower-interest refi.
But their servicer, Seterus Inc., said it was just a bill collector, not a lender. Their original lender, JPMorgan Chase & Co., said it would refinance only loans it is currently servicing. Wells Fargo & Co. said the same, and online mortgage specialist Quicken Loans said the condo was too far underwater to refinance.
"There's not a lot of help out there for folks like us," James said.
The couple turned to mortgage broker Jeff Lazerson, who said he submitted applications to eight lenders and found only one that would refinance them. The pending deal, which would cut their rate to 4.63% from 6.25%, was made after they fully documented their income and assets and paid for an on-site appraisal.
"This program has been billed as a worry-free way for responsible people to get a break on rates even if they're way underwater," said Lazerson, president of Mortgage Grader in Laguna Niguel. "From where I sit, it's a disaster."
James Parrott, senior advisor on housing at the White House's National Economic Council, said that even in its imperfect current version, the program would aid many of the half million or so borrowers who have applied to refinance since the latest revisions were made.
"Those people get dropped from 6% or 7% loans to somewhere around 4%," he said. "They will have hundreds of dollars more for themselves every month and thousands of dollars a year."
While proponents say the program makes winners out of all hands, it is not without detractors.
Alexandria, Va., banking consultant Bert Ely said easy-qualifier loans "are what got us into this mess in the first place" and that waiving legal liabilities for banks could result in another round of mortgage headaches in 2013 and beyond.
"What the government is sanctioning is kicking the can down the road, again," he said.
Like other administration plans to bolster housing, the voluntary Home Affordable Refinance Program had underperformed until recently. Lenders rarely refinanced loans bigger than 105% of the home's value even though they were permitted to go to 125%.
But that changed as the new rules loosened restrictions and did away with the 125% cap. Applications for these refinances rocketed from less than 5% of the mortgage market in December "to close to 25% and rising," Nomura Securities analyst Brian Foran wrote in a recent report.
The loans are more profitable as well. In the past, Foran said, lenders typically made 2% of the loan amount when selling a loan to Fannie or Freddie, so a $350,000 loan might yield $7,000 in revenue.
Because the banks are charging higher than market interest rates for loans made under the program, the mortgages are more valuable to investors and sell for more. The banks are typically making an extra 2% of the loan amount, Foran said — another $7,000 on the $350,000 loan, money that drops to the bottom line.
By Foran's calculations, writing more loans at higher profit could yield $12 billion in additional revenue for lenders.
All the big banks showed unexpected jumps in their first-quarter mortgage profits, in large part because of the revised government program, said Keefe, Bruyette & Woods research director Frederick Cannon.
"Interesting that [the program] would be so good for banks," he said.
Numbers Work Against Government Efforts To Help Homeowners
Washington Post Staff Writer
Tuesday, July 28, 2009
Los Angeles Times Staff Writer
September 6, 2008
The decline of housing markets in California and Florida has led to record numbers of foreclosures and is causing even good borrowers to pay more for loans, according to analysis and statistics released Friday.
To add to the bleak picture, the government Friday reported the eighth straight month of declining employment, increasing pressure on borrowers burdened by tumbling home prices and loans with rising interest rates. The U.S. jobless rate jumped in August to a nearly five-year high of 6.1%, with nonfarm payrolls down 84,000.
Vote is Imminent on $700 Billion Bailout Plan
By Lori Montgomery and Paul Kane
Washington Post Staff Writers
Sunday, September 28, 2008; 2:56 AM
Congressional leaders and the Bush administration this morning said they had struck an accord to insert the government deeply into the nation's financial markets, agreeing to spend up to $700 billion to relieve Wall Street of troubled assets backed by faltering home mortgages.
Democrats also made a number of concessions, abandoning demands that bankruptcy judges be empowered to modify home mortgages on primary residences for people in foreclosure. They also agreed not to dedicate a portion of any profits from the bailout program to an affordable housing fund that Republicans claimed would primarily assist social service organizations that support the Democratic Party, the official said.
