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Slouching Towards A New HOLC

By Big Tent Democrat, Section Other Politics
Posted on Sun Oct 26, 2008 at 10:26:27 AM EST
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The NYTimes Ed Board approves of the slouching towards a new HOLC:

At a hearing on Thursday in the Senate Banking Committee, Sheila Bair, the chairwoman of the Federal Deposit Insurance Corporation, confirmed that the F.D.I.C. is working with the Treasury to streamline the reworking of troubled mortgages. The aim is to make the loans affordable over the long term so that borrowers can avoid foreclosure and keep their homes. Though details of the plan are not yet worked out, the outline calls for creating standardized criteria that would be used by mortgage servicers, the firms that handle collection and foreclosure proceedings for lenders and mortgage investors. Loans modified under the criteria would be eligible for a federal guarantee that would protect lenders and investors against default.

I welcome the recognition of the problem. I think these steps are clearly inadequate. A full blown new agency - a new HOLC, is necessary.

By Big Tent Democrat, speaking for me only

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    Slouching Towards A New HOLC | 31 comments (31 topical)

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    BTW, props for the FDIC (5.00 / 1) (#1)
    by andgarden on Sun Oct 26, 2008 at 10:35:28 AM EST
    We still have at least one working federal agency. The lasting impact of the New Deal continues to save us from disaster.

    Don't forget Social Security (5.00 / 1) (#5)
    by WS on Sun Oct 26, 2008 at 11:44:54 AM EST
    which the Republicans have been wanting to get rid off since the 30's.  

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    FDIC Is Trying ... (5.00 / 3) (#4)
    by santarita on Sun Oct 26, 2008 at 10:56:49 AM EST
    to do everything within its authority to address the massive foreclosure problem.  Bair and the FDIC should be given a lot of credit here.  Congress needs to step up to the plate and enact legislation that allows distressed homeowners appropriate relief.

    I favor a rewrite of the bankruptcy laws to permit loan modifications coupled with some kind of formula that will make the process quick and inexpensive with the only "clean hands" types of issues and ownership issues in dispute.  

    If the government is going to guaranty loans then it should do so like any arm's length guarantor, i.e. with lots of covenants!!  So far the Paulson Plan seems to give away billions with a Greenspanian hope that the banks will do the right thing.

    That's funny.... (5.00 / 3) (#8)
    by NYShooter on Sun Oct 26, 2008 at 11:56:50 AM EST
    "Trickle Down" is alive and well in America, circa Oct. 2008.

    Lloyd C. Blankfein, Chairman and Chief Executive Officer of Goldman Sachs, was caught on tape by an eaves dropping reporter, that A) Goldman doesn't need any Government "bailout" money, and B) They will use the first 25 billion "forced upon" them to buy up competing, struggling banks to further "strengthen and consolidate their position." They have no intention to loosen their lending practices, nor to help stimulate the economy.
    The Government's 700 billion bailout has no provisions in it to compel the banks to do the "right thing."

    Chris Dodd, when asked by a reporter, what would happen if the banks just horde the money, answered, "Well, we're going to hold hearings, and if they're not lending out the money, there'll be Hell to pay!"

    I can hear the laughter from the corporate jets 40,000 above.

    It was always about "taking care of your own first."


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    Bingo! (none / 0) (#27)
    by NYShooter on Mon Oct 27, 2008 at 05:07:44 AM EST
    Paul Krugman, today's NYT:

    "It was good news when Mr. Paulson finally agreed to funnel capital into the banking system in return for partial ownership. But last week Joe Nocera of The Times pointed out a key weakness in the U.S. Treasury's bank rescue plan: it contains no safeguards against the possibility that banks will simply sit on the money. "Unlike the British government, which is mandating lending requirements in return for capital injections, our government seems afraid to do anything except plead." And sure enough, the banks seem to be hoarding the cash."

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    Do u have a link for blankfein 'quotes'? (none / 0) (#28)
    by fairleft on Mon Oct 27, 2008 at 10:35:34 AM EST
    I've googled like mad and come up with nothing.

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    I am terribly sorry....... (5.00 / 1) (#29)
    by NYShooter on Mon Oct 27, 2008 at 12:55:22 PM EST
    It was late at night and I got my moguls confused.

    The bank was J.P. Morgan/Chase, and the mogul was Jamie Dimon.

    I don't have the link, but the author was Joe Nocera, NYT, Oct. 24, 2008, titled, "So when will banks give loans?"

