However, for what one assumes are less than coincidental reasons, several banks who also received publicly disclosed TARP funds joined the Fed in its quixotic quest to keep quiet about who took the Fed’s money too. That group includes ABN Amro Bank, Bank of America Corp., The Bank of New York Mellon Corp., Citigroup Inc., Deutsche Bank, HSBC, JPMorgan Chase, US Bancorp and Wells Fargo. If it seems to the average layperson that these banks have already basically disclosed that they are among the beneficiaries of the Fed’s largess and haven’t suffered any ill effect, that might underscore Bloomberg’s reasoning that the Fed simply doesn’t want to be subject to any oversight rather than that there are major business concerns with the disclosure.

In particular, the appeals court ruled today that the Fed and the banks who mysteriously don’t want the Fed to disclose the banks that accepted their loans during the financial crisis failed to meet the standard set forth by the FOIA for keeping such information secret.

In its opinion today, the appeals court said that the exception applies only if the agency can satisfy a three-part test. The information must be a trade secret or commercial or financial in character; must be obtained from a person; and must be privileged or confidential, according to the opinion.The court said that the information sought by Bloomberg was not “obtained from” the borrowing banks. It rejected an alternative argument the individual Federal Reserve Banks are “persons,” for purposes of the law because they would not suffer the kind of harm required under the “privileged and confidential” requirement of the exemption.

In other words, the Fed argued that the individual Federal Reserve Banks which comprise the Fed are people, not banks, and thus covered by the law. Unlike the Supreme Court in Citizens United v. FEC, the appeals court rejected the idea that the banks are people or that they would be harmed by disclosing to whom they lent money.

JPMorgan Chase is running newspaper advertisements in major media markets — not an inexpensive endeavor — touting its “Helping Small Business in Even Bigger Ways” campaign that will increase its loans to “small” businesses from $6 billion to $10 billion in 2010. Unlike the federal government, which defines small businesses as those with fewer than 500 employees, Chase will define them as companies with less than $20 million in revenue. Apparently, that’s “small” by Chase standards.

Huntington Bancshares will up its small business lending to $4 billion over three years, offering $1.2 billion in new business loans in 2010, up from $890 million in 2009. Well Fargo plans on increasing its small business lending by 25 percent over 2009 to a total of $16 billion.

But according to June 2007-June 2008 data from the Small Business Administration — which already showed a slowdown in lending rates — for all the institutions, even their increased lending will be lower than in previous years. The SBA considers business loans of under $100,000 to be “microlending” loans, and loans of between $100,000 and $1 million to be larger small business loans, figuring that, on the average, they square with the definition of a company of 500 employees or fewer. Their data shows that, between June 2007 and June 2008, Chase made $25.7 billion in small business loans, with $15.5 billion in microloans and $10.2 billion in loans to larger small businesses. Huntington made $4.6 billion in small business loans in that time period, offering its clients $679 billion in microloans and $3.9 billion in larger small business loans. Wells Fargo loaned $27.2 billion to small businesses in that same period: $10.1 billion in microloans and $17 billion in larger small business loans.

Public relations initiative aside, the banks’ own numbers, combined with the pre-crash data, show that small business loans fell off dramatically during the crisis — despite the public bailout of Wells Fargo and Chase (among others). Those two banks alone, it is worth remembering, raked in nearly $8 billion and $11.7 billion, respectively, in profits for 2009. They can put whatever spin they want onto their efforts to ramp up small business lending but the truth is that they have no intention of loaning out as much money in 2010 as they did in 2007 or 2008.

The meeting was always just going to be political theater. Wall Street bankers were supposed to play their part on the public stage in Washington, and submit to a scolding from the president about bonuses and the need to start lending more to help get the economy moving.

But inevitably public perception will issue its harsh ruling, and it goes something like this: If the meeting were really that important to Mr. Blankfein, Mr. Mack and Mr. Parsons, they would have found a way to get there.