With home prices plummeting, many of those assets are now almost worthless, and investors have lost confidence in many of the firms that hold them. That has undermined some of the biggest names on Wall Street and caused banks to stop lending money, sparking a credit crisis that threatens to deliver a devastating blow to businesses, consumers and the broader economy.
No sacrifice for the bankers
By Barry Grey
15 October 2008
There will be no letup in Wall Street bankers’ ruthless pursuit of profits and personal wealth. While the government and politicians of both parties are calling for all Americans to “sacrifice” for the sake of the “nation,” the CEOs of major banks and financial companies are exploiting the crisis of their own making to extract new concessions from the government.
The American Bankers Association on Monday demanded that government regulators scrap accounting rules that require banks and financial firms to write down the value of worthless assets on their balance sheets.
The arrogance of the bankers is so brazen than even the Wall Street Journal is warning that their behavior could spark a popular backlash. In a cautionary article entitled “Street’s Demands May Stir Public Wrath,” the Wall Street Journal wrote on Tuesday: “You would have thought the Street’s last surviving chieftains would be a contrite bunch by now, eager to reform their industry and help rebuild their country.
“At least until you heard Goldman Sachs Group Inc.’s Lloyd Blankfein, JPMorgan Chase’s James Dimon, Blackstone Group LP’s Stephen Schwarzman, BlackRock Inc.’s Larry Fink and Silver Lake’s Glenn Hutchins assemble for a panel session at the New York Stock Exchange last week organized in part by the Wall Street Journal...
“While America buckles in for years of sacrifice, the five chiefs took a different approach. The group pulled straight from the what-government-can-do-for-you school of 2006, lobbying for Wall Street tax breaks, the repeal of Sarbanes-Oxley and against the distraction of class-action lawsuits.”
Obama prepares another trillion-dollar bank bailout
3 February 2009
While most media attention is focused this week on the Senate debate on the economic stimulus package, the Obama administration is preparing to roll out a new plan to bail out the banks, involving a trillion dollars or more in public assets.
Under the plan, which Treasury Secretary Timothy Geithner is expected to announce within the next two weeks, the government will buy up virtually worthless mortgage-backed securities and other "toxic" assets held by the banks and provide guarantees against future losses for much of their remaining assets. It will also continue to inject cash directly into the banks.
Well aware of popular opposition to the Wall Street bailout, the White House and the media are engaged in a calculated campaign to soften up public opinion and pave the way for a taxpayer handout to the financial elite even bigger than the $700 billion already doled out in the Troubled Asset Relief Program (TARP), which was rushed through Congress last autumn with the support of then-presidential candidate Obama. The total cost of government cash infusions, loans and guarantees to the major banks and financial firms, already estimated at $8 trillion, will soar even higher, by far eclipsing the money allocated in the so-called stimulus and recovery program.
It is now reported that Obama has dropped a provision that would allow bankruptcy judges to lower the principal and ease mortgage terms for distressed homeowners.
Indeed, one of the purposes of the stimulus package is to provide political cover, in the form of aid to "Main Street," for the offloading of Wall Street's losses onto the American people. Meanwhile, the stimulus plan, which does nothing to halt the destruction of jobs or the wave of home foreclosures, but includes lucrative tax write-offs for business and funnels government projects to private companies, is being weakened further at the behest of Wall Street and congressional Republicans. It is now reported that Obama has dropped a provision that would allow bankruptcy judges to lower the principal and ease mortgage terms for distressed homeowners.
The administration is mounting a public relations campaign—starting with Obama's public wrist-slap of Wall Street executives for continuing to reward themselves with billions in bonuses—to give the impression that it is cracking the whip on executive compensation. But as the Washington Post reports, "[T]he administration is likely to refrain from imposing tough restrictions on executive compensation at most firms receiving government aid" because "harsh limits could discourage some firms from asking for aid."