    I hope this helps, and I apologize again for for my screw up.

    Parent

    What kind of relief do you suggest? (none / 0) (#7)
    by Pepe on Sun Oct 26, 2008 at 11:51:12 AM EST
    I keep reading in posts suggestions like yours but none offer any specifics. What is it in the legislation that you would like to see? What is it you specifically would want the BK courts to do within reason?

    BTD calls for a full blown HOLC. Exactly what would he like them to do? A new HOLC would have to be different than the original one in that the original one extended the length of the loan so that payments were lower. What are they to do extend the loan out to 50 years now? That really would not be workable in the real world. And interest rate wise their options are minimal as even at a low fixed rate of 5.25% a lot of people would still not be able to afford the payments of the 'too much' house that they bought.

    So exactly what is a new HOLC supposed to do that the Treasury and FDIC cannot? I don't see anything a new agency can do that the other two cannot other than create a new government expense which we don't need right now. Even Clinton, who I supported, has not offered up any details on her call for a new HOLC that I know of.

    I guess in summary I don't find all these calls for legislation or a new HOLC or new powers for BK courts etc productive without real world details on exactly how the borrower would be helped. Even forgiving part of the principal could be a bad idea because it puts the lenders in a decreased asset problem which is what we are bailing them out of in the first place. So what are we to do, bail them out to the tune of 700B only to partially drive them back to where we saved them from?

    I believe TARP gave Treasury responsibility to do something about the problem and it appears that they are working toward a solution by utilizing the existing structures in place, in this case the servicer of the loans working with existing government agencies.

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    Many Issues and No Great Solutions (none / 0) (#11)
    by santarita on Sun Oct 26, 2008 at 12:43:16 PM EST
      Banks are forced to do partial charge offs when borrowers don't pay on their mortgages and the value of the house is less than the amount of the mortgage.  If banks foreclose they either own the property (which costs $$ to manage) or sell it at substantially reduced prices.  Borrowers, on the other hand, might be able to pay a reduced mortgage.  Banks, so far, have seemed unwilling to engage in loan modifications on a voluntary basis.  Changing the bankruptcy laws (Chapter 13) to force negotiations (by giving the borrower the right to reductions in principal or interest in certain cases) might result in a decrease in foreclosures and the banks at least would have a performing loan with an income stream.

    There isn't any one magic bullet out there.  TARP addresses part of the problem.  But it doesn't touch the huge number of foreclosures.  

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    I think the banks are waiting (5.00 / 1) (#13)
    by Fabian on Sun Oct 26, 2008 at 01:04:04 PM EST
    and hoping for the sweetest deal they can get.

    I think the banks should get to choose the lesser of two evils, but any option should force them to take some loss and not pawn it off on the government.  Sounds like they should have to choose between a smaller short term loss and a larger long term loss.

    Parent

    You are not thinking like a business person (none / 0) (#18)
    by Pepe on Sun Oct 26, 2008 at 02:21:02 PM EST
    "Banks are forced to do partial charge offs when borrowers don't pay on their mortgages..."

    True. But not everyone is going to go to foreclosure . Some will make it through with sacrifice, or sell, or short sell to avoid foreclosure. So for the banks to refinance everyone who has an adjustable would be more than likely be more costly than dealing with a smaller amount of forclosures. The buyers have a responsibility too and when you buy a house you take risks. And when  you buy a house at the top of the market as a lot did the risks are greater. Those people need to be responsible for the risks they took. Bottom line is the banks are not going to refinance across the board because that would be stupid.

    "Borrowers, on the other hand, might be able to pay a reduced mortgage."

    Might, might not. You don't know that so you are putting forth an argument that has no credibility in facts. If you reduce principle and keep the adjustable then the payments could very likely catch up to them in time. If you leave the principle and give them a fixed loan they still could very well not afford the payment. If you reduce both that would be stupid to do. Personally I don't want to supplement someone who bought above their head while I keep my mortgages as is with no relief. There is just a line that a lot of people will not want to cross when it comes to supplementing someones purchase with tax dollars especially when they end up getting a better deal that the responsible buyer.

    "Banks, so far, have seemed unwilling to engage in loan modifications on a voluntary basis."

    Bank of America is with some Country Wide loans that they acquired.  So are some other banks. Banks will do this where it makes business sense to them but they are not a charity.

    "Changing the bankruptcy laws (Chapter 13) to force negotiations (by giving the borrower the right to reductions in principal or interest in certain cases) might result in a decrease in foreclosures and the banks at least would have a performing loan with an income stream."