Well, they didn’t. But it’s time to move on. Maybe Obama would have gained more ground calling in for a harsh lecture the 27  members of the New Democrat Coalition — a group of moderate, “pro-growth” House Democrats — who voted against his financial reforms. Via Naked Capitalism, Marshall Auerback, a fund manager and investment strategist who writes for New Deal 2.0., said the fact that some Democrats got away with fighting against their own party’s financial overhaul package shows the Obama administration isn’t really serious about reform, regardless of its populist posturing.

Even positive aspects of the bill, such as the establishment of the Consumer Financial Protection Agency, were significantly watered down. New Democrats — the people we used to call “Republicans” — won concessions that give federal regulators more scope to preempt state consumer-protection laws deemed to “significantly interfere with or materially impair a national bank’s ability to do business.” The change was sponsored by Congresswoman Melissa Bean, the most bought and paid for member of the House (not an inconsiderable political achievement amongst our current political profiles in courage). Bean justified the change on the basis of having “robust national standards and enforcing them uniformly”, which sounds good until one considers the history of federal regulators, none of whom have historically moved when they plainly should have done so. How many federal regulators do you recall actually blocking the most egregious excesses in the mortgage market over the past 15 years? Preventing the states from moving proactively means that we will likely repeat the experience of the 1990s. Historically, the reform impetus has emanated from the states, not the federal government — Governor Eliot Spitzer’s administration being a prominent illustration.

More and more voters are beginning to believe this façade of reform is deliberate — a cynical act of kabuki theatre by the President to mask his own reticence to deal with the problem in an honest manner.It was clear to many of us that the president may not have been serious about reform when he picked Tim Geithner and Larry Summers as the leaders of his economic team a year ago, and essentially relegated any genuine progressive to the Cabinet equivalent of Siberia, as Matt Taibbi recently highlighted.

In the end, on Friday, as Auerback pointed out, bank stocks actually rose, after the administration-backed, high-profile effort to enact the most sweeping financial regulations since the Great Depression passed the House.

That should tell you how worried Wall Street is about the prospects for reform from Washington, where its New Democrat friends are strong enough allies that a scolding from the president means little more than a quickly forgotten moment in the news cycle.

Julio Angulo was evicted from his Virginia home last December. (American News Project)

It was last December when Julio Angulo ignored the bitter cold and sat on a rusted patio chair in the front yard of his foreclosed home in suburban Manassas, Va. He sighed, resting his hand on his knee. He stared despondently at the sky. His lender had foreclosed on his house in July. He had just been evicted.

[Economy1]Angulo, then 55 years old, had nowhere to go. His wife and two children already had returned to El Salvador. He had refused during the summer to accept a cash-for-keys transaction, in which he could turn the house over to the lender in exchange for a cash payment. Instead, he remained, alone, in the three bedroom townhouse, in a modest working-class neighborhood called Georgetown South, until a Prince William County Sheriff’s Deputy knocked on the door on Dec. 1, 2008 for the foreclosure eviction.

A house painter, Angulo couldn’t afford the market rents of $1,500 a month for apartments elsewhere in the neighborhood. Most of Prince William County’s shelters also were full that day.

A year later, Angulo is gone. A legal resident of the United States, he joined his family in his native El Salvador, to let a knee injury heal, and to recover from his lost dream of owning a home. With nowhere to go immediately after the eviction, he luckily ran into a neighbor that night who offered to rent him a room for two weeks. He went to a public health clinic, to see a doctor about the arthritis in his injured knee. Then he left for El Salvador.

The house he paid $280,000 for in July of 2005 sold for $69,900 on March 16, 2009, according to local real estate agent Keith Elliott Jr. Real estate investors bought it.

And a year later, the hopes of those who thought the government could come up with a plan to stop foreclosures and help keep people like Angulo in their houses seem in tatters as well.  The Obama administration’s signature effort remains its $75 billion Making Home Affordable program, which was set up to aid as many as 4 million homeowners. But Making Home Affordable has in most ways been a crushing disappointment, housing advocates say.

