Read this and tell me why Geithner shouldn't be fired immediately

[Phoebe Loosinhouse]

http://www.nytimes.com/2010/07/22/business/22tarp.html?_r=1&scp=1&sq=inspector%20reports%20that%20a%20program%20to%20help%20prevent%20foreclosures%20falls%20short&st=cse

Program to Help Prevent Foreclosures Falls Short

By SEWELL CHAN
Published: July 21, 2010

WASHINGTON — The Obama administration’s program to help homeowners avoid foreclosure has fallen far short of its goals, in part because the Treasury Department has failed to spell out what its objectives should be, according to an assessment offered to Congress on Wednesday.

Only 390,000 homeowners have seen their mortgage terms permanently modified since the $50 billion program was announced in March 2009. That is a small fraction of the three to four million borrowers who were supposed to receive assistance under the program, which is financed by money from the $700 billion Wall Street bailout authorized in late 2008.


Neil M. Barofsky, the special inspector general for the Troubled Asset Relief Program, as the bailout is called, testified that “one of the greatest failures” by the Treasury Department had been the absence of clear goals for the program.

“It’s a simple recommendation that we made, that Treasury put forth how many people it truly expects to help stay in their houses through permanent modifications,” Mr. Barofsky told members of the Senate Finance Committee. “It’s a recommendation that all three of us on this panel have made to Treasury and that Treasury has ignored.”

http://www.credit.com/news/credit-debt/2010-07-26/tarp-program-scrutinized-for-failing-to-meet-projected-foreclosure-goals.html

TARP program scrutinized for failing to meet projected foreclosure goals
07.26.10
By Credit.com Staff

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Faith in the effectiveness of the Obama administration's Troubled Asset Relief Program, and more specifically the Home Affordable Modification Program, is beginning to wane as lawmakers and consumers see very little improvement in the national foreclosure rates.

The $700 billion relief package devoted $50 billion toward HAMP in an effort to reduce the monthly mortgage loan payments of many distressed Americans - a move that was expected to curb the number of foreclosure filings. But according to The Hill blog, the number of failed mortgage modifications provided by HAMP far exceeds the number of successful ones.

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Warren cited the lack of sufficient funding as one reason for the program's lack of success, saying that only $247.5 million of the $49.7 billion allocated to the program has been spent.

"It's too small and too slow," Warren said in her testimony. "We need a program with far more urgency and some real teeth in it."

This article ends with the comment that RealtyTrac estimates that we could see 3 million MORE foreclosures by the end of the year!

What does it take to get Treasury to get off its ass, and start REALLY helping homeowners?

The first real thing they could do is freeze the mortgage and allow the troubled homeowner to stay in the home at current market rents which are often a lot lower than the troubled mortgages with their adjustable rate increases.

If I were in charge, I would renegotiate a mortgage based on current market value. I would put the negative equity in a silent second mortgage or lien on the home which would only become due and payable if and when the homeowner sells. Why wouldn't that work?

[izquierdista]

1. Silent second??

All that does is postpone the inevitable day of reckoning. Banks willingly loaned the money on over-inflated appraisals, the bigger the better, since they were charging points on the total loan amount. Now that it's come time to write down those appraisals, you want to leave that appraisal there for the bank to collect interest on? No way. They should have to bite the bullet and write it down to its current market value and take their lumps. Maybe if bankers replaced their fine suits with sackcloth and ashes, they wouldn't be asking for any more bonuses for their fine work in getting the country into this mess.

[zipplewrath]

2. Depends upon your definition of "work".

"If I were in charge, I would renegotiate a mortgage based on current market value. I would put the negative equity in a silent second mortgage or lien on the home which would only become due and payable if and when the homeowner sells. Why wouldn't that work?"

It would get alot of people to stop walking away from their homes, but not as many as you might imagine. It would leave them with a mortgage they could "afford" but they'd still be buying just alot of debt. So many people who could "afford" the mortgage (the first one OR the second one) would still not have much interest in doing so. And anyone that did choose to do such a thing would be "trapped" in their homes. They couldn't afford to move because of the lien that effectively will never be paid, and the value of the home could take decades to recover to cover the lien. Your system might work if it was merely a "lien on future profits". i.e. the bank has some "stake" in the future sale. If the house sells for a "profit" (over the value of the modified mortgage) the home owner has to share that profit with the mortgage holder. At least then the homeowner has the ability to move, but the bank has some future potential of seeing a reduction in their loss.

The solution unfortunately, is for the government to "buy" the "toxic debt". Basically, the government pays the mortgage holder say 70 cents on the dollar to reduce the mortgage value down to what the house is worth. Then, the IRS in effect puts a "future tax" on your income. When you sell the house, if there is a profit, and you were involved in the mortgage reduction program, you pay a tax on the profits from the house (which could be very steep, like 30% or so, currently most profits from home sales are tax exempt). The government, unfortunately, is gonna lose big in such a transaction. A huge number of people will sell those homes in a few years for virtually no profit, so the tax revenue will be little to nothing. And the new owner will own nothing. The old owner will now be in a new house, that wasn't part of the program, and can ultimately sell the house for a profit. In fact, you'll probably find folks setting up "swap sales" between home owners soon after the loan modifications to accomplish exactly that.

