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Making Excuses: HAMP v. HOLC

Kevin Drum writes:

[Some argue that] Obama and the Democrats could have done a lot more to improve the economy. But I'm not convinced of that. [. . .] The only other thing I can think of that the administration screwed up seriously is mortgage reform. Again, though, that would have been politically difficult even if they had played all their cards perfectly. Like it or not, the American public hates the idea of seeing their neighbors get bailed out from stupid mortgages. It makes them feel like saps: we scrimped and saved and bought a house we could afford and we're getting nothing. Joe and Betty down the street lived the high life, took out a NINJA loan they knew was way more than they could afford, and now they're getting a taxpayer-funded bailout and living easy. That's not a vote getter.

[. . . P]eople are mostly reacting to actual pain, and there's surprisingly little Obama could have done about that.

Matt Yglesias seconds this argument that the President was impotent:

Kevin Drum hits the nail on the head when it comes to the politics of averting foreclosures, something I think a remarkable number of progressive bloggers overlook[. . . .] Itís probably even worse than that. Across the board principal modification would have undone some optimistic accounting lurking on bank balance sheets and required additional government capital injections (read: bailouts) of large financial firms. Iím resolutely pro-bailout, of households and banks alike, but the public feels differently.

Interesting how the bank bailouts went through and bank friendly policies have been followed by the Obama Administration despite their unpopularity but homeowner friendly policies were just too tough politically no? FTR, I support and supported TARP, but not the no strings TARP that was executed by the Obama Administration (in my view the saved banks should have been required to own up to their losses, engage in mortgage modifications and generally loosen credit. Just as this was no time for fiscal restraint, it was no time to tighten credit.)

In the end, what was the best political move for the Obama Administration in the first hundred days? The answer seems obvious to me - enact and execute policies that would do the most to lift the economy. That simply didn't happen. The best example is the egregiously bad HAMP policy. The problem with HAMP was similar to that the entire Obama Administration policy towards the banks has- a dependence on the banks themselves. HAMP did not and will not work because in order for it to work, the banks must take a hit voluntarily. They will never do that.

What Drum and Yglesias fail to acknowledge is that the Obama Administration had no need for Congressional action with regard to HAMP (or a potential HOLC.) They had freedom of action and acted with egregious incompetence and put HAMP into place.

By contrast, in 1933, FDR enacted HOLC (PDF):

During the initial lending periodófrom June 1933 to June 1935óthe HOLC received 1,886,491 applications for $6.2 billion of home mortgage refinancing, an average of $3,272 per application. According to estimates in the present study, HOLC refinancing was requested for about 40 percent of all mortgaged properties of qualifying size, value, and location, and for about one-fifth of all the nation's nonfarm, owner-occupied dwellings. Nearly half the applications, however, were withdrawn or rejected. Roughly, one million refinancing loans totaling $3.1 billion and averaging $3,039 per loan were made, 70 percent of which were made during the twelve-month period beginning in March 1934. For the country as a whole, owners of about one out of ten nonfarm, owner-occupied dwellings (one- to four-family structures) and one out of five mortgaged dwellings received HOLC refinancing aid. Seventy-five percent of the loans were for less than $4,000 and amounted, on the average, to 69 percent of the HOLC appraised value of the property.

There was no political reason, none whatsoever, that instead of HAMP, the Obama Administration did not instead create a new HOLC. The Obama Administration, guided by the bumbling incompetent Tim Geithner, chose to coddle the banks instead.

Drum and Yglesias' excuse making for this failure is utter nonsense.

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  • Display: Sort:
    So It was "politically difficult" (5.00 / 7) (#3)
    by Cream City on Sun Oct 17, 2010 at 10:33:01 AM EST
    which would seem to be the beginning and end of discussion for these wusses.  Yet now, the wussy White House is facing "political difficulties," anyway.  FDR could have taught them about conundrums and courage, had they heeded history.

    But why heed history when you're so, y'know, historic?

    Too cool for FDR school (5.00 / 6) (#4)
    by Militarytracy on Sun Oct 17, 2010 at 10:39:49 AM EST
    Also morally wrong (none / 0) (#10)
    by Politalkix on Sun Oct 17, 2010 at 12:21:53 PM EST
    if you are reacting to the following
    "Like it or not, the American public hates the idea of seeing their neighbors get bailed out from stupid mortgages. It makes them feel like saps: we scrimped and saved and bought a house we could afford and we're getting nothing. Joe and Betty down the street lived the high life, took out a NINJA loan they knew was way more than they could afford, and now they're getting a taxpayer-funded bailout and living easy"

    Ofcourse, it was morally wrong to bail out the bankers (who obviously can hold a lot more people hostage than the average "Joe or Betty down the street, living the high life").