The new bank bailout, like every measure that has been devised in response to the financial meltdown, will be tailored entirely to the interests of the financial aristocracy. Under the terms of the plan, as outlined in various press reports, the bad assets accumulated through speculation and fraud will be transferred to a "bad bank" owned by the government. The government will buy these assets not at their actual market value, which is pennies on the dollar, but, according to the Financial Times, on the basis of a "valuation model," guaranteeing premium prices for bank executives and big shareholders.
Once these assets have been taken off the banks' books, as Max Holmes, a finance professor at New York University and chief investment officer of an asset management firm, told the New York Times, "[T]he stock prices of the good banks are likely to soar, as they will be the four best capitalized and cleanest banks in the world."
In other words, the ruling elite will emerge from this process richer than ever. The American people—who have no responsibility for the economic disaster—will be left to pay the bill through drastic cuts in social benefits, including bedrock programs like Social Security and Medicare, and a continuous erosion of their jobs and living standards.
The Wall Street crisis and the government response have exposed the reality of class relations in America.
The press is full of articles expounding on the economic, legal and moral hazards involved in any government restriction on the pay of bankers whose greed and criminality played a major role in the ruination of their own companies and the eruption of a global economic crisis deeper than any since the Great Depression. But Obama and Congress, Democrats and Republicans alike, had no problem making as a condition for emergency loans to the auto companies—a drop in the bucket compared to the trillions for the banks—the slashing of auto workers' wages and benefits to the level of non-union workers. And to enforce the impoverishment of the workers, the auto bailout law included a provision stripping them of the right to strike.
As Obama has made clear, there will be no examination or public exposure of the policies and methods that led to the crash of 2008, as if a rational solution can be found without such an investigation.
None of the executives will be held accountable for their actions, which have led to a staggering level of social misery. Already, still in its initial stages, the crisis has claimed scores of lives: tragic instances of killings and suicides provoked by the sudden loss of a job and the prospect of destitution and homelessness, the deaths of people whose utilities have been shut off, like the 93-year-old worker in Bay City, Michigan.
There is no talk of criminal investigations or prosecutions.
No bankers are being grilled by Congress. There is no talk of criminal investigations or prosecutions. Instead, those who have played a central role in the Wall Street bailout, such as the new treasury secretary, Timothy Geithner, are being brought into the Obama administration to head up the next phase. Geithner spelled out whose interests are to be defended when he stated recently: "We have a financial system that is run by private shareholders, managed by private institutions, and we'd like to do our best to preserve that system."
The economic crisis is the result of the failure of the capitalist profit system. It was prepared over decades in which the American ruling elite dismantled much of basic industry in order to obtain higher levels of profit through ever more parasitic and reckless forms of financial speculation.
No progressive solution to the crisis can be found within the framework of the capitalist system. If the working class—the vast majority of the population—is to defend its interests, it must advance it own solution to the crisis.
This must begin with the fight for the nationalization of the banks and financial institutions and their transformation into public utilities under the control of the working class. All decisions on the allocation of financial resources must be made democratically in the interests of society as a whole.
As for the ill-gotten wealth of bankers whose methods precipitated the present crisis, it should be seized and used to finance emergency relief. The deposits and savings of working people and small business owners should be secured, and cheap credit made available to them.
Trillions must be made available to guarantee decent jobs, health care, education and housing for all, including the launching of genuine public works programs to provide jobs and rebuild the country's decayed physical, economic and cultural infrastructure.
Emergency measures must be taken to halt all foreclosures and evictions and provide immediate relief to all distressed homeowners and workers and young people burdened with crushing levels of debt.
The financial records of the major banks, financial firms and hedge funds must be opened to public inspection in order to reveal how society's resources were plundered for private gain. Those responsible must be held accountable, including by means of criminal prosecution.
This can be achieved only through the independent social and political mobilization of the working class. Mass resistance must be organized to oppose layoffs, home foreclosures and cuts in vital social programs, including strikes, plant occupations and demonstrations.
