Instead, candidates – if they’ve said anything at all about housing – feel the real estate market should be allowed to hit rock bottom while the broader economy is stimulated by programs aimed at job growth – especially in energy sectors like oil and gas development and coal mining.

“The idea of the federal government running around and saying, ‘We’re going to give you some money for trading in your old car…or we’re going to keep banks from foreclosing if you can’t make your payments…” candidate and former Massachusetts Gov. Mitt Romney said, “The right course is to let markets work.”

“Mitt Romney’s message to Nevada homeowners struggling to pay their mortgage bills is simple: You’re on your own, so step aside,” Obama campaign spokesman Ben LaBolt said. “This is just one more indication that while he will bend over backwards to preserve tax breaks for large corporations and tax cuts for millionaires and billionaires, Mitt Romney won’t lift a finger to restore economic security for the middle class.”

Texas Gov. Rick Perry wouldn’t even touch the foreclosure issue last week, but he has been one of the most strident supporters of rolling back environmental regulations to stimulate domestic energy production and add those high-playing (albeit boom and bust) jobs.

And that approach jibes with Colorado’s Republican congressional delegation, with freshmen like Scott Tipton and Cory Gardner talking a lot about domestic energy production but not so much about the housing crisis in Colorado – still among the nation’s leaders in foreclosures. Tipton is increasingly on the hot seat for being one of the most ardent supporters of tax subsidies for big oil and gas.

But as hydraulic fracturing has opened up unconventional oil plays in formations like the Niobrara Shale in northern Colorado, places like Weld County are still experiencing high foreclosure rates. And the ensuing land rush and oil and gas leasing frenzy has left some property owners confused and fearful. Perhaps rightfully so.

Banks in New York are now becoming more proactive, in some cases declining to loan money to purchase property unless the buyer agrees not to allow drilling or the oil and gas company agrees to clean up any environmental messes that might lower property values.

“Bankers and real estate executives, especially in New York, are starting to pay closer attention to the fine print and are raising provocative questions, such as: What happens if they lend money for a piece of land that ends up storing the equivalent of an Olympic-size swimming pool filled with toxic wastewater from drilling?” the New York Times reported last week.

Property owners in Colorado have already experienced precipitous declines in property values as a result of drilling activity, the non-profit Checks and Balances Project reports:

“In recent years, landowners in heavily ‘fracked’ parts of the country, like Garfield County Colorado, have seen property values plummet. Retirees, like Dee Hoffmeister and Lisa Bracken, have experienced this firsthand. Both of their families have found themselves powerless to pursue any recourse at recovering the damage done to their personal assets.”

So the seemingly unrelated housing crisis and economic recovery via more domestic drilling and mining may actually be mutually exclusive in some areas.

Tom Hoenig

Hoenig, the son of a local plumber and a graduate of St. Benedict’s College (now Benedictine College) in Kansas and Iowa State University, began serving on Oct. 1, 1991 as a chief executive of the Tenth District Federal Reserve Bank in Kansas City, Kan. He had begun serving as an economist in the banking supervision area for the Kansas City Fed in 1973. This past March he announced his plan to retire from the board on Oct. 1, as required under the Federal Reserve Board’s rules for presidents.

He is a trustee of the Ewing Marion Kauffman Foundation and serves on the boards of Midwest Research Institute and Union Station.

Hoenig was called by U.S. Rep. Ron Paul in July to provide testimony before the Domestic Monetary Policy and Technology Subcommittee, which Paul leads. The hearing, “Impact of Monetary Policy on the Economy: A Regional Fed Perspective on Inflation, Unemployment and QE3,” was called to provide oversight of liquidity operations undertaken by the Federal Reserve and also to explore price stability and employment.

As a member of the banking supervision area during the banking and farm crisis of the 1980s, Hoenig relied on his past experiences while explaining the role of the Federal Reserve and his support of cuts to the federal funds rate as well as other liquidity actions taken in response to the crisis.

“However, though I would support a generally accommodative monetary policy today, I have raised questions regarding the advisability of keeping the emergency monetary policy in place for 32 months with the promise of keeping it there for an extended period,” Hoenig told the subcommittee.