    Parent

    I'm not reacting to that at all (5.00 / 1) (#14)
    by Cream City on Sun Oct 17, 2010 at 02:01:54 PM EST
    and don't see how what I said could be so.

    But thank you for your reaction to something else.

    Parent

    I hear you, C.C. (5.00 / 2) (#19)
    by NYShooter on Sun Oct 17, 2010 at 07:48:20 PM EST
    You know what was politically difficult? Just watch/listen to any of Martin Luther King's speeches and see what dedication, motivation, strength of character, moral purpose, and unstoppable belief in America's potential greatness can accomplish.

    Turning around a country dumped into the sewer by a Boy/King and his merry band of ideologues?

    Pffft..piece of cake

    Parent

    Kevin seems to pick and choose (5.00 / 1) (#5)
    by MO Blue on Sun Oct 17, 2010 at 10:40:44 AM EST
    when Obama should pay attention to the general public.

    Like it or not, the American public hates the idea of seeing their neighbors get bailed out from stupid mortgages.

    We could site numerous occasions on where Congress and the administration didn't give a d@mn about what the American public wanted or didn't want.

    Like it or not, the American public hates the idea of seeing tax payer money used to bail out the financial sector and their rich CEOs  from the consequences of their failed policies.

    Shelling out money to the banks without placing any restrictions on the use of the funds "popular with the American public." I think not. The fact that any idiot would know that watching the CEOs getting huge bonuses for their failed policies would be extremely unpopular with the American public did not deter the President and Congress from shelling out money to their savvy businessmen friends.

    Drum et al. also overlook (5.00 / 1) (#11)
    by BackFromOhio on Sun Oct 17, 2010 at 12:22:50 PM EST
    fact of how HOLC could work.  As I recall Hillary Clinton's Fall 2008 proposal, the banks would agree to lower interest rates, not principal, so that homeowners could pay the mortgage, the banks would continue to have cash flow rather than non-performing loans on the books, neighbors of the homeowners with lowered interest rates would benefit by not having their own home market values drop because of foreclosures in the neighborhood, and everyone comes out ahead.  This also in light of the fact that many of the troubled mortgages were obtained by the banks through illegal, predatory lending practices, many aimed at minority home buyers.  So, where is it that Americans would have trouble with this???

    Are these writers this ignorant, or are they really shilling for the Admin meme of the day?


    Parent

    I pick answer C -- (5.00 / 1) (#15)
    by Cream City on Sun Oct 17, 2010 at 02:04:00 PM EST
    that is, both of the above.

    Parent
    Honestly, I don't know how much (none / 0) (#21)
    by gyrfalcon on Sun Oct 17, 2010 at 08:34:06 PM EST
    this would have helped, or would help.  Getting a couple hundred dollars break on your monthly mortgage payment is of no use whatsoever if you're unemployed, and it sure as hell doesn't help you to sell your house for anything close to what you paid for it.

    Parent
    It's a start (none / 0) (#24)
    by BackFromOhio on Mon Oct 18, 2010 at 07:19:11 PM EST
    I'm not presenting this as a cure-all.  And there are supposed to be quite a few people who became underwater when interest rates reset.  Many reset provisions don't go by T-bill rate or whatever, but rather by prevailing mortgage rates of some type, so resets and initial rates before the 2008 credit crisis set the bar for subsequent rate adjustments.  I don't know, but I wouldn't be surprised if mortgages contain authorization to raise interest rates even higher if borrower is late.

    Parent
    Kevin needs to catch up :) (none / 0) (#8)
    by Militarytracy on Sun Oct 17, 2010 at 12:02:47 PM EST
    I'm a "responsible" home buyer mortgage payer.  I was chapped about the irresponsible months and months ago.....I'm far beyond that now because it doesn't matter how responsible I am, I am paying for a property of which no clear title exists.  Legally, in most respects I might as well drive down the street and throw my damned mortgage payment out the window.  

    Parent
    Those linked stories (5.00 / 3) (#6)
    by Cream City on Sun Oct 17, 2010 at 11:19:36 AM EST
    have me so horrified.  I have read for years now the warning about the housing bubble, the warnings about the mortgage industry.  (So after seeing our mortgage sold and resold and resold again, we refinanced to switch to a local bank and paid a bit more for the mortgage to stay there . . . although I made a call last week to confirm it is still there.)

