Source: Counterpunch - PAM MARTENS
A federal agency tasked with expanding the American dream of home ownership and affordable housing free from discrimination to people of modest means has been quietly moving a chunk of that role to Wall Street since 2002. In a stealth partial privatization, the U.S. Department of Housing and Urban Development (HUD) farmed out its mandate of working with single family homeowners in trouble on their mortgages to the industry most responsible for separating people from their savings and creating an unprecedented wealth gap that renders millions unable to pay those mortgages. This industry also ranks as one of the most storied industries in terms of race discrimination. Rounding out its dubious housing credentials, Wall Street is now on life support courtesy of the public purse known as TARP as a result of issuing trillions of dollars in miss-rated housing bonds and housing-related derivatives, many of which were nothing more than algorithmic concepts wrapped in a high priced legal opinion. It's difficult to imagine a more problematic resume for the new housing czars.
To what degree this surreptitious program has contributed to putting children and families out on the street during one of the worst economic slumps since the '30s should be on a Congressional short list for investigation. HUD's demand for confidentiality from all bidders and announcement of winning bids to parties known only as "the winning bidder" deserves its own investigation in terms of obfuscating the public's right to know and the ability of the press to properly fulfill its function in a free society.
Despite three days of emails and phone calls to HUD officials, they have refused to provide the names of the winning bidders or the firms that teamed as co-bidders with the winning party. Obtaining this information independently has been akin to extracting a painful splinter wearing a blindfold and oven mitts.
That a taxpayer-supported Federal agency conducts a competitive bid program of over $2 billion and then refuses to announce the names of the winning bidders is beyond contempt for the American people. If the Obama administration does not quickly purge this Bush mindset from these Federal agencies, he is inviting a massive backlash in the midterm elections.
The HUD program was benignly called Accelerated Claims Disposition (ACD) and was said to be a pilot program. A pilot program might suggest to those uninformed in the ways of the new Wall Street occupation of America a modest spending outlay; a go slow approach. In this case, from 2002 to 2005, HUD transferred in excess of $2.4 billion of defaulted mortgages insured by its sibling, the FHA, into the hands of Citigroup, Lehman Brothers and Bear Stearns while providing the firms with wide latitude to foreclose, restructure or sell off in bundles to investors. HUD retained a minority interest of 30 to 40 percent in each joint venture. Citigroup was awarded the 2002 and 2004 joint ventures; Lehman Brothers the 2003; Bear Stearns the 2005. I obtained this information by reconciling the aliases used by these firms in foreclosures of HUD properties to the addresses of the corporate parents. I further confirmed the information by checking the official records at multiple Secretaries of State offices where the firms must register their subsidiaries to do business within the state.
What the program effectively did was allow the biggest retail banks in the country to get accelerated payment on their defaulted, FHA-insured, single family mortgage loans while allowing another set of the biggest investment banks to make huge profits in fees for bundling and selling off the loans as securitizations. Once the loans were securitized (sold off to investors) they were no longer the problem of HUD or the Wall Street bankers. The loans conveniently disappeared from the radar screen and the balance sheet. The family's fate had been sold off by HUD to Wall Street in exchange for a small piece of the action. Wall Street then sold off the family's fate to thousands of investors around the world for a large piece of the action.
HUD has attempted to spin this program as a win-win for everyone with the suggestion that families would have more options under this program. In a HUD February 17, 2006 report titled "Evaluation of 601 Accelerated Claims Disposition Demonstration," a few kernels of truth emerged. It was noted on page 4 that the private partners "determine how best to maximize the return on the loan…Loans liquidated through note sales generally earn a higher return than property sales, so the JV [joint venture] has an incentive to maximize the share of note sales relative to property sales." Rather than evaluating the success of the program on how many families were able to get a loan modification and remain in their homes, the report notes that "The benchmark for progress is the share of loans that have reached resolution."
From its 2002 joint venture, Citigroup dumped en masse 2,599 loans in one securitization alone in August 2004. It sold another 1,177 at other unknown times. From its 2004 joint venture, it dumped 1,814 in one fell swoop. The 2006 HUD report notes that following securitization "there is no information available on the [home] retention after the sale."
According to HUD's web site, another major award of $400 million to $800 million in defaulted mortgages was slated for October 23 of last year in the midst of a foreclosure and eviction crisis. Lemar Wooley, in HUD's Office of Public Affairs, advises that the deal never happened as a result of "no acceptable bids being received." Given that we have been promised change we can believe in, I would have much preferred to hear: "We've sacked this program as an abhorrent example of privatizing profits and socializing losses while turning our backs on the neediest of our society."
While this was clearly not a win-win for families in financial distress, two other red flags come to mind. The 2006 HUD report notes that to be eligible for this program, loans had to be four full payments past due (five full payments past due for the 2005 Bear Stearns deal). But to securitize the loans, the Wall Street firms had to bring the loans into performing status, that is, up to date in their payments. The question arises as to whether the investors in the securitizations were advised that these were heretofore defaulted HUD loans. One might be forgiven for pondering that as a material fact required in a prospectus since there is much data available showing that loans once in default tend to redefault. Some of these investors might unknowingly be you and your family members. The loans could be sitting right now in public employee pension funds, mutual funds held in 401(k)s, etc.
The second concern is that many of the homes in the deals were foreclosed on in 2006, 2007 and 2008. By HUD not keeping these loans and insisting on its legal mandate for lenders to attempt loan modifications, special forbearance or partial claims to bring the loans current, what impact did this program have on the foreclosure glut and overall property value declines.
It is worth noting what happened to the firms that HUD deemed qualified for this program: Lehman Brothers collapsed on September 15, 2008. Bear Stearns required a weekend rescue by JPMorgan Chase and the Fed on March 16/17, 2008. Citigroup, which got the lions share of the HUD deals, exists today only because of a $45 billion direct infusion from unwilling taxpayers (overruled by their Congress) and hundreds of billions of dollars more in various other government backstop operations – some still undisclosed despite Freedom of Information Act requests and litigation.
Future articles in this series will look at how these deals started under the Clinton administration with awards to Goldman Sachs, GE Capital, Blackrock and others, with the dubious protection of Merrill Lynch as the overseer for HUD. This program also went virtually unnoticed until charges of rigged computers and bid rigging erupted in headlines. We will also look at the human suffering resulting from this macabre rewriting of the social contract in America. The series begins today with the most unlikely candidate of all for helping people in need: Citigroup.
All I can say is that big banks (so-called “too big to fail”) just don’t care of their consumers and easily foreclose their homes. That’s why I am sure it’s not worth to take out a mortgage from a big bank. Recently I have heard that there’s lawsuit against 10 big banks because they wrongly foreclosed property of their consumers. Those people had a right to proceed making payments and could stay in their houses but because of someone’s stupid mistake they lose their homes. I think that it’s not worth to apply to big banks – there are lots of alternative lenders like community banks, peer-to-peer lenders, no fax payday loan lenders and other ones who can provide available financial assistance and the better service.
ReplyDelete