“I have several concerns with zero rates. First, a guarantee of zero rates affects the allocation of resources. It is generally accepted that no good, service or transaction trades efficiently at the price of zero. Credit is no exception. Rather, a zero-rate policy increases the risk of misallocating real resources, creating a new set of imbalances of possibly a new set of bubbles.”

During the farm and banking crisis, he was involved in the closing of more than 300 regional and community banks.

“Farms were lost, communities were devastated, and thousands of jobs were lost in the energy and real estate sectors,” he noted. “I am confident that the highly accommodative monetary policy of the decade of the ’70s contributed to this crisis.”

In addition to his objections to immediate zero rates, Hoenig believes unemployment is soaring at this time at least in part because interest rates were held artificially low during the early 2000s.

“In 2003, unemployment at 6.5 percent was thought to be too high,” he said. “The federal funds rate was continuously lowered to a level of 1 percent in an effort to avoid deflation and to lower unemployment. The policy worked in the short term.

“The full effect, however, was that the U.S. experienced a credit boom with consumers increasing their debt from 80 percent of disposable income to 125 percent. Banks increased their leverage ratios — assets to equity capital — from 15-to-1 to 30-to-1. This very active credit environment persisted over time and contributed to the bubble in the housing market. In just five years, the housing bubble collapsed and asset values have fallen dramatically. The debt levels, however, remain, impeding our ability to recover from this recession. I would argue that the result of our short-run focus in 2003 was to contribute to 10 percent unemployment five years later.”

Monetary policy, he argued before the subcommittee, cannot solve every problem.

“I believe we put the economy at greater risk by attempting to do so,” he added.

A few weeks prior to his testimony, Hoenig was a guest lecturer at Purdue University, his remarks titled “Sowing the Seeds: Monetary Policy and the Ag Economy.” Video of that discussion is embedded below.

The FDIC is an independent agency, created by Congress, tasked with maintaining stability and public confidence in the nation’s financial system. It does so by insuring deposits, providing oversight of financial institutions and managing receiverships. Since the FDIC began insuring deposits in 1934, no depositor has lost any money as a result of a bank failure.

The agency is governed by a five-person board. Members of the body are nominated by the President and confirmed by the U.S. Senate. No more than three members may share the same political affiliation. The board is currently comprised of three members due to retirements.

Hoenig is currently a resident of Kansas City.

The banks include Bank of America, Citigroup, Countrywide, JP Morgan Chase and others, according to a press release from the agency. The release explained the suits:

These complaints were filed in federal or state court in New York or the federal court in Connecticut. The complaints seek damages and civil penalties under the Securities Act of 1933, similar in content to the complaint FHFA filed against UBS Americas, Inc. on July 27, 2011. In addition, each complaint seeks compensatory damages for negligent misrepresentation.

Certain complaints also allege state securities law violations or common law fraud.As conservator of Fannie Mae and Freddie Mac, FHFA is charged with preserving and conserving these companies’ assets and does so on behalf of taxpayers. The complaints filed today reflect FHFA’s conclusion that some portion of the losses that Fannie Mae and Freddie Mac incurred on private-label mortgage-backed securities (PLS) are attributable to misrepresentations and other improper actions by the firms and individuals named in these filings. Based on our review, FHFA alleges that the loans had different and more risky characteristics than the descriptions contained in the marketing and sales materials provided to the Enterprises for those securities.

The agency oversees the troubled assets of Freddie Mac and Fannie Mae as part of the federal government’s move to shore up the housing market early on in the crisis. The agency argues that the banks knew, or should have known, that the mortgage securities they were bundling were based on fraudulent or bad loans. The lawsuits seek a total of $100 billion in fines and recovery from the banks.

“I am excited about the suit,” said Curtis Hertel, Jr, Ingham county’s register of deeds. “The reality is that there are both civil and criminal penalties on a lot of the banks’ illegal practices. I believe the corporations should be made to pay and their CEOs tried for the crimes committed. This is a step in the right direction and hopefully federal prosecutions will follow.”