    So I knew there was a lot of shysterism in the housing-finance industry . . . but I thought that the courts were doing their jobs, at least in the half of states that require court involvement in foreclosures.  Not so, so the links suggest.  

    So, since this is a legal blog:  Along with robo-signing by the mortgage industry, there apparently was robo-signing-off by the courts, but for a few cases where judges did their jobs in requiring the real documents?  Are we going to see investigations of those courts, so we can know who did so -- and, at least for those of us in states that have elective judiciaries, we can vote out the bums on the bench?

    That is, the focus now is on the bad bankers, but it would seem that this is a larger systemic problem that could redound a lot on the legal sector?

    leadership (5.00 / 6) (#18)
    by dandelion on Sun Oct 17, 2010 at 06:24:22 PM EST
    Why do people like Drum and Yglesias who always start with what "the people will accept" never explore the possibility that good leadership is supposed to CHANGE what the people will accept?

    And/or do the difficult thing when required.

    It's like they see the role of the president as no more than the most visible middle manager in government.

    Bingo (5.00 / 1) (#22)
    by gyrfalcon on Sun Oct 17, 2010 at 08:34:46 PM EST
    That's the flaw in Drum's position on this, IMHO.

    Parent
    Perfect put. Leading (5.00 / 1) (#23)
    by Cream City on Sun Oct 17, 2010 at 10:51:38 PM EST
    vs. managing.  Leading change vs. managing the "change" brand -- but nobody's buying it anymore.

    The economic indicators are going south so fast that the aversion to "political difficulty" is going to dump this White House in the political pits.

     

    Parent

    I guess (none / 0) (#1)
    by Warren Terrer on Sun Oct 17, 2010 at 10:16:24 AM EST
    Kevin Drum doesn't believe a stimulus would have helped. So much for his "progressive" credentials.

    Don't be silly (5.00 / 1) (#7)
    by gyrfalcon on Sun Oct 17, 2010 at 11:42:29 AM EST
    and try actually reading what the guy says instead of guessing.  Drum, rather, is one of those too impressed by congressional realities.  IOW, he believes, and he's likely right, unfortunately, that the inadequate stimulus bill we did get was the best we could get from Congress.  That's in contrast to folks like me, who think there's a great deal to be gained, politically if not always practically, in aiming higher than you think you can get.

    As BTD has pointed out with great regularity, Obama's and the Dems' opening stance in negotiations is almost always what they think will seem "reasonable" to the other side, with the result that it gets watered down even further.

    Parent

    I was being (5.00 / 1) (#17)
    by Warren Terrer on Sun Oct 17, 2010 at 02:24:22 PM EST
    sarcastic. Drum believes more in political expediency than in doing what was NECESSARY for the economy. A bigger stimulus wouldn't have just been helpful, it was essential. Drum doesn't understand this.

    Parent
    You apparently (none / 0) (#20)
    by gyrfalcon on Sun Oct 17, 2010 at 08:22:33 PM EST
    don't read Drum and don't understand the difference between ideology and defeatism.  Drum understands it perfectly well, probably better than you do.  He has said over and over and over again, at the time and since then, that the stimulus was way, way, way to small to be of much use.

    I repeat, read what people actually say before characterizing their views.

    Parent

    Don't you (none / 0) (#16)
    by Warren Terrer on Sun Oct 17, 2010 at 02:09:36 PM EST
    be silly.

    The only other thing I can think of that the administration screwed up seriously is mortgage reform.

    If Drum doesn't think the administration screwed up the stimulus then he doesn't understand a thing about how stimulus is supposed to work. Drum is an intellectual light-weight.

    Parent

    And the stimulus (none / 0) (#25)
    by BackFromOhio on Mon Oct 18, 2010 at 07:25:00 PM EST
    such as it was, had 2 problems; the first, as you all have pointed out, it was too small; and the second, it was not necessarily put to most effective use.  

    Parent
    And (none / 0) (#26)
    by cal1942 on Tue Oct 19, 2010 at 02:20:26 PM EST
    38% of the 'stimulus' was in tax cuts.  The least effective stimulus.

