“In my 15 years on this subcommittee, we have forged a strong bipartisan tradition of thorough and meaningful investigations. That could have been the case with the Solyndra investigation,” DeGette said today at a subcommittee meeting on oversight and investigations. “We have here a $525 million loan guarantee made with taxpayer funds that went bad. We need to learn the circumstances of the original deal as the restructuring. We need all the facts, all the witnesses, all the documents. Sadly, after seeing the Majority’s conduct of this investigation, I do not believe they share this goal.”

The subpoena authorization is an unprecedented move for the committee, DeGette noted, stressing that the Obama administration has already turned over 85,000 pages of documents related to Solyndra.

“I believe the majority’s action in moving forward with a subpoena resolution today is an act of irresponsible partisanship,” she said. “The Committee has every right to seek and obtain relevant information from the White House to advance its legitimate oversight needs. But a subpoena to the White House is a serious step in a congressional investigation. And it is a step that should be taken only after alternative avenues have been exhausted. We clearly do not face those circumstances today.”

Colorado’s congresswoman was among the first to seek an investigation into the Solyndra loan guarantee after the solar company in Fremont, Calif., flamed out in August. A grim macroeconomic climate, excess capacity, European subsidy cuts and competition from China all factored in its demise.

Meanwhile, Americans for Prosperity — an anti-tax group partly founded and funded by conservative billionaires Charles and David Koch — is spending $2.4 million on television commercials in Florida, Michigan, New Mexico and Virginia attacking Obama over Solyndra and his ties to clean energy.

“Wealthy donors with ties to Solyndra give Obama hundreds of thousands of dollars,” the one-minute ads say. “What does the Obama give them in return? Half a billion in taxpayer money to help his friends at Solyndra — a business the White House knew was on the path to bankruptcy, but loaned them the money anyway. … Now Solyndra is bankrupt and taxpayers are stuck with the bill.”

The ads end with an allegation the president is using taxpayer money for “political favors.”

The link between money and politics is indeed hard to ignore, especially when examining the actions of the Republican congressmen on the House Energy and Commerce Committee. Koch Industries and its employees — who help operate Americans for Prosperity — contributed hundreds of thousands of dollars to the majority of the committee’s Republicans. Koch Industries is grounded in the oil and gas business and is the largest energy donor to members of the House Energy and Commerce Committee.

U.S. Rep. Cory Gardner, R- Colo., is the biggest beneficiary of the Kochs’ campaign contributions in Colorado, raking in upwards of $315,000 from Koch-funded organizations in the 2010 and 2012 election cycles, according to the Democratic Congressional Campaign Committee and other sources.

Gardner, who sits on the House Energy and Commerce Committee, voted in favor of the White House subpoena. Committee Chairman Fred Upton, R-Mich., who is leading the charge in the Solyndra investigation, received a maximum $5,000 contribution from Koch Industries in this election cycle.

DeGette said Upton’s rhetoric has become “inflammatory,” “brazenly inaccurate,” and proof that any objective review of the Solyndra situation has deteriorated into a conspicuous “political sideshow.”

Got a tip? Story pitch? Send us an e-mail. Follow The Colorado Independent on Twitter.

The hangover. It continues.

The home mortgage crisis might be more or less “over” — unless you’ve already lost your home or, like the vast majority of applicants, been denied entry into Obama’s vaunted mortgage modification program — but Warren’s panel says there’s a new one about to begin. There are $1.4 trillion in commercial real estate loans that need to be refinanced between 2011 and 2014 and, like many homeowners before them, commercial property owners took out mortgages on expensive property, only to watch prices drop.

If, like too many homeowners before them, the commercial real estate owners default on their loans, Warren thinks the whole, nasty financial crisis cycle could well start up again.

When commercial properties fail, it creates a downward spiral of economic contraction: job losses; deteriorating store fronts, office buildings and apartments; and the failure of the banks serving those communities.