But Steve Dibert, who runs the mortgage fraud investigation company MFI-Miami, is not as hopeful about the federal actions.

“It’s politics and next year is an election year. Fannie and Freddie are under attack based on falsehoods spread by conservatives who want them eliminated and by advocacy groups who have no background in lending. This lawsuit is an attempt to show that they are making an attempt to recoup losses,” Dibert said. “However, in my opinion this lawsuit is futile and won’t result in the settlements they think they are going to get. Even if they win, this lawsuit won’t put a dent in Fannie/Freddie’s mounting debts. Since Fannie/Freddie were taken over by the federal government they have become a dumping ground for toxic mortgages no one wants. When Treasury did that in 2007, they sealed the fate of Fannie/Freddie. It’s only a matter of time before a priest comes performs last rites.”

Dibert had very little positive to say about Fannie and Freddie and the housing market scandals.

“I would not be surprised if Fannie/Freddie knew this was going on, just like the servicers knew it was going on,” Dibert said. “No one figured they were going to get caught and they figured even if they did, no one will have the testicular fortitude to convict them. It’s like Captain Renault from Casablanca when Rick’s get raided by the Nazis: ‘I’m shocked to learn gambling is going on here!’ Then the attendant says, ‘Here are your winnings, sir.’”

This action comes as officials across the state have identified more and more questionable documents related to the foreclosure document. The questions arise from what is called robo-signing. This is where many people, under penalty of perjury in some instances, sign the same legal documents as part of documenting property sales.

Friday, the Associated Press reported that robo-signed documents dated back at least a decade.

Hertel has been a leading voice in the battle over robo-signed documents here in Michigan.

“I am not surprised that robo signing went back far. MERS [Michigan Electronic Registration System] was created in 1995 to stop filing many mortgage documents with Register of Deeds across the county,” Hertel said of the robo-signing revelation. “At that point banks stop caring about filing documents in the public record unless they had to. At that point documents that were never created had to be and it makes sense that robo-signing would be an issue.”

Dibert said the AP revelation is in line with his experience as well.

“MFI-Miami has found robo-signed documents going back to 2001 in Michigan and 1998 in other states,” Dibert said. “The discovery of robo-signing happened two years ago in Florida.”

At the core of the problem is the economy, which has few jobs to attract immigrants to the U.S. or help young people move out of their parents’ homes. This is applicable to legal and illegal immigration, both of which have dropped as the number of jobs remains low. For those already here, the recession has been especially hard on immigrants, and foreign-born men in particular, as industries such as construction shrink.

As Annie Lowrey has reported, low housing numbers means lower revenues for city governments. Cities expect revenue to fall by 1.8 percent this year, which will mean major cuts for services such as education, police and roads.

Ohio Attorney General Richard Cordray (ohioattorneygeneral.gov)

James Jones has spent the past five years trying to prevent foreclosures in Cleveland. Recently, his work as director of foreclosure prevention at the East Side Organizing Project, a community organizing group dedicated to improving neighborhood life in the city, has focused on targeting predatory lenders and trying to prevent banks from foreclosing on cash-strapped low-income borrowers.

[Economy1] “I’ve seen the foreclosure issue go from predatory loans, to subprime loans, to predatory loans, to an economic situation where folks have been laid off,” Jones explains. “And now we’re back to problems with paperwork.”

Ohio — and especially Cleveland — was hit earlier and worse by the foreclosure crisis than other states, due to widespread problems with predatory lending, an early economic downturn stemming from the loss of manufacturing jobs, and weak consumer-protection laws. Now, it is at the forefront of the foreclosure fraud crisis, with housing advocates and politicians calling for banks to halt evictions immediately and stop seizing homes.

The fraud scandal is complex. In September, a court case brought to light the existence of one Jeffrey Stephan, who worked for GMAC Mortgage, part of Ally Financial. Stephan attested that he signed as many as 10,000 foreclosure documents a month — one every minute or so. Soon, other revelations about banks using such “robosigners” to OK foreclosure documentation came to light.