    Obama doesn't support that. The courts who know nothing about mortage financing or the real estate market should not issue 'right to reductions in principal or interest'. Chapter 13 already gives provides the option of negotiation which is between the lender and the lendee. It is up to the lender if reduction or foreclosure makes sense to them.

    "TARP addresses part of the problem.  But it doesn't touch the huge number of foreclosures."  

    Sure it does. It mandates that Treasury find a solution which they are in conjunction with the FDIC. didn't you read the original diary and the editorial provided?

    "There isn't any one magic bullet out there."

    But yet people keep posting things with no details of how it would get done. People keep suggesting another HOLC with no idea of what a modern HOLC would look like. All this kind of uninformed talk does is raise anger with no consideration as to the cost, who would pay that cost, the ramifications on who will pay the cost, and the fairness to those who didn't sign the mortgage papers who will likely shoulder the cost.

    What people are forgetting here is part of the blame here rests with the borrower.

    Parent

    Bankruptcy Judges Are Well-Trained in (none / 0) (#19)
    by santarita on Sun Oct 26, 2008 at 03:00:19 PM EST
    debt modifications.  That's a large part of Chapter 11.  And it used to be a large part of Chapter 13 until Congress changed the law on cram-downs on principal residences.  And bankruptcy judges rule on the feasibility (or likelihood of success) of loan modifications every day.  Bankruptcy judges also are apply principles of equity in making their rulings.  What most  bk judges and bk courts are not prepared for is mass filings.  That's where some formula approach would be useful.

    The moral hazard question is partially addressed by having the loan modification done in bankruptcy.  The borrower will have that stigma and will  be subject to bankruptcy court scrutiny of his or her spending habits.  

    Here's what banks get - stabilization of housing prices.  

    The projected mortgage losses are $1.3 trillion on top of what we have already.  There is a systemic problem that needs more than the good will of banks to fix.

    Parent

    Well I see you want to ignore (none / 0) (#25)
    by Pepe on Sun Oct 26, 2008 at 07:16:07 PM EST
    90% of what I had to say and instead dwell on what you think is a good case to make. I think you are missing the fact that most people who could lose their homes due to their own decisions (a fact you want to ignore) will not go to BK Court because they would have to drag all their other obligations into the court too. And by doing that they would have a BK on their credit reports for 7 years and still be saddled with restructured debt. Bills ordered payed by the BK courts along with a credit report that stinks for 7 years even though you are paying your bills is not something most people would want to do and it isn't smart either. Given the choice between that and a foreclosure on ones credit report and the choice is easy.  so it appears you are thinking more in terms of a misinformed advocate rather than putting yourself in the shoes of the borrower.

    Besides no one in congress is talking about what you are so the chances of it happening are nil. So go on talking about it without any details of how it would work or the ramifications it would have on the borrower.

    "Here's what banks get - stabilization of housing prices."

    That is not really the banks problem in terms of current mortgages they have. It is the borrower who takes the risk of upside and downside of property value. And like I already said it would be cheaper to eat a few foreclosures than to  devalue each mortgage and then add a lower fixed rate on top of that so you really are not thinking this thing through. Add to that, as I already pointed out and you ignore, what you propose would likely drive the banks back into a devalued asset problem again after being bailed out and it makes no sense at all.

    "There is a systemic problem that needs more than the good will of banks to fix."

    Time heals all. All markets ebb and flow, especially real estate. You propose a fix that you are not considering all the moving pieces of. I address some of them - you don't. You also assign no responsibility to the borrower. You don't take into consideration how to filter those who were irresponsible which would be hard to prove in any case. You want to put this all on the backs of the banks which is not only unfair but as I pointed out may take us backward to the point of asset and liquidity problems. If that were to happen your wish is not only counter productive it is dumb. Maybe that is why people in government, including Obama, don't subscribe to you BK method of dealing with the problem.

    Parent

    There are a lot of ideas being (5.00 / 2) (#6)
    by inclusiveheart on Sun Oct 26, 2008 at 11:46:58 AM EST
    discussed right now.  

    I heard about a fairly long laundry list of approaches - it was clear to me based on the diversity of the items on the list that we are really in the very early stages of this debate.  It was also clear that there are a lot of people engaging in this discussion across the agencies.

    As you say, not far enough ... (none / 0) (#2)
    by Robot Porter on Sun Oct 26, 2008 at 10:39:24 AM EST
    on a related note:

    Do you think Obama should give his bold progressive agenda a name ala the New Deal, the New Frontier, the Great Society?