At the beginning of this year lenders on their own were doing far more permanent loan modifications than the government has been able to accomplish since rolling out its program in April, noted Diane Thompson, an attorney with the National Consumer Law Center. Private lenders were completing 120,000 permanent loan modifications per month during the first quarter of this year. Under the Obama administration’s initiative, some 650,000 homeowners have entered into trial loan modifications, but only about 10,000 permanent loan modifications had been completed by the end of October, a Congressional oversight panel reported on Wednesday. Treasury Department figures released Thursday showed that only 31,382 permanent loan modifications had been completed under the government program as of Nov. 30.

Making Home Affordable’s loan modification effort is known as HAMP, or the Home Affordable Modification Program. The small number of permanent loan modifications so far is due in part to a new program getting established, and to the fact that borrowers in the government program have to complete three-month temporary trial loan modifications first, in order to qualify for permanent ones. Getting the permanent trial modification isn’t automatic — trial program borrowers must submit paperwork documenting their incomes to convert to permanent loan modifications, and they must make three months of payments under their trial agreements.

Treasury expects some 375,000 trial modifications to be finished by the end of this year, but it’s not clear how many will become permanent. Updated numbers are expected this week. But none of this fully explains the glaring lack of progress so far, Thompson said.

“We’re more than nine months into the program, and trial modifications account for only about 11 percent of all the seriously delinquent loans, and permanent modifications aren’t even on the radar screen,” Thompson said. “The HAMP servicer participation agreements do not provide for any penalties, other than termination from the program, for the failure to make modifications.  Until those agreements are revised, the administration has little recourse other than public shame to compel servicers to make loan modifications. Meanwhile, the number of homes seriously delinquent and in foreclosure continues to rise every quarter.”

This is hardly what Thompson expected, just a year ago.

“It’s been very distressing,” she said.

In testimony submitted to the House Financial Services Committee on Tuesday, officials from JP Morgan Chase reported that of every 100 homeowners who sought to have their loans reworked under the government’s program, just 15 have or will end up with, a permanent loan modification.

Thompson and others who follow loan modifications said they were aware from the beginning that the government program couldn’t prevent all foreclosures, especially as job losses mounted and even prime borrowers fell behind on their payments. Experts also knew there would be some slowdown under the administration’s new program, as servicers worked to convert temporary loan modifications into permanent ones.

Servicers and borrowers are pointing the finger at each other over the lack of more permanent loan modifications. Servicers contend borrowers aren’t coming up with the necessary paperwork, such as documenting their incomes, that is required for permanent loan modifications. But housing counselors say just the opposite — that borrowers supply servicers with pay stubs and other paperwork, only to have their servicers lose them, or sit on them so long they aren’t current.

Thompson said there are even bigger problems with the program that leave her feeling very differently about the effort today, compared to her optimism when it was first announced.

“I don’t yet see any of the work on HAMP by the administration addressing the core problems in the program–a lack of accountability and transparency–so I am not optimistic, although I do believe that some of the incremental changes to the program are helpful and may help tens of thousands of people,” she said. “The problem is that we need to help millions, not tens of thousands.”

Alan White, a Valparaiso University law professor who studies loan modifications, was even more blunt:

“If we don’t see more permanent mods soon,” he said, “it will look like the HAMP program is a failure. We’ve seen a net reduction in permanent loan modifications. That’s not good.”

The failure to get more permanent loan modifications done “should be considered a breach of contract” by servicers and lenders that have accepted taxpayer bailout money and are eligible for financial incentives from the government for reworking loans, White said.

He and others never expected things to end up like this. In November 2008, mortgage giants Fannie Mae and Freddie Mac announced a foreclosure moratorium for the holidays, beginning in Thanksgiving, to allow the government to work out the details of streamlined loan modification efforts. Hopes were high that many borrowers would stay in their homes.