The problem is, in 23 states, those robosigned documents went to a judge, who approved a final foreclosure, wherein the bank evicts a family and reclaims a house. Stephan and other signatories were meant to be carefully checking the information within and were giving the documents to the court as an affidavit, the equivalent of sworn testimony. The documents were not checked — meaning that the signers, and the banks they worked for, were defrauding the court. A judge ruled any such foreclosures to be illegitimate, sending a shudder through the housing markets. Banks started halting foreclosures in the 23 states that require judicial review. And the scandal has spiralled from there.

Officials in Ohio were among the first and the most aggressive in going after the banks making fraudulent foreclosures. On Sept. 30, Ohio’s secretary of state, Jennifer Brunner, told the state’s boards of elections not to use foreclosures to disqualify voters, under the premise that hundreds or even thousands of foreclosures in the state might be illegitimate. Then, last week, Richard Cordray, Ohio’s attorney general, filed a lawsuit against GMAC, seeking $25,000 for every violation of the state’s consumer-protection laws. It was the biggest and boldest legal action taken against mortgage companies since the crisis started unfolding.

“Some ugly revelations have recently come to light about how foreclosures are bring processed in this country,” Cordray said at a press conference on Wednesday. “It appears that, on a mass scale, many homeowners are being deprived of their property based on phony affidavits and without the due and proper processes of law. It is now becoming clear that fraud, deception and an utter disregard for accuracy are in part to blame for our national foreclosure disaster.”

In an interview with TWI, Cordray stressed that the problems were systemic and the violations serious. “What we’re talking about here is not just sloppy paperwork,” he said. “We’re talking about fraud in a court of law. The [foreclosure document signers] were lying under oath, to a judge. And there is evidence that this company has illegally ousted people from their private property, violating their property rights.”

Cordray did not just sue GMAC, but also wrote letters to other major banks, calling on them to investigate their foreclosure processes and to stop evicting families immediately. In intervening days, banks have stopped selling their previously repossessed properties, and have mostly halted the foreclosure and eviction process in Ohio.

The scandal came as no surprise to housing advocates in the state. “We had 90,000 foreclosure filings last year, and another 100,000 this year,” explains David Rothstein of the non-partisan think tank Policy Matters Ohio. “When we look at those statistics, and put our thinking caps on, you have to say, how were they processing all of these claims without bigger legal staffs and bank staffs? This wasn’t a surprise.”

He continues: “And there’s a tragic irony here. For five or ten years, the banks have said that the foreclosure crisis in this state is the borrowers’ fault. They bit off more than they could chew. It’s all their fault for buying expensive houses and then losing their jobs.

“But look at this! They’re taking people into foreclosure, without the right to do it! It is tragic. They were committing fraud, and were completely giving up their fiduciary responsibilities.”

Jones agrees. He explains that ESOP, which negotiates on behalf of borrowers undergoing eviction, demands to work with a qualified individual at a bank, and often manages to work out a solution other than foreclosure. But most Ohioans do not have an organization like ESOP on their side. “Foreclosure is not a quick process,” he says. “Most of the servicers — your Chases, your Wells Fargos — have these black holes. You send paperwork in, and it is months before you even find out where it went.

“They’re not set up to modify loans, or find other solutions. They’re not set up to do what needs to be done to help homeowners. A lot of things fall through the cracks. And that’s what the big problem is. They don’t have enough eyes, enough checks and double-checks. Not when they’re getting the volume they’re getting. So when you don’t have an advocate, look what happens.”

The question is now what the foreclosure fraud scandal might mean for homeowning Ohioans — and residents of every state across the country. Already, the foreclosure situation has rocked the housing market and hurt families in the state. In the first half of the year alone, there were 45,930 properties undergoing foreclosure, enough to impact one in every 100 households. Bank-repossessed homes are flooding the market in many areas. And, according to RealtyTrac, they sell for 43 percent less than the average house — the biggest discount of any state.

Housing advocates say that the stall in foreclosures will likely only prolong the pain for Ohio families, even if they are given temporary reprieve from foreclosure and now have assurance they will not be evicted without due process.

