Debunking Bush’s Misinformed Housing Veto Threat»

In another display of the Administration’s failure to grasp the needs of struggling American homeowners, President Bush has vowed to veto the housing relief package put forth Congress. This legislation is on track to pass through both houses by end of this week.

The package has two primary components:

1. The Neighborhood Stabilization Act, a measure designed to provide funds for the purchase and rehabilitation of foreclosed properties so they can be restored and used as affordable housing

2. The American Housing Rescue and Foreclosure Prevention Act, legislation to expand access to federally insured mortgages to help troubled homeowners refinance their loans, primarily through an expansion of the Federal Housing Administration (FHA) insurance program.

Below, The Wonk Room debunks Bush’s arguments for vetoing the bill: Read the rest of this entry »

Will The Fed Learn Its Lesson From The Sub-Prime Crisis?»

Today, Federal regulators moved ahead with a good plan designed to stop credit card companies from taking advantage of their clients. The Federal Reserve, in conjunction with Office of Thrift Supervision and National Credit Union Administration, have released a specific, seven-point proposal to tackle “unfair” and “deceptive” practices by businesses that issue credit cards.

According to the Center for American Progress, the new rules would prohibit companies from:

– Raising interest rates on debt that has already been charged

– Assessing late fees when consumers are not given a billing statement within a reasonable amount of time to make a payment

– Applying a payment to the balance with the lowest rate if different interest rates apply to different balances on the same card

– Charging fees to open an account and receive credit

This move by the federal agencies comes with little time to spare. Now that borrowing in the mortgage market has stagnated due to the subprime crisis, credit card debt has skyrocketed for Americans. Between April 2006 and December 2007, the rate of national credit card debt increased four times faster than during the previous business cycle.

Similar to mortgages, credit cards can carry subprime-like lending conditions, such as poorly-disclosed, hidden, or higher fees, heavy interest rate burdens, and complex terms. Also similar to mortgages, credit card debt is packaged and sold off to investors as securities — and the $915 billion held in these securities can come tumbling down just as easily as the $900 billion that were held in residential mortgages.

The administration missed the regulatory boat once. One in 194 American households received a foreclosure filing during the first three months of this year, up 23% from the last final three months of 2007. After two decades of deregulation, the subprime crisis has sparked a need to reassess the Federal government’s role in protecting Americans against the predatory and abusive lending practices exercised mortgage lenders that caused the crisis in the first place.

Today’s proposal shows that the federal regulators are doing the right thing. They have undertaken “one of the most aggressive efforts in decades to crack down on the credit card industry.” Hopefully live up to this unique opportunity to learn from their mistakes.

It’s Official: Voluntary Housing Foreclosure Relief Isn’t Working»

Our guest blogger is Ed Paisley, Vice President for Editorial at the Center for American Progress.

The Bush Administration and its conservative allies in Congress, including presumptive presidential nominee John McCain (R-AZ), continue to insist that the best way to resolve the ever-worsening U.S. housing crisis is for homeowners at risk of foreclosure to negotiate individually with their mortgage service companies for financial relief. A new report by the State Foreclosure Working Group, which includes bank regulators and attorneys general from 11 states, details why this approach simply doesn’t work.

The problem faced by the mortgage servicers is this: the number of delinquent mortgage loans is on the rise even as more homeowners already facing foreclosure attempt to renegotiate the terms of their loans. The Bush Administration’s failed effort to get mortgage lenders, servicers and investors to voluntarily renegotiate borrowing terms with individual lenders — known as the Hope Now Alliance — was evident even before this most recent report, given the rising number of delinquencies over the past year.

Now, those government officials closest to the crisis at at the state level have detailed exactly why individual and voluntary negotiations between at-risk borrowers and mortgage servicers is clearly not working. As New York Superintendent of Banks Richard Neiman explained to The Wall Street Journal, mortgage servicers need to treat borrowers in bulk “in order to move the process in a more efficient manner.”

A new, more forceful approach, is needed now. The Center for American Progress Action Fund and some of its allies on housing issues support two proposals now before Congress to help troubled homeowners refinance mortgages in bulk, and to help communities hit especially hard by foreclosures cope with the consequences. The Federal government needs these tools to stem the U.S. housing crisis and help the faltering U.S. economy.

