Socialism Gone Apeshit: Obama Wants To Use Proceeds From $20 Billion Fraudclosure Settlement To Reduce Underwater Mortgages

Ever wonder why the banks have been stowing away cash as if in anticipation of a torrential rainy day? Well, it just started pouring. According to the WSJ: "The Obama administration is trying to push through a settlement over mortgage-servicing breakdowns that could force America's largest banks to pay for reductions in loan principal worth billions of dollars…Terms of the administration's proposal include a commitment from mortgage servicers to reduce the loan balances of troubled borrowers who owe more than their homes are worth, people familiar with the matter said. The cost of those writedowns won't be borne by investors who purchased mortgage-backed securities, these people said…some state attorneys general and federal agencies are pushing for banks to pay more than $20 billion in civil fines or to fund a comparable amount of loan modifications for distressed borrowers…Regulators are looking at up to 14 servicers that could be a party to the settlement…Banks would also have to reduce second-lien mortgages when first mortgages are modified…Under the administration's proposed settlement, banks would have to bear the cost of all writedowns rather than passing them on to other investors. The settlement proposal focuses on pushing servicers who mishandled foreclosure procedures to eat losses, by writing down loans that they service on behalf of clients. Those clients include mortgage-finance giants Fannie Mae and Freddie Mac, as well as investors in loans that were securitized by Wall Street firms.” In other words, we have just reached the pinnacle of banana republic socialist insanity. In one fell swoop the teleprompter will not only grant reprieve to the banks for decades of fraudulent mortgage activity, but undercapitalize themselves and have them at risk for another liquidity run, which would of course mean another record multi-trillion taxpayer bailout. And the worst case: the 10 million or whatever underwater mortgages will get an average reduction of $2000 each. This is unfuckingbelieveable!

From the WSJ:

A settlement could help lift a cloud of uncertainty that has stalled the foreclosure process since last fall. Economists have warned that foreclosures need to proceed for the housing market to continue on a path to recovery. It's unclear how many borrowers would benefit from a deal. Servicers have thus far had difficulty managing the volume of troubled loans.

So far, most loan modifications have focused on shrinking monthly payments by lowering interest rates and extending loan terms. Banks, as well as mortgage giants Fannie Mae and Freddie Mac, have been shy to embrace principal reductions, in part due to concerns that many borrowers who can afford their loans will stop paying in the hope of being rewarded with a smaller loan. But some economists warn that rising numbers of underwater borrowers will drag on housing markets and the economy for years unless more is done to help them.

Several federal agencies have been scrutinizing the nation's largest banks over breakdowns in foreclosure procedures that erupted last fall. Last week, the Office of the Comptroller of the Currency said only a small number of borrowers had been improperly foreclosed upon. But the regulator raised concerns over inadequate staffing and weak controls over certain foreclosure processes.

A settlement must satisfy an unwieldy mix of authorities, including state attorneys general and regulators such as the newly formed Bureau of Consumer Financial Protection, who support heftier fines. They must also appease banking regulators, such as the OCC, that are concerned penalties could be too stiff.

"Nothing has been finalized among the states, and it's our understanding that the federal agencies we are in discussions with have not finalized their positions," said a spokesman for Iowa Attorney General Tom Miller, who is spearheading a 50-state investigation of mortgage-servicing practices.

On the utter economic futility of this idiotic action:

Bank executives say principal cuts don't necessarily improve payment patterns, and have told other parties involved in the talks that principal reductions could raise new complications. First, it will be difficult to determine who gets reductions and who doesn't. And even if banks agree to a $20 billion penalty, the number of mortgages that can be cured with that number is limited, one of these people said.

Any settlement could be one of the largest to hit the mortgage industry. In 2008, Bank of America settled claims worth more than $8.6 billion for loans allegedly involving predatory lending practices committed by Countrywide Finance Corp., which it acquired that year.