Unlike the home mortgage crisis, however, the banks serving those communities aren’t large, out-of-state Wall Street giants: they’re quite often local community banks. Those banks are a cornerstone of Obama’s strategy to ease credit restrictions to allow businesses to hire more people and to help individuals stay in their homes. They are also the cornerstone of Arianna Huffington’s “Move Your Money” campaign to encourage people and state and local governments to transfer their money to smaller, local banks in an effort to benefit local economies.

Warren suggests that, despite the political improbability of another round of bailouts, some banks might need to be bailed out or will simply fail. No wonder Sheila Bair and the FDIC made sure their books were back in the black before the start of 2010.

As Clusterstock noted, the fall of Enron occurred back in 2001 — but it’s still making news.

If Enron is any indication, we’ll be hearing about the collapsed businesses of the financial crisis for years to come.  The Enron bankruptcy seems like eons ago, but the fallout never ends.

Maybe. But where’s the legal fallout from the current financial crisis?

As we mentioned on Monday, save for Bernard Madoff, there haven’t been any high-profile prosecutions over the subprime mortgage market mess. Wouldn’t backdating financial reports to mask a bank’s failing situation, as apparently was the case with IndyMac, qualify as criminal? Enron failed after all the accounting tricks it used for years couldn’t hide its real situation anymore. Courts have found the actions of its top executives worthy of jail terms. When will we hear about bankers going to jail?

Enron’s bankruptcy should be small change, compared to a global financial crisis. Let’s see how far the fallout goes, this time around.

Homeowners who were hoping for lower payments are discovering to their dismay that lenders roll late fees, back taxes or other costs into the principal, sometimes turning a difficult payment into an impossible one. That is one reason that many reworked mortgages are sliding back into default.

Yep. There’s a big difference between writing down the loan balance on a house, and merely setting up an “extend and pretend” repayment plan. If you can’t afford the house now, you’re probably not going to be able to afford it later, especially with all the new fees added on.

The problem is the same one that has plagued loan modifications from the start: Lenders don’t want to write down loan balances. There’s no cramdown provision in bankruptcy court to force them to do so, thanks to opposition in Congress and inaction by the Obama administration.

Yet, as loan modifications fail to stem the foreclosure crisis, the government continues to offer financial incentives to servicers and calls them to Washington occasionally to give them a hard time about not doing more loan mods.

And in the end, here’s what we’re left with, according to USA Today:

“Payments have gone up …. (and) the payment relief can last for the first few years and then go up (again),” says Alan White, assistant professor of law at the Valparaiso University School of Law in Valparaiso, Ind. He has studied the subprime mortgage situation for 10 years. “(The lenders) focus on today and not on the future.” Even under the Obama plan, they don’t focus on permanent debt reduction, White says.

The majority of borrowers who’ve gotten mortgage modifications have seen their overall principal balance go up, according to an analysis by CreditSights and ICP of about 660,000 mortgages modified this year. In about 90% of the modifications, the principal balance after a modification was larger, CreditSights said.

If you’ve ever wondered why the foreclosure crisis doesn’t seem to be easing, despite the government’s vow to help homeowners, loan mods that actually increase a borrower’s monthly payment are an obvious reason why.

In response to discussion today in the House Financial Services Committee raising the possibility that a regulatory reform bill could include provisions allowing bankruptcy judges to modify mortgages on primary residences, MBA Chairman David Kittle issued the following statement.

“Allowing judges to retroactively modify borrowers’ mortgage balances will destabilize a mortgage market that desperately needs stability right now.

“Treasury officials today reported that the Obama administration’s Home Affordable Modification Program – HAMP – is on target to reach its stated goal of 500,000 trial loan modifications by November 1.  We ought to let that program, still in its early stages, continue to take hold, rather than rushing to try to pass a measure that will do more harm than good.

“We hope that proponents of cram down will recognize the successes that the industry is making through HAMP and other means to help keep borrowers in their homes.  Loan modifications cannot happen overnight.  But as today’s report from Treasury shows, servicers are making significant progress.”

Calling the progress on loan modifications “significant” is stretching it, since only about 12 percent of eligible borrowers have signed up for trial loan workouts under the $75 billion Making Home Affordable plan. It shows how far apart the two sides are on this issue – and gives a glimpse of the tough fight ahead for any kind of financial regulatory reform.