Bankers And Realtors Suddenly Accelerate Their Political Contributions To Congress»

An article in today’s Politco highlights a very interesting trend in federal campaign contributions. It seems as though industries most responsible for the mortgage and housing crises have suddenly become very politically active, donating more funds to Senate and House candidates than ever seen in recent election cycles.

The Politico reports a tremendous increase in contributions through the first three months of 2008 compared with entire 2006 political cycle. Here’s a chart mapping this out:

Lobbyists have also gotten in on the action. The Politico shows the increased money spent between 2006 and 2007 by Federal lobbying groups. Another chart shows this swell:

All this is worth noting in light of week’s bipartisan housing compromise, touted by conservatives as the first Congressional step towards “solving” the foreclosure crisis, which has been heavily criticized as being pro business, pro industry, pro special interest, and anti American family. Largely due to the stripping of progressive provisions designed to protect homeowners, such as Senator Durbin’s (D-IL) bankruptcy measure, this legislation seems to cater towards the very groups that invested so much money electing their chosen members of Congress.

The Politico highlights one last interesting point: “Civil rights and consumer groups already are tapping black and Hispanic caucus members to highlight the disproportionate effect the foreclosure crisis is having on minority communities and to fight for better protections for those homeowners.”

Indeed, these industries got the money to donate to their members of Congress from preying on minority communities. As a study conducted by the Inner City Press/Fair Finance Watch found, “Banks such as JPMorgan Chase, Citigroup, Bank of America, and Countrywide issued subprime loans to minorities more than twice as often as whites. At some institutions, the number of subprime loans issued increased, even amid a growing credit liquidity crisis.” In the study, Inner City Press reported that in 2007:

– Citigroup extended higher-cost loans 2.33 times more frequently to African Americans than whites

– JPMorgan Chase extended higher-cost loans 2.44 times more frequently to African Americans than whites, and 1.6 times more frequently to Latinos

– Bank of America extended higher-cost loans 1.88 times more frequently to African Americans than whites

– Countrywide Financial, which Bank of America has applied to buy, extended higher cost loans 1.95 times more frequently to African Americans than whites

The study released by Inner City Press is timely, as this Friday marks the 40th anniversary of passage of the federal Fair Housing Act, a broad and loosely enforced civil rights law. “Lack of federal oversight of the work of mortgage lenders and brokers has led us to today’s foreclosure crisis,” said Shanna L. Smith, President and CEO of the National Fair Housing Alliance. “An important part of this negligence has been the government’s lack of commitment to enforce the fair housing laws,” she added. “HUD’s and Justice’s paltry performance gave the green light to discrimination by both prime and sub-prime lenders nationwide.”

The Lifestyles Of The Rich And Famous… And Foreclosed»

What do Bear Stearns employees, affluent suburbanites, and members of Congress all have in common? They are finally feeling the same home foreclosure crunch that mainstreet America has felt for the past two years.

It seems as though the mortgage crisis has finally struck a chord with Wall Street. After weeks of bad news of bank closures, falling stock prices, forced federal interventions and emergency congressional actions, America’s most wealthy are at long last starting to understand the problem that has been plaguing American middle class families since mid-2006.

The Financial Times reported that:

Holiday homes have been among the hardest hit. Last year, sales of vacation property fell 31 per cent across the US, against a 10 per cent drop in sales of homes bought to live in, according to the National Association of Realtors…

…One banker said tough times on Wall Street had prompted him to forgo renting a house in the Hamptons for the summer. “They were asking for the same amount of rent as last year, but my financial situation has changed a lot since last year,” he said.

Among those caught in the housing trap are three Bear Stearns executives rushing to offload properties after the collapse of the bank, according to a local estate agent. Their properties, in the village of Bridgehampton, were listed at about $2m, $2.5m and $5m, the broker said. The priciest house has five bedrooms and a large swimming pool with a picnic table built into it. “They are just normal oversized Hamptons homes . . . everyday summer houses for these guys at Bear Stearns,” said a broker. “They hit hard times and decided to cut their losses.”