    Any ideas for such a name?

    Or do you think the idea is silly?

    (I'm assuming Obama will launch a bold progressive agenda.  Because he must.)

    I don't know what it will be called (5.00 / 1) (#3)
    by ruffian on Sun Oct 26, 2008 at 10:54:56 AM EST
    but it will have a nifty logo and a great marketing campaign. Viral!

    But I don't share your assumption that he will have a bold progressive agenda. To do so after elected would confirm everything Republicans are saying about him - he is not who you think he is. He may as well start attending a mosque.

     He should have been running on a progressive agenda all along.  

    Parent

    I'm not sure I accept my assumption ... (none / 0) (#16)
    by Robot Porter on Sun Oct 26, 2008 at 02:01:34 PM EST
    but I'm assuming it for this discussion.

    Parent
    Because he must? n/t (none / 0) (#12)
    by Fabian on Sun Oct 26, 2008 at 12:58:48 PM EST


    Parent
    If he wants to fix the economy ... (none / 0) (#14)
    by Robot Porter on Sun Oct 26, 2008 at 01:47:25 PM EST
    and be a popular, effective president.

    Parent
    That's "rebuild" the economy (none / 0) (#17)
    by Fabian on Sun Oct 26, 2008 at 02:10:31 PM EST
    we are at least a decade too late to "fix" the economy.  The unsustainable housing/building boom was all that was keeping our economy afloat.  Now with that balloon deflated and without the jobs to puff it back up again, there is no way to "fix" the economy.

    (Unsustainable because real income was falling while housing prices were going up - and the flaking financing played a big part in filling that ever increasing gap.)

    Now if we can just drill the "rebuild the economy" mantra into the thick skulls of the legislators who will be looking for a quick "fix" and there will be plenty of lobbyists who will be trying to sell it to them.

    Parent

    Too in the weeds ... (none / 0) (#20)
    by Robot Porter on Sun Oct 26, 2008 at 03:00:40 PM EST
    for me, Fabian.

    Fix ... rebuild ... six-to-one and pick 'em.



    Parent

    The economy is that old beater (none / 0) (#23)
    by Fabian on Sun Oct 26, 2008 at 04:25:25 PM EST
    you keep on driving until it drops and THEN you'll figure out what you'll do for transport instead of taking it in to the shop to find out how much it'll cost to keep it going.

    This old beater needs an engine rebuild at the very least (a hybrid engine is strongly recommended) and the transmission is about go as well.  It's hard to get it into gear as is and the horsepower is dropping off alarmingly.

    I just hope that Congress doesn't say "Oh!  That's too much - how much can we do for a tenth of that?".  

    Parent

    How about The Great Nudge (n/t) (none / 0) (#24)
    by FreakyBeaky on Sun Oct 26, 2008 at 06:45:35 PM EST


    Parent
    while a new HOLC (none / 0) (#9)
    by cpinva on Sun Oct 26, 2008 at 12:11:51 PM EST
    (or whatever nifty acronym you give it) might help some people, there is a large group it isn't going to have any affect at all on: the unemployed. regardless of changes in terms (length of loan, interest rate, etc), those properties will be foreclosed on.

    as well, how will congress counter the (rightly) perceived lack of equity: the greedy and inept being rewarded for their greed and ineptitude?

    what's in it for those of us who exercised rudimentary common sense, when purchasing/financing our humble abodes?

    The best argument is that ... (none / 0) (#15)
    by Robot Porter on Sun Oct 26, 2008 at 02:00:25 PM EST
    HOLC saves communities, the small businesses that depend on the communities, removes the plight of unmaintained foreclosed upon homes, and thus raises the value of properties within the hardest hit communities.

    It makes them nicer and more productive places to live.  And the more functioning communities we have the better than society is as whole.

    That's the argument.  And I think it's a good one.

    This is in addition to the argument that it gets to the root of the financial crisis.  And thus helps the overall banking and housing sector.

    Parent

    really? how so? (none / 0) (#26)
    by cpinva on Sun Oct 26, 2008 at 11:48:53 PM EST
    HOLC saves communities,

    if those people are unemployed, HOLC saves nothing, unless the debt is completely forgiven. even then, they've not the funds to continue maintaining it.

    how do un or underemplyed people help small businesses stay in business?

    even if you were able to get the bulk of the population to buy into this, there are still difficult questions that must be answered, long before any program is enacted into law. some of those answers are going to be harsh.