The working class must break the grip of the financial aristocracy and take political power into its own hands through the establishment of a workers' government. This requires a political break with the two parties of big business and the building of the Socialist Equality Party as the mass revolutionary party of the working class.
June 21, 2009
Denial, noun: An unconscious defense mechanism characterized by refusal to acknowledge painful realities, thoughts or feelings.
-- The American Heritage
The banking industry wasted no time last week declaring its opposition to President Obama's proposal for a regulatory agency that would protect consumers from rapacious lending practices.
While acknowledging that "regulatory reform is badly needed," Edward Yingling, president of the American Bankers Assn., said the new agency would have "powers to mandate loans and services that go well beyond consumer protection."
The Financial Services Roundtable said it applauded "modernizing regulation of the financial services industry." But it too opposes the new agency "because it will not adequately serve the best interests of consumers and their financial institutions."
The Consumer Bankers Assn. chimed in by saying the proposed agency "would create a maze of regulations suppressing creativity and product innovation."
These guys just don't get it.
The reason Obama wants to create a Consumer Financial Protection Agency isn't that he's hell-bent on imposing his will on banks. It's that banks have consistently proved themselves unworthy of customers' trust.
From runaway credit card interest rates to mortgages that turn into one-way trips to foreclosure, lenders have repeatedly demonstrated their inability to deal with customers fairly and responsibly.
Instead, they place their own interests ahead of all other considerations, and in so doing expose frequently unsophisticated consumers to enormous risk and financial ruin.
The banks have only themselves to blame for why a Consumer Financial Protection Agency is needed.
"They wrecked the system," said Gail Hillebrand, senior attorney with Consumers Union. "What they're saying is that they want to keep doing business as usual. But business as usual has failed us."
In announcing measures to improve oversight of financial markets, Obama said that "a culture of irresponsibility" had taken root on Wall Street and elsewhere.
Acknowledging that many people took out loans they couldn't afford, he said "there were also millions of Americans who signed contracts they didn't always understand offered by lenders who didn't always tell the truth."
The Consumer Financial Protection Agency would be charged with ending deceptive practices and ensuring that information provided by lenders is accurate and easy to understand.
What's truly shocking is that this sort of thing has to be legislated. You'd think banks would be able to compete and succeed by treating customers with integrity. But left to their own devices, they do just the opposite.
"Companies compete not by offering better products but more complicated ones, with more fine print and more hidden terms," Obama said.
So like naughty children, they get a time out and some new rules to follow.
Wayne Abernathy, a spokesman for the American Bankers Assn., told me his industry has gotten a bum rap. Major lenders aren't to blame for problems making consumers' lives miserable, he said.
"I can't deny that's the impression out there," Abernathy said. "But it's not us."
He said the real culprits were smaller financial institutions operating primarily at the state level that were reckless in their lending practices.
"When their products blow up, we get tarnished," Abernathy said.
At least not when you consider that American Express, Bank of America, Capital One, Citigroup, Discover and JPMorgan Chase account for about 80% of the credit card industry.
Or when you consider that the top four mortgage lenders as of the first quarter of the year were Wells Fargo, BofA, Chase and Citi. Together they accounted for more than half of all residential loans originating in the period.
Obama is targeting the big boys because all roads lead to their doors. And it could be argued that if anyone should know better, they should.
It could also be argued that these guys should have nothing to fear from a Consumer Financial Protection Agency if, as they say, their business is already on the up and up. What's a little accountability among friends?
Banks say a new regulatory agency would increase their costs. Since when has treating people respectfully added to expenses? They say it will stifle creativity and innovation. That just sounds like an excuse for laziness.
The simple fact is that banks have lost consumers' trust and the onus is on them to earn it back. And while they're doing so, government regulators will be watching to make sure everyone plays nicely.
That's why we need a Consumer Financial Protection Agency.
That's why the bankers need to wake up to reality.