Part of what stalls alot of this, and what inflates alot of the numbers thrown at you, is that there are alot of properties out there that are not primary dwellings. There were alot of people trying to make money by "flipping" houses that got caught. And there are alot of "second homes" mixed up in this. Any effort to help alot of these people always wants to avoid helping the flippers and the vacation homes. The end result being that the numbers never really look good. Add in the number of people who have lost jobs and basically can't afford their homes at any reasonable price, and it is dubious that you can ever make the gross numbers look good.

[Phoebe Loosinhouse]

4. Perhaps the silent second could be wiped out by a percentage every year

say 10% a year disappears and all the negative equity is gone by year 10.

That gives people a real incentive to stay in their homes and the banks get to spread out the losses over a decade.

I am sorry to say that I have almost no sympathy for investor/flippers. They weren't going to share their profits with me, so I have no interest in helping to assume their loss. I am solely interested in helping distressed homeowners stay in their homes if that is their desire.

[zipplewrath]

5. Habitat for Humanity

They have a system to address this. They "sell" the homes to their clients at well below market cost. The client has to sign a zero interest mortgage for the sale amount. Then they are to pay off this loan over 15 years (IIRC). The "risk" is that you have just given people an asset for well above the mortgage value and they had people trying to flip them, or worse, take out second mortgages and home equity loans against them.

So Habitat instituted a second mortgage. You didn't pay on it at all. Each payment towards the first mortgage, generated a reduction in the second mortgage. When you paid off the first, the second was also paid off. If you left early, you owed not just the first mortgage balance, but the second mortgage balance as well. They seemed to like the system.

As for the house flippers, I don't particularly disagree with you, and no one really disagrees with you. Unfortunately, they are out there and they have defaulted, and it is hard to not only sort it out in the programs, but also in the data. So when you see how a program is or isn't working, you should really ask "of the eligible mortgage holders" how many are being helped.

[Phoebe Loosinhouse]

6. Well there you go. Just institute the Habitat system

Seems like one of the financial geniuses heading our country could have come up with something like that.

They all just spend their time trying to figure out how to hide the loss.

[zipplewrath]

7. It will lock people into homes for decades

That system would tend to lock people into their homes for the better part of a decade or two. At least until inflation caught up with the value of the second mortgage. Alot of folks might still consider walking away from such a deal a better option.

It is the "moral hazard" problem. People have a current choice, walking away from their mortgage, and it is fairly attractive as compared to much of what he government wants to do. It is frustrating because the government was willing to buy "toxic assets" at 100% on the dollar, but they aren't willing to do much at all for individuals with toxic assets. I'd bet a good dollar that most folks would be willing to sell the "underwater" portion of their home to the government. But everyone suddenly gets worried about who will profit and how the government will get its money back. Where were those concerns when they were buying toxic assets? How much have they made on those?

[Phoebe Loosinhouse]

8. We have had real estate bubbles burst before, but this one is different

wider, deeper and still growing. 3 million more homes lost to foreclosure means that the homeowner equity in this country will just implode. That home value is where the vast majority of the lower and middle class have their largest asset. If that goes, they will literally have almost nothing.

I am not trying to lock people into homes they don't want, but to help people who bought a house as a home and intended to stay ther longer than a very short duration anyway.

The way to stabilize housing values is through employment and increasing wages and income. The housing market will rebound once the median income can buy the median home once again.

As long as the government takes no long view on wages and income, we'll still just dance on the edge of the abyss. Instead, the buttress up and reward the people who take our jobs out of the country or who consume ALL the profit for themselves at the highest level.

I would absolutely pass a law that said that the upper tier of executives in a PUBLICLY TRADED company could not earn more than 20 times the average salary in their corporation. You'd see some wage increases pronto! I read the article floating around here about an article in Nation proposing an alternate corporate structure for companies that agree to have a social conscience - great idea!This kind of wage requirement would be something you could give tax breaks for and be happy doing it, since you would be encouraging companies to SPREAD THE WEALTH.

[zipplewrath]

9. People have to move

Especially in this economy, and in our larger post-NAFTA world, people have to move. So they have to sell their houses. The 30 year mortgage is sorta a misnomer. Very VERY few people pay off a 30 year mortgage directly, they usually accomplish it by "down sizing" or refinancing to a 15 year.

You're right that we have an income disparity in this country. Welcome to our post union world. They don't have it in Europe, and it's because they have laws which hinder it. Look at Hayward's exit package, as oppose to the more common US exit package for CEO's.

[xchrom]

3. Recommend

[TBF]

10. That jerk should've been fired years ago. nt

[cilla4progress]

11. What would it take?

Elizabeth Warren? Would she have any jurisdiction over this, if appointed?

[donheld]

12. He never should have had the job to begin with

[jgraz]

13. I could read the back of a cereal box and I'd agree that Geithner should be fired immediately

The guy is worse than worthless.

[Ross K]

14. I ain't tellin' you NUTHIN!'

Geithner should be punted like the overinflated football he is! (And this isn't the first time I've stated that!)