    Parent

    Hopefully as soon as the election is over (none / 0) (#10)
    by Militarytracy on Sun Oct 26, 2008 at 12:13:18 PM EST
    we can get some serious talk on this.

    BTD, intentional reference to Yeats' (none / 0) (#21)
    by Robot Porter on Sun Oct 26, 2008 at 03:10:10 PM EST
    "The Second Coming"?

    Who's the "rough beast" who's hour has "come round at last" slouching toward HOLC?

    An Idea (none / 0) (#22)
    by koshembos on Sun Oct 26, 2008 at 03:25:35 PM EST
    I am not an economist and my knowledge of financing is zero. We all heard of banks that used their bailout money for acquisition, bonuses, etc. How about giving all the bailout money to holders of mortgages who will have to pay off part of their mortgages. (The money will, therefore, go to the banks.) This will stop foreclosures, will provide a huge stimulus to the economy.

    Banks will make a lot of money as a result of glut of money and can use it to compensate for the money they lost on mortgages they shouldn't have given in the first place.

    Simply, bailout for people and not institutions.

    Shock Therapy (none / 0) (#30)
    by jawbone on Tue Oct 28, 2008 at 11:25:12 AM EST
    Socialism is a charge being leveled against Paulson-Bernanke in how they're socializing risk (and the payment for losses), while still privatizing profits. Now, they're talking about helping GM absorb Chyrsler. Well, actual socialism is one thing--might actually help the little people, but this nanny corporatism is really taking this redistribution of wealth way too far.

    Michael Hudson (econ professor, socialist, adviser to Kucinich) reportedly said the uberwealthy are doing everything they can to give themselves the ability to buy up assets at pennies on the dollar and thus control the economy and keep their power for the next 100 years. Think non-ownership society for the masses; feudal for the uberwealthy. (I'm looking for the actual quote.)

    But, it sure does fit with the Naomi Klein "shock therapy" analysis and how it was applied to other nation's economies. Shock Therapy--it's not just for foreigners anymore....

    And what will Obama do??? On The Brian Lehrer Show this morning 10/29), in a discussion of management styles of McCain and Obama, the host said that he thought people saying they didn't really "know" Obama was a a manifestation of racism*. It was my scream at the radio moment. Talk about drinking the Kool-Aid!

    Lehrer was discussing this with Jonathan Alter and Juan Williams. Neither of them disagreed with this comment; no one mentioned that Obama has said conflicting things about serious issues (for one, he's going to improve healthcare, per his campaign speeches; he's going to have to fight his own party to not spend money on expensive programs such as healthcare and education programs, per comments to a closed fundraiser).

    *It was racism, per Lehrer, bcz voters don't say that about Palin, who has been on the national scene even less time than Obama. Palin is white; Obama black; ergo, to say one doesn't feel one knows Obama or what he will do is racism. Got it?

    Aaaaarrrrrgggghhhhh!

    BTW, the MCMers are starting to beat the drum of Obama must be fiscally responsible ever more loudly and frequently. To be a Serious Person he must quash any new Dem social spending. Wonder how they feel about the social spending for the uberwealthy? Love it! Not only bcz it benefits their benefactors and employers, but bcz it stifles social programs for the vast non-wealthy masses. Feh.

    to be On Thread: HOLC will be an expensive program (none / 0) (#31)
    by jawbone on Tue Oct 28, 2008 at 11:33:09 AM EST
    against which Obama will probably have to fight his own party. It will be and is being denigrated by the MCMers and Villagers. It will not win favor with the Blue Dogs, whom Obama has made a point of calling to bring on board for him.

    What will he do?

    Looking at how he ran the Harvard Law Review, according to a historian who is trying to use that limited information to guage how he will govern, he might try to satisfy those he disagrees with, giving them plum positions of authority. He sorely disappointed other black law students and liberals in his choices and actions.

    The Big Question is--whom does he disagree with in actuality? Whom does he agree with?

    WHAT WILL HE DO?

    Soon, we will find out--altho' another aspect of his management style, per those discussing him, is that he tends to be secretive about his thinking and decision making, holds things close to his vest. Think BushCo--on steroids. Consider how secretive his campaign management actually seems to be.

    How will the public react to that?

    As always, I will be delighted to have my skepticism proved wrong.

    And, it's snowing here in Northern NJ!! Temp still above freezing, but big fat sloppy flakes falling.

    Parent

    Slouching Towards A New HOLC | 31 comments (31 topical)

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