In some of the country’s most affluent counties, home foreclosures are well above the national average of 1/555. Loudon County, Virginia, for example, has a median family income of $98,000 and a home foreclosure rate of 1/69:

In the Beacon Hill development, a golf course snakes among large houses and gazebos set on rolling hills. Residents keep their horses at an equestrian center. A 7,300-square-foot mansion on Spectacular Bid Place features three chandeliers, a spiral staircase and a state-of-the-art kitchen. The owner offered it at $1.35 million in January 2006, before foreclosing in August 2007. The house found a buyer in January 2008 — for $963,000.

These rich homeowners, previously immune to the national housing crisis, have even resorted to pricey add-ons in an effort to sell their homes.

– A 4,000-square-foot lakefront home in Independence Township, Michigan had languished on the market since last August until the Realtor sweetened the deal by throwing in her 1990 Mercedes 420SEL to the buyer of the house.
– “Seville Homes in Clinton Township, Michigan began tempting home shoppers with choices that include a 52-inch TV, a stove-refrigerator-microwave package, a $2,500 Art Van Furniture gift certificate and free hardwood floors and granite countertops.”
– “In Boston, a condominium developer is asking new owners to help it promote its unsold units, while another is putting in hardwood floors free.
– In Sarasota, Florida, sellers of condos are offering buyers incentives such as exclusive golf-club memberships worth as much as $75,000.
– In Atlanta, the developer of a high-rise is promising shoppers it will pay their first year of condo-association fees.”

These are not your next-door neighbors trying to stay afloat — these are the most privileged homeowners, suddenly falling ill to the same disease plaguing the rest of the country.

Calculated Risk explains that all across the country, the “home ATM” is being closed. The “witch’s brew” — stagnant incomes, rising prices, evaporating wealth and reduced access to credit — which is hitting higher income homeowners in all demographics, is “fostering a fundamental change in attitude and behavior,” economists say.

Roll Call reports that “tumbling share prices for more than a dozen of the most troubled banks and investment houses, which last week continued to write off record numbers of bad loans, may have cost 51 Members as much as $13.2 million in stock value during the past 15 months.” Hopefully lawmakers, finally feeling the heat in their wallets, can get their act with their most recent attempt at assisting struggling homeowners.

A lawyer who works with many GOP Members on their financial disclosure statements said of the lawmakers: “Frankly … these people are economically illiterate. It’s not surprising that nearly 10 percent of lawmakers may be out millions of dollars because of the current credit collapse.”

McCain Still Flip-Flopping On Whether To Rescue Homeowners»

Our guest blogger is James Kvaal, Domestic Policy Advisor at the Center for American Progress Action Fund.

It’s hard to know whether McCain supports the Democratic plan to help struggling homeowners by guaranteeing more affordable, refinanced mortgages against default.

Two weeks ago, McCain economic advisor Douglas Holtz-Eakin derided the idea as “throwing money at problems” and said it had “the potential to do more harm than good.”

Last week Holtz-Eakin reversed himself, saying that the proposal reflected McCain’s principles and McCain might support it.

But yesterday McCain said he does not support the bill after all, according to Laura Meckler of the Wall Street Journal.

Am I the only one confused?

Senate Tacks Unnecessary Corporate Subsidy Onto Housing Bill»

Our guest blogger is David Abromowitz, a Senior Fellow at the Center for American Progress Action Fund.

The bi-partisan Foreclosure Prevention Act of 2008 is a big step towards helping America’s troubled housing market, especially with its fast infusion of funds to localities, which enables responsible local organizations to move quickly in neighborhoods drowning in a tidal wave of recent foreclosures. Mirroring a Great American Dream Neighborhood Stabilization Fund proposal of the Enterprise Foundation, Center for American Progress and others, these funds would allow foreclosed and bank-held properties to be bought at a discount, vacancies and arson prevented, and stability restored to hundreds of communities teetering on the brink of blight.

Yet one component of this admirable package stands out like the odd item in a “One of These Things is Not Like the Others” mind-teaser from elementary school.