Matthew Padilla at Mortgage Insider offers a possible solution:

A simple compromise is to allow cramdowns but pass a bill that says they will only apply to loans made starting in 2010. That will give the industry some months to adjust.

Cramdowns could be one key factor in avoiding another housing bubble and financial meltdown.

But not if the Mortgage Bankers  Association and all the other powerful financial groups that continue to oppose cramdown get their way, once again.

]]> http://washingtonindependent.com/58602/financial-services-industry-wastes-no-time-fighting-cramdown/feed 7 http://washingtonindependent.com/58435/treasury-says-cramdown-is-still-off-the-table-though-loan-modifications-arent-working http://washingtonindependent.com/58435/treasury-says-cramdown-is-still-off-the-table-though-loan-modifications-arent-working#comments Thu, 10 Sep 2009 15:37:45 +0000 Mary Kane http://washingtonindependent.com/?p=58435 As Mike pointed out today, the slow pace of loan modification progress has prompted some lawmakers to once again call for mortgage cramdown legislation that would allow bankruptcy judges to modify loans and keep borrowers in their homes.

But the Obama administration is signaling clearly that while it may More...

As we noted, the time is ripe to try new tactics to combat foreclosures, including encouraging ways to rent foreclosed homes back to former owners. Fixing tax laws that are slowing down some loan modifications might help. Even direct loans to homeowners could be a strategy.

Surowiecki agreed:

If we really want to keep people in their homes, then, nudges and renegotiations probably aren’t going to do it. We need more direct action. One option, which the banking lobby killed earlier this year, would be to allow “cramdowns”: let bankruptcy judges reduce the principal on homeowners’ mortgages. Another, even more direct option is simply to give aid to homeowners: one proposal would have the government make low-interest loans, or even grants, to people who have suffered a steep decline in income and have negative equity in their homes. That would target the aid at the people who need it most: as another Boston Fed paper shows, defaults are most likely to happen not just because interest payments are set too high but because of income shocks (usually after the loss of a job) and plummeting house prices.

Surowiecki pointed out, as we did, that forceful actions to help homeowners might not be popular; no one wants to pay off their neighbor’s mortgage. But as foreclosures continue, the spillover effects on surrounding neighborhoods will become more severe, which may change that attitude.

But in the end, Sur0wiecki says, the Obama administration will have to come to a conclusion it hasn’t reached yet: Fixing the roots of the crisis is going to be costly. The government seems to be in denial on this. The current view is that “we’ll just keep muddling through with the current approach, which offers us the sense that we can get quite a lot without spending much,” Surowiecki said.

Maybe it’ll work. But the housing bubble was very expensive. It’ll be surprising if we can deal with its consequences on the cheap.

More reasons why it’s time for the government and the lending industry to quit trying to just muddle through the crisis and really rethink foreclosure strategies.

“It frustrates me when I see the government looking to the servicer for the solution, because it will never ever happen,” said Margery Golant, a Florida lawyer who defends homeowners against foreclosure and who worked in the law department of a major mortgage company, Ocwen Financial. “I don’t think they’re motivated to do modifications at all. They keep hitting the loan all the way through for junk fees. It’s a license to do whatever they want.”

As I explain in my story today about loan modifications, servicers are also still including waivers that require borrowers to sign some of their legal rights away in order to obtain a loan modification — a practice that lawmakers, including Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, told them to get rid of more than a year ago.

Frank apparently is so fed up with the slow process of loan modifications that he’s now threatening to bring back legislation to allow federal judges to cramdown, or modify, the terms of a mortgage for a borrower in bankruptcy.

At The Atlantic, Daniel Indiviglio points out how little this means:

Democrats have an easy time passing pretty much whatever they want in the House. Not so for the Senate. In fact, when cramdown legislation was offered in the Senate last spring, it failed miserably. Only 45 Senators voted in favor — no where near the 60 necessary. In other words, the Senate would have at least as difficult a time passing cramdowns as passing national health care reform and cap and trade.