The best outcome, Rothstein says, would be for the government to finally step in to help homeowners with more effective programs than the Home Affordable Modification Program, the Treasury’s signature effort to keep families in their homes. (It has helped about one-tenth of the homeowners it said it would and is widely considered a failure.)

“The federal government made good attempts, but were really bank-focused,” Rothstein says. “They never had borrower-centered programs. But if banks are forced to reduce principals on mortgages and to make better loan terms, we might be in a better place.”

“We believe that this opaque, overbroad, and punitive policy, as conceived by Fannie Mae, is a poor use of taxpayer dollars  and will unnecessarily include individuals who are not choosing to default on their mortgage,” they write. “Furthermore, this policy is one of many which seems to run counter to the national need to stem the tide of foreclosures which are devastating communities across our nation.”

In June, Fannie Mae announced new penalties against defaulters it deems strategic. The ailing government-sponsored enterprise said it will lock out from getting a Fannie-backed mortgage anyone who could afford to pay her mortgage but chooses not to, and defaults instead, for seven years. Fannie also said it will go after strategic defaulters in court, a policy it put into effect on July 1: “Fannie Mae will also take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments.”

But Fannie never said how it would determine who was defaulting strategically, and who was merely a few months away from going broke and belly up on the mortgage as well. As I have written before, despite the flashy media stories, there is little evidence that a rash of strategic defaulters are sending the keys back to the bank and heading on lavish vacations or buying new SUVs. Most homeowners who default are deeply underwater — meaning they owe far more on their mortgage than their home is worth, and if they sold the home they would still owe the bank. And the vast majority have incurred job loss or another income shock leaving them unable to afford their home.

Conyers and Kaptur argue that Fannie and Freddie are merely “pursuing expensive litigation against a vulnerable population when there appears to be little to no economic incentive is questionable at best.”

The letter is strongly worded: “At a time of record deficits and a nation crying for the government to get its finances in order, it is unclear why Fannie Mae is proposing to use taxpayer dollars to pursue legal judgments against individuals who will lose or have lost their homes, have wrecked their credit rating, and likely have little or no remaining monetary assets.”

The report is, well, not great. And the accompanying press release is short of triumphant. “The housing market is performing better than the predictions made over a year ago,” Raphael Bostic, a HUD assistant secretary, says in the release. “We’re absolutely not claiming victory, but due to the Obama administration’s efforts, improved home affordability is continuing to provide opportunities for prospective, qualified homebuyers.”

In June, the program gained 38,700 new participants and granted 51,025 homeowners permanent mortgage modifications. It also kicked 91,100 participants out. The program generally drops participants if they cannot keep up with payments, or if they do not complete the requisite paperwork or meet certain requirements. All in all, the program has 364,100 homeowners still participating, has helped 389,200 get permanent mortgage modifications and has dropped 520,800 participants.

You might wonder: Given that the tax credit ended at the end of April and mortgage applications have plummeted, shouldn’t sales have dropped more in May? Not really. The May numbers reflect completed sales — and mortgage applications and other paperwork takes some time to process. Though the tax credit ended, May’s numbers are still elevated, and June’s will be as well. That is why the softening of sales seems ominous and was unexpected.

“We are witnessing the ongoing effects of the home buyer tax credit, which we’ll also see in June real estate closings,” Lawrence Yun, NAR chief economist, explained in a released statement.

The GOP offered its provision as “motion to recommit,” which is one of the minority party’s few ways to amend a bill on the floor. Known as an MTR, the motion is generally stripped out in the Senate if it is adopted in the House. Such measures are put forward more to score political points than to craft policy, but the mood of the House can sometimes be gleaned from the vote’s outcome. In this case, Democrats chose not to fight, and accepted the motion with a simple voice vote.

In a letter regarding the motion to recommit, a staffer in Minority Whip Eric Cantor’s (R-Va.) office says that strategic defaulters are stopping paying their mortgages, staying in their homes and using the money to buy trips to Disneyland and cruises. The tone is vituperative.