Of course the winner would be Obama's chances at getting reelected for a second term as teleprompter in chief. As for the outcome, now that the curve is flattening and the sad reality of the economic collapse is once again being appreciated, we will have a bank collapse that much sooner, leading to more trillions in taxpayer funded bail outs, so Wall Street can have another year of record bonuses, all the while the Chairsatan proceeds with QE 3, 4, 5, 6 and so forth. Which of course is the primary motive.

Comments

[Jerry Maguire]

$12.8 trillion for the banksters.  $20 billion for everyone else.

Disgusting.

http://strikelawyer.wordpress.com/2011/02/24/bankster-jubilee-v-popular-...

[velobabe]

insane, justfuckinginsane†

[Northeaster]

Just wrote every Congressional Represenative down there on this issue (as I usually do weekly). Even though I believe they are bought, sold and paid for, better than "just" ranting here.

What did you do?

[AchtungAffen]

Oh how terrible! Marx Obama suggests banks that committed fraud on people will have to pay? Oh the apeshits! I guess I'll go cry in a corner, poor bankers...

[ronin12]

You can claim you are exempt.

[Captain Kink]

My email to Chuck Schumer:

Dear Sir,

"Fining" the banks $20B or allowing them to make loan modifications of the same amount is bad policy for myriad reasons.  First, the banks will have to charge off at least that much if the foreclosure and MBS mess is allowed to run its course through the courts one mortgage/one security at at time.  This proposal hardly amounts to a penalty and really looks like a "proactive" (political) way to curry voter favor while actually preventing the banks from suffering losses that would otherwise make them insolvent again.  Second, the moral hazard supported at the level of banks, MBS investors, and borrowers is clear and terrible.  Third, this would not prevent further house price declines (the feared consequence of letting the courts do the work), but rather this would lead to further house price erosion. This is due to the immediate need for underwater borrowers to obtain the lowest possible appraisal value for their home, in order to qualify for the maximum modification. The only way to hasten the recovery of the housing market is to force the banks to mark to market, foreclose where necessary, and take the losses that are rightfully theirs. Fourth, the average reduction in principal over the 10mm mortgages in question is just $2000.  Even at 10 times the dollar amount (or the smae amount spread over 1/10 the number mortgages), the average modification is $20,000 or approximately $125 per month on a 30 year mortgage. This amount will not prevent many future foreclosures from happening.

This proposal is clearly a populist political stunt to extend an olive branch to main street with its own bailout.  What has happened to this country?  Anyone who has prudently managed his/her finances and actually has savings is being punished by most of the policy decisions coming out of the administration, the Congress, and particularly the Federal Reserve.  Is this the America you were proud of as a child?  Please represent us, the Constitution, and the idealistic boy you once were.

Yours sincerely,

{capt K}

[Northeaster]

Good Job!

Unfortunate that you have Schumer, probably won't be of any help there. Mine are almost as bad: Kerry, Tsongas (who probably doesn't know what the hell we're talking about), and Brown (whose office does in fact respond occasionally without a form letter).

[Captain Kink]

Thanks.

Cool that Scott Brown's office actually respnds with substance.  Not surprising.  Wish I llived in MA, where pastures are "greener".  I am looking to buy a place in the berkshires, but will have to remain a citizen of NY.... sigh.

[Chappaquiddick]

There won't be a QE3 or a 4 or higher.  The US is now officially second rate - the WTI vs Brent rates illustrate this.  Those cunning Jonny Foreigners have had enough - the system is too unstable to demand another Trill, there are no bond buyers left outside the sovereigns and they've had enough too being either cap in hand (broke) or fucking livid (about to go broke).

The dollar is sinking, bonds are sliding, housing is kapput, unemployment thru the roof as are commodity prices and finally the markets are tanking too.........fuck, fuck, fuck.

what could possibly happen to top all this - well another humongous market crash, but what about next into the arena - the gladiators - flag waving brain washed killers with martial law on their side and some high tech death machines to keep the populace in check.

I wonder if Tony Blair has grown a little 'tach yet??