In Angulo’s case, the help was too late. He was evicted regardless, because the policy applied only to new foreclosures, not those already in the pipeline.
Fannie Mae announced last month a new policy to allow qualified owners facing foreclosure to rent back their homes for as long as a year. But Angulo most likely would not have qualified for that help, either, had it been available a year ago, since he couldn’t afford market rents in the area, a requirement of the program.

Angulo had covered his mortgage by renting out some of the bedrooms. In the spring of 2008, his renters left and the monthly payment on his adjustable rate mortgage also jumped from $1,400 to $2,600. As a house painter, he earned $500 a week.

Angulo said at the time that he tried to contact his lender, Aurora Loan Services, a subsidiary of Lehman Bros. that specialized in Alt-A and interest-only loans. But the servicer wouldn’t help him, he said.

Since his eviction, his old neighborhood isn’t the only location were housing values have fallen. In November, Zillow, an online real estate service, reported that year over year housing values nationwide had declined for the 11th consecutive quarter.

In Georgetown South, since last December, the highest priced home that has been sold went for $120,000, and it most likely resulted from an investor flip, Elliott said. In Prince William County overall, the first-time homebuyer tax credit helped boost sales of bank-owned foreclosed properties – but that doesn’t mean the local housing market has recovered, he said.

“Banks are probably planning on trickling out these additional foreclosures slowly while the market continues to improve,” he said. “How big is the shadow market? Honestly, I think it’s anybody’s guess. The banks could be sitting on a whole bunch just waiting to trickle them out a few at a time.”

As neighborhoods like Georgetown South continue to absorb the effects of a collapsed housing market, NCLC’s Thompson noted that growing foreclosures are spreading damage throughout the economy, hurting neighborhood property values, and cutting into state and local tax revenues.

That’s why Julio Angulo’s story is much more than just the eviction of another former homeowner on a cold December day, a year ago.

“This isn’t just about homeowners who need help,” Thompson said. “Unless officials take forceful action on foreclosures, things will only get worse. I never thought, at this point, that foreclosures still would not be effectively addressed by the administration. If we don’t get foreclosures under control, and soon, they’re going to drag down the whole economy.”

Angulo, for his part, promised to call if he ever could make his way back to Virginia, to try again to find work, and to buy another home.

He hasn’t been heard from since he left.

This article was to include new Treasury Department loan modification figures released Thursday.

Read Mary Kane’s December 2008 article about Julio Angulo’s eviction here.

The Washington Post reports Housing and Urban Development Secretary Shaun Donovan will tell the House Financial Services Committee that the agency wants to increase the up-front cash paid by borrowers,  raise minimum credit scores for borrowers, and limit how much money sellers can kick in, including paying closing costs or giving free upgrades.

The proposals for tighter standards come as the FHA handles a much larger share of the mortgage market than in the past, and more of its loans go bad. As we explained, FHA loan volume has quadrupled since 2006, and a rising number of defaults has prompted fears the agency will be the next in line for a government bailout.

From The Post:

In the past, the FHA has resisted raising down payments or insurance premiums for fear of shutting out qualified borrowers and stunting the housing market’s slow but steady recovery.

But Donovan plans to tell the House committee that the exploding volume of loans the FHA is now handling requires stricter risk controls than the previous administration had in place, according to a copy of his prepared testimony. A recent audit shows that the FHA’s financial cushion already has eroded below the level required by law.

It’s important to connect the dots here, from mortgage fraud schemes to the FHA. Investors that commit mortgage fraud while flipping short sales or through other schemes increasingly have been finding ways to fund their deals through the FHA, as we noted. In some cases, they have been evading FHA anti-flipping rules by setting up land trusts to purchase and hold real estate, and to obscure the identity of the actual purchaser.

As Yves Smith at Naked Capitalism explained, the FHA has been put in a difficult position as a result of the financial crisis:

It is really a shame to see what has happened to the FHA. Prior to the subprime bubble, the FHA has a good record with providing low down payment loans to borrowers. Before readers scoff, it had a simple secret: it screened borrowers. And the old-fashioned process was sufficiently time-consuming that the prospective homeowners also had to grapple with whether they could make the payments…But now the FHA has been assigned a role in the “save the housing market” game plan, which means notions of prudence get compromised.