Of course, there is a kernel of truth there. Yes, some people are giving up on their mortgages and using the money to go on vacation. But, by and large, people who stop paying their mortgages — taking on the risk that they will at some point be evicted, and knowing it will ruin their credit scores — are economically distressed. The ones Republicans are complaining about are buying SUVs. Most are buying things like groceries.

Moreover, the Republican letter seems to imply that strategic default needs to be legislated away, and its perpetrators punished. But strategic defaulters are not committing some felony or crime. They are not even really breaching their contracts. Every mortgage contract spells out what happens if the homeowner does not pay: The bank evicts them and takes the home.

Furthermore, the Republican letter does not spell out how the government would designate someone as a strategic defaulter anyway. Strategic defaulters are people who could continue to pay their mortgages but choose not to. Defaulters are people who cannot continue to pay their mortgages. But does the government really want to stipulate that homeowners have to hand over, say, up to their last $2,000 of savings to the bank before they can walk away from their home? Up to their last five percent of annual income? What if those people need the money to move, or to pay medical bills, or to buy shoes for their kids? Since when have Republicans advocated telling Americans how they can and cannot spend their money?

Plus, does the Republican Party really want to prevent strategic defaulters, who now number in the hundreds of thousands, from accessing fair, reasonably priced mortgages in this sluggish housing market? The banks, given the credit scores and credit histories they have access to, have plenty of ways to determine whether a prospective borrower is mortgage-worthy. I would leave this up to the private sector.

Finally, the way to tackle this problem is to … lower the number of strategic defaults. The best way to do that is to make sure that the recovery is strong, employment is growing and that homeowners are not underwater. Improving the Home Affordable Modification Program and “cramdown” provisions would go a long way to reducing homeowners’ monthly payments and principal, helping to keep them in their homes.

Here is the full text of the letter, posted by HuffPo:

From: Vieson, Chris

Sent: Thursday, June 10, 2010 10:15 AM

Subject: WHIP LD Alert: Republican Motion to Recommit FHA Reform
The Republican Motion to Recommit H.R. 5072, the FHA Reform Act, would amend the bill to prohibit individuals who strategically default on their mortgage from accessing the FHA program and protect taxpayers from financing a bailout of FHA programs.

Strategic Defaults

A strategic default occurs when a borrower decides to stop paying their mortgage even though they can still afford their payments. It is usually undertaken by those who owe more on their mortgage than their home is currently worth.

The Wall Street Journal has reported on families that have chosen to stop paying their mortgage and instead use the extra money they are saving each month to “buy season tickets to Disneyland…take a Carnival cruise to Mexico…” and go out to dinner more often.

Companies have even sprung up to capitalize on the new trend with websites advising people (for a fee) on how to go about a strategic default. These companies actually advertise that after a few years an individual who chooses to default on their mortgage should be able to buy a home again, including through government loan agencies.

60 Minutes reported on individuals who defend their decision to strategically default saying, “…with the money savings that I will have in four to six years, I’m confident I’ll have money to buy my way into a house if I want to.”

Strategic defaults raise costs for responsible borrowers, many of whom may currently be struggling to make their mortgage payment themselves, but who take their obligations to pay their debts seriously. The MTR would ensure that no one who chooses to simply stop paying their mortgage, even though they can afford to do so, is able to benefit in the future from the government’s FHA program.

Future Bail-Outs

The Republican motion also protects American taxpayers from possible future bailouts of FHA programs. Washington currently has a bailout culture at the expense of hard-working Americans and this MTR puts into place protections against FHA receiving a taxpayer-backed bailout.

The Republican MTR is a vote to expose and prevent fraud and abuse from FHA and protect the American taxpayer from another Washington bailout.

In 11 of the 20 cities, though, home prices increased year-on-year, and for the first time since December 2006, the two composites Case Shiller measures both made year-on-year gains.

Notably, two major Obama administration programs supporting house prices are at their end. The Federal Reserve’s initiative to buy up billions of dollars of mortgage-backed securities from Fannie Mae and Freddie Mac ended at the end of last month. And the first-time homebuyer’s tax credit expires on April 30. The sunset of those programs will dampen enthusiasm about a possible March or April uptick in prices.