“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.

I’ve run out of patience with tired memes and discredited claims by fools and partisans.

The rhetoric of those pushing nonsense on the public in an attempt to confuse rather than illuminate  — the phrase is “agnotology” –  only serves to aid the lobbyists working on behalf of the Banks and Investment houses to maintain the status quo.

All is well, nothing to see here, move along.

Well, its time to put up or shut up: I hereby challenge any of those who believe the CRA is at prime fault in the housing boom and collapse, and economic morass we are in to a debate. The question for debate: “Is the CRA significantly to blame for the credit crisis?”

A mutually agreed upon time and place, outcome determined by a fair jury, for any dollar amount between $10,000 up to $100,000 dollars (i.e., for more than just bragging rights).

I can’t help but applaud this. No matter how many times it has been shot down, the blame-the-CRA myth keeps coming back to life. As TWI has explained, the CRA, a 1977 anti-redlining law, didn’t even cover the unregulated lenders who made most of the subprime loans during the housing boom. There’s simply no evidence for this assertion.

The movement to blame the CRA started during the fall campaign season, seized by conservatives as a convenient scapegoat for the financial crisis. It  came back to life recently, when bloggers like The Atlantic’s Megan McArdle picked up on Clusterstock postings by John Carney, once again citing the CRA as regulation gone wrong.

As McArdle put it, the CRA’s role in the crisis is “understated by liberals who are unwilling to admit that regulation, too, can produce hideous unintended consequences.”

Felix Salmon at Reuters has knocked down most of this. But I’d like to add something that’s regularly missed in the CRA debate. What the anti-regulation types miss is that the CRA never was much of a regulation to begin with. As Guy Cecala, publisher of Inside Mortgage Finance, which covers the subprime industry, told TWI, lenders never took the CRA all that seriously to begin with. The lending industry viewed the CRA as an extremely loose regulation. Lenders joked about how you’d have to mug an elderly, disabled, minority woman in a wheelchair to lose your positive CRA rating.

How that got turned on its head so that the CRA has become a symbol of regulation gone wrong is an example of what happens when idealogues who don’t know how an industry really works take over the debate. If Ritholtz’s bold offer gets some of this out on the table — and then off the table for good — it’s all for the better.

Salmon reports that Carney may be willing to take up Ritholtz on the challenge. So let the games begin. And let them put an end to the blame-the-CRA movement for good.

When the foreclosure crisis began to heat up last fall, troubled borrowers got this advice: Call your lender and try to work things out. The Bush administration led the way on this, unveiling its Hope Now program — a hotline to connect borrowers with mortgage counselors and servicers to re-do loans on easier terms.

President George W. Bush and Treasury Secretary Henry M. Paulson Jr. touted the approach as a private sector-led effort to help homeowners who were falling behind on their payments. Hotlines and efforts like Hope Now sprung up at the state level as well.

But since its inception, Hope Now has run into trouble — criticized for serving too few people with too little results. Borrowers complained they couldn’t get through to counselors or servicers, and Bush didn’t help the situation by giving out the wrong hotline number at a news conference. Servicers seemed reluctant to modify large numbers of loans, and most recently, counselors say, some are agreeing only to two or three-year repayment plans, instead of restructuring the loans into 30-year, fixed-rate mortgages.

Illustration by: Matt Mahurin

Hope Now, in the meantime, regularly issues optimistic progress reports as foreclosures continue to soar — filings rose by 55 percent in July, compared to a year earlier — and the housing market shows no signs of stabilizing.

At this point, both industry experts and housing counselors are questioning whether voluntary workouts are a useful solution to the housing crisis — and whether there’s any solution at all. It’s time to acknowledge that workouts are a band-aid effort at best, they say, a way for government and the lending industry to show they are doing something about the crisis, without actually doing much.

Workouts don’t work, in this view, both because borrowers are reluctant to seek help from lenders, refusing to open mail from them for fear it’s a foreclosure notice, and because servicers who negotiate workouts have little financial incentive or staff to help significant numbers of them anyway.

The problems with loan restructurings aren’t just about a fight between borrowers and lenders. The failure to secure a large volume of restructurings speaks directly to the entrenched, structural problems in the mortgage market that prevent simple or quick cures for foreclosures.

Servicers earn money by collecting fees, not from setting up restructurings. This gives them little reason to do more of them. Borrowers and lenders are at odds in the process, a roadblock to getting anything done. Hope Now, for example, counts among its members the American Securitization Forum, which represents financial companies that buy and sell mortgage securities, and which tells counselors to avoid across-the-board restructurings.

Hope Now is promoted by the government, but run by private industry, and lenders and servicers vary in their restructuring decisions. Some are big enough to absorb foreclosure losses and move on, giving them little impetus to accept restructurings. Smaller lenders, or those looking to buy a little time in the hopes the market will pick up again soon, are motivated to agree to only two-or-three year agreements — and then go after the property again if home values rise.

In the meantime, the government is pinning its latest hopes on the mortgage rescue bill that goes into effect next month, hoping lenders will voluntarily agree to take losses and refinance loans backed by Federal Housing Administration insurance — something they could have been doing all along, even without the new legislation.

“Why aren’t there more loan modifications? Because lenders are reluctant to do them, except as a last resort,” said Guy Cecala, publisher of Inside Mortgage Finance, a Bethesda, Md., publication that follows the industry. “Hope Now is something the government had to do to show it was doing something about the crisis. I think they’re hanging on to it as a public-relations gesture. It’s as much about p.r. as it is about having an impact on the problem.”

Consider how loan modifications are reported. Hope Now announced recently that it prevented a record number of foreclosures in July, completing more than 192,000 workouts. But the group doesn’t break down details of the modifications. So it’s unclear how many were restructured loans at lower rates and how many involved repayment plans that just stretched payments out over a longer period of time.

By contrast, in a new research paper, Alan White, a University of Valparaiso law professor and mortgage-industry expert, examined 4,300 loan modifications in subprime loan pools from July 2007 through June 2008. The workouts were completed by Hope Now and by other groups.

White found that virtually none of the modifications resulted in a reduction of the loan principal, and only about half reduced the interest rate and monthly payment.

Hope Now is under “a hell of a lot of pressure” from both the Bush administration and from Democrats like Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, to come up with results, Cecala said. But lenders don’t see things the same way, and instead believe that loan modifications are likely to fail in the end, making them not worth the effort.

“Don’t think for a minute that anyone in the mortgage industry, or anyone who knows anything about this, thinks workouts are some sort of panacea,” Cecala explained. “The feeling in the mortgage industry is that there’s no silver bullet and there’s no easy way to address this crisis. They’re just going to have to muddle through it somehow.”