    Parent
    A person could go all day (none / 0) (#2)
    by Militarytracy on Sun Oct 17, 2010 at 10:27:39 AM EST
    digging up links to past utterly wasted opportunities.  A first time google for HOLC campaign promises brought up you and Corrente.  You had McCain, Clinton, and Obama all on the saying HOLC was needed now.  After a President was chosen, Obama did not need to work with the banks as he has if they were not also going to submit to some sort of HOLC program.  Most people are unaware of how much this administration still literally is giving away to the banks trying to keep them afloat.  The Fed has buying crap on the market at will whenever something shows up that threatens the market.  It isn't only TARP money out there.  I know they thought they would ease their way out of this, but this crap was leverage over ten times.  How does that happen as well?  How does a securitized loan end up in the markets leveraged ten times over?  The "market" everyone fears crashing was phucked once we knew that much.  Even if all the mortgages are paid in full, someone is getting taken and was from day one.

     And our leaders have known for two years that obtaining clear title to some of our properties was an issue....and there is a legal fix for that.  There was a legal fix for many things we have experienced but all of those were avoided because everyone was afraid of the reality we would come to quickly instead of painfully slow and draining.  We can't move onto a new future though until we deal with the past.  It is all sitting on the bank books and sitting in the market and rotting everything we do from the inside out.  And once you drag the whole country through this you have given birth to a whole generation of Americans who will shun making investments and culturally home ownership will be considered only for fools and idiots.  Everyone will preach and teach their children to stay mobile and liquid about having a roof over your head, only buy anything if someone is literally giving it away to you....that is the only risk worth taking when clear title can't be established or is no longer important.  It is ONLY through rule of law and the functions of clear title that make investing in anything tangible worth it to the masses.  That was how we came to have such an established highly ruled system surrounding it until MERs.  Return to the rule of law now, or divorce at least a whole generation of Americans from the cultural belief that home ownership is worth the risk and investment.

    My thoughts (none / 0) (#9)
    by Politalkix on Sun Oct 17, 2010 at 12:14:07 PM EST
    MT wrote "Everyone will preach and teach their children to stay mobile and liquid about having a roof over your head, only buy anything if someone is literally giving it away to you....that is the only risk worth taking"

    In a society where nothing is stable, eg: jobs, marriage, etc, trying to create artificial stability through home ownership is unsustainable, IMO. I do hope that parents teach their children to stay mobile and liquid and impress on them the virtues of saving and getting a good education. Home ownership may have been a more compatible investment for an earlier era-when people had the security of a lifetime job, lifetime marriage, etc.
    This is something to think about. I will continue to emphasize that it was stupid economic policy to grow the home construction and financial sectors at the cost of the manufacturing sector for the last 30 years. Bankers, lawyers, politicians and people who lived outside their means are all responsible for putting the country in this mess.

    Parent

    Home ownership (5.00 / 1) (#12)
    by Militarytracy on Sun Oct 17, 2010 at 12:35:49 PM EST
    has been a foundation of the American Dream as long as I've been alive.  If you want it to go away I'm fine with that, I will stop paying my mortgage tomorrow.  The last time Wall Street did to Americans what it has done, people ignored Wall Street for 20 years afterwards.  If you want to revisit that I'm cool with that too.  I'm a survivor.  Always have been, I am able to experience a lot of change and transformation when it comes to my life foundations.  I have also been told though more than once that I am only about 10% of the population with this ability.  Most people suffer deep shock in such situations like the Great Depression.  The Great Recession will be no different, we will teach people to not trust any of it by ignoring the rule of law.  All you are doing now is letting people know they can't trust in anything.....nothing at all, there is no basic fabric.  People like you will turn around now and tell me that making things unstable for banks will blow up the country and that would be intolerable.....after you have just told me that it doesn't matter if people become damaged due to all of this.  This is only about people though.  Even the corporations only exist to serve the needs of people.

    The only thing you can argue for in this fight is who you want the invisible hand to beat the crap out of.  It can beat the crap out of the fraudsters and their make believe entities called corporations or it can beat the crap out of men, women, and children.  A corporation has no memory, no feelings, no emotions, and no conscience and it already completely phucked you over on your pension and being nice to it now cannot change that.

    Parent

    I am making an observation based on what I see (5.00 / 1) (#13)
    by Politalkix on Sun Oct 17, 2010 at 01:08:39 PM EST
    Other than emphasizing a need for the country to invest in science and engineering education and manufacturing and R&D, I do not think that I have asked for anything (forget about "turning around now and telling you that making things unstable for banks will blow up the country and that would be intolerable"). However, since you brought up the matter, I will tell you that I support anything that people will do to reduce the stranglehold of big finance in their lives, eg: putting your money in local credit unions, supporting the local economy, volunteering for non-profits, not investing your money in the stock market or only putting it in companies/organizations whose products/services benefit causes you believe in, living simply within your means, etc.

    Parent