But the climate for passing cramdown legislation has changed: now it’s even less likely. Unlike last spring, the economy and housing market are showing signs of stabilization. That should make moderate Senators even more unlikely to change their votes in favor. These days, the Senate has all the power. Frank can threaten all he wants, but unless he knows of some way to sway moderate Senators, those threats may fall on deaf ears.

Frank’s threats aren’t the only ones to carry little weight. As any five-year-old knows, there isn’t much incentive to change your behavior if there aren’t any consequences for bad behavior. Servicers may get summoned to Washington for a public flogging about their lack of progress in modifying loans — but so what? There are no real financial penalties, or retribution, for failing to rework the loans — or for creating non-compliant modification agreements, like the ones with legal waivers. Housing counselors might catch some problems and try to correct them,  but they can’t do much about the incentive of junk fees that make foreclosure a more profitable option. So nothing really changes.

The Treasury Department could do more. It could treat servicers as government contractors, spot check contracts and quit paying firms that violate the program’s guidelines. It could levy penalties. It could get serious about cleaning up the sloppiness in its signature foreclosure prevention program. In short, it could do what it hasn’t done, up until now: Make loan modifications a priority.

And there are other options. If real efforts to promote loan modifications don’t pay off, then it’s time to rethink foreclosure strategies. The White House could actually put its clout behind cramdown this time around. It could push innovative rental policies to ease foreclosures. But whatever it does, the lesson here is to apply the fundamentals to any reforms, especially those involving a lending industry that continues to prey on troubled borrowers. If things don’t get done, there should be consequences.

The lack of progress in getting loan modifications completed has highlighted why the failure of cramdown was so disastrous for foreclosure prevention. Cramdown was the veiled threat, the end of the line if lenders didn’t modify loans. Now there’s nothing to deter them, except for the occasional lecture from administration officials or lawmakers. The business of making money from foreclosures just goes on as usual, long after the news cycle ends.

Durbin’s new initiative is raising the hopes of cramdown proponents. At Creditslips, University of Illinois law professor and credit expert Robert Lawless called Durbin’s revival “hopefully an indication there may be some interest in moving the legislation forward.”

There have been increasing reports (e.g., here) recently that lenders are not doing voluntary mortgage modifications in the numbers that need to happen. Yeah, I know — who could have possibly foreseen the possibility that a solely voluntary system would not work? There need to be carrots that encourage lenders to do the modifications. The change in the bankruptcy law is the missing piece — the stick that makes the program work.

A renewed interest in cramdown may have less to do with a sudden acknowledgement of its merits than the shortfalls of Making Home Affordable, the Obama administration’s program to encourage loan modifications. The goal of that program is to rework loans for 3 to 4 million borrowers. But a new report by the General Accounting Office calls that estimate too optimistic. It also says the administration needs to do more to make sure servicers are equipped to participate – and that they follow the rules, CNN Money reports.

The GAO also critiqued the administration for not having the controls in place to properly monitor the program. Specifically, the agency is concerned that Treasury is not evaluating servicers’ capacity to meet the plan’s requirements and guidelines. Also, the agency has failed to fully staff the Homeownership Preservation Office, which is responsible for overseeing the modification program.

And, though Treasury has hired Freddie Mac to review servicers’ performance, it has not put established procedures to address those servicers who don’t comply.

Already, reports have surfaced that financial institutions are not adhering to the program’s rules. At a Senate Banking Committee hearing last week, a consumer advocate said some servicers are violating the guidelines by demanding upfront payments, denying borrowers not in default and initiating foreclosures while borrowers’ applications are being reviewed. Senator Christopher Dodd, D-Conn., has asked the administration to look into these allegations.

Given those drawbacks, it’s little wonder that tactics like cramdown are being revived. The Obama administration plans to meet with servicers July 28, to pressure them to modify more loans. But with rising unemployment contributing to a record 1.5 million foreclosures just in the first half of this year,  a strategy that involves more than just a carrot may be called for. The Obama administration stood on the sidelines before, as cramdown failed, and has openly abandoned the idea. But unless it can get servicers to not only write down loans but to reduce loan balances as well — something that hasn’t happened so far –  it may be forced to rethink that decision and take a second look at cramdown, the missing stick in its strategy so far.