As now written, the bill would change current rules law dramatically by extending the Federal taxcode’s “net operating loss (NOL)” carryback provision to four years (back to 2004) from the current two years limit. But what kinds of corporations need this special extended NOL carryback? The short answer is a formerly profitable company hit by sudden, sharp losses that does not expect to recover and produce taxable income in the near term, but paid taxes in earlier years.

Certainly some corporations were innocent bystanders to the subprime Wall Street market meltdown, and are now saddled with large losses as a result of other parties’ bad investments. Small businesses caught in the market turmoil and strapped for cash in the coming year are one group for whom a sensible, carefully crafted case could be made. Homebuilders argue they need such help.

But some of the largest losses around are on the books of the wealthiest financial players at the very center of the debacle. Banks, servicers, packagers of loans, Wall Street underwriters and a host of related parties whose aggressive peddling of no-document and similarly risky loan products would be covered as well. Even creditors and maybe even shareholders of companies whose practices led them into bankruptcy might benefit.

If enacted the NOL carryback clause will have taxpayers writing a direct 35 cents on the dollar subsidy to parties who made billions off mortgages that are now being foreclosed on millions. And while the NOL provision is said to carry an estimated $6 billion cost to the Treasury, the current version apparently has no cap — if banks lose another $150 billion in 2008 and 2009, the taxpayers might cover more than $50 billion of their bad business bet.

The President’s advisers have repeatedly cautioned against the “perverse incentives” that might arise from mitigation of “outcomes of risky behavior”. But even more perverse will be if the NOL carryback windfall provisions become the price of moving forward this otherwise worthy bill.

– David Abramowitz

McCain Does About-Face On Housing Rescue Bill»

Our guest blogger is James Kvaal, Domestic Policy Advisor at the Center for American Progress Action Fund.

That was fast.

Only days ago, McCain advisor Douglas Holtz-Eakin dismissed Sen. Chris Dodd and Rep. Barney Frank’s mortgage rescue plan – also endorsed by Sens. Clinton and Obama — as “throwing money at problems.” He said it had “the potential to do more harm than good.” Meanwhile, Sen. McCain gave a major housing speech in which he “more or less came out against aid for troubled homeowners” and his hands-off approach drew comparisons to Herbert Hoover.

That’s all changed. Yesterday, the Senate voted 94-1 to move ahead with a housing rescue bill, and now McCain’s for it too. Last night Holtz-Eakin called the Senate action “progress.” And today he said that the Dodd-Frank proposal reflected McCain’s principles and McCain may support it.

For homeowners, it’s a welcome about-face.

Dodd: Jackson’s Resignation Was ‘The Right Thing To Do’»

Our guest blogger is Sen. Chris Dodd (D-CT), chairman of the Senate Committee on Banking, Housing, and Urban Affairs.

As you are no doubt aware, Senator Patty Murray (D-WA) and I sent a letter to President Bush a little over a week ago calling for Housing and Urban Development Secretary Alphonso Jackson’s resignation. Earlier today he announced his resignation. While a shift in the Administration at such a critical time is never optimal, I do believe it was the right thing to do.

In this time of economic crisis and instability in the housing market, it is more important than ever that we have a HUD Secretary who is fully committed to addressing the challenges facing our economy. Given that Secretary Jackson is currently the subject of ongoing investigations into alleged misconduct at HUD, it became clear to me over the past few weeks and months that these investigations have been a distraction at a time when the HUD Secretary must devote his undivided attention to helping American homeowners.

Now, more than ever, we need a HUD Secretary who can devote his full energy to solving our nation’s housing crisis. It is my hope that the new HUD Secretary the President appoints will be ready and anxious to tackle the problems in our housing market through collaboration with the Senate Banking Committee and other federal entities. We need all hands on deck to address the problems of the mortgage industry and the Americans whose budgets are being stretched to the limit by rising mortgage payments and cost-of-living increases. New leadership at HUD will help renew our focus on the country’s economic problems, and aid our attempts to restore confidence in the housing market.

Thanks again for the opportunity to share my thoughts with you here today, and I look forward to contributing in the future.

– Chris Dodd