But it’s even more than that. As we reported nearly a year ago, both the FHA and HUD were mostly ignored during the Bush administration — but now are being called on to turn on a dime and play major roles in saving the mortgage and housing markets.

The FHA must turn itself around and operate at its peak, after years of neglect. While the Obama administration tackles the stimulus plan and other urgent problems, government agencies like FHA and HUD, long relegated to the sidelines, are being called on to ramp themselves up and take on greatly expanded tasks. With the financial crisis so severe, the revitalization has to happen immediately – and there’s no Plan B. Getting these agencies back up to speed is an overlooked challenge facing the new White House regime.

Rising fraud in FHA loans is one example of that challenge. The new rules are a step toward addressing the problem. But the administration also needs to make a top priority of providing the FHA with the resources to put in place additional risk controls and other necessary changes to handle its much larger role. Banks that aren’t lending have gotten most of the government’s attention and money, even as rising fraud in FHA loans is threatening the housing market, and the economy, as a whole. It’s long past time to change that.

Among the 20 largest TARP recipients, median mortgage and business lending both fell by 1 percent over that span, Treasury found, while median credit card lending rose 2 percent, “reflecting greater reliance on existing credit lines by consumers.”

The findings were based on a survey of the 20 banks receiving the most federal help under the TARP, and mark the first in what will be a series of monthly reports analyzing the lending trends among bailed-out banks.

Not that those banks have been particularly forthright about where the money’s going if not toward lending. In December, The Associated Press asked the 21 top TARP recipients to specify how they’re using the funds. The AP reported Tuesday: “None would provide any specifics.”

The lack of transparency had led to charges that the banks were hoarding the TARP funds — a suspicion fueled by anecdote and outside analysis. As we wrote yesterday, there’s a great deal of temptation among TARP recipients to sit on the funding for the sake of shareholders rather than to lend it and risk the consequences of unstable markets. The Treasury’s new report confirms that was the case.

There is, however, one glimmer of hope. The Treasury report found that, while lending activity was “weak” in October and November, it picked up in December “fueled by falling mortgage interest rates.” That could spell good news for the crippled housing market — if only it would ever locate its bottom.

So much for money well spent. The story also points out, using an analysis of the banks’ financial reports, what most people have come to conclude about TARP: It doesn’t work. From the Journal:

“It has failed,” said Campbell Harvey, a finance professor at Duke University’s business school. “Basically we have dropped a huge amount of money … and we have nothing to show for what we actually wanted to happen.”

But there’s more. The government’s decision to hand over the TARP money with no conditions also added to the decreased lending, the Journal said:

The fact that loan portfolios are shrinking at many of the largest TARP recipients underscores how few strings Treasury Department officials attached to the infusions. That has made it hard to prevent banks from using the money to pay dividends, make acquisitions and fund bonuses for top executives.

President Obama has pledged to overhaul TARP. There’s a lot on the administration’s plate already, but fixing TARP is going to have to be a high priority. One lesson here is that handing money over to banks and trusting they’ll lend it out is misguided. The government acted like an irresponsible parent in failing to spell out its expectations for the money. Another is that the government also never really explained what it wanted TARP to do: Was it to ramp up lending, or to get the banks in healthier shape?

If we’re going to hand over more taxpayer money to banks, either through TARP or other kinds of lending — and it looks like we’re going to have to, given the banking industry’s poor financial shape —  we need to be clear about how the money should be used, why we’re doing it, and to provide the money in a process that is transparent enough to allow policymakers to correct problems along the way.

A basic guideline would be to take the current TARP blueprint, throw it out, and start over. Do everything the opposite of the way it’s been done so far. Anything less means more of the obvious: another failure and billions of dollars misspent.

When it seizes up, so does the rest of the economy. And that’s close to what’s happening now.

Now that we’ve said all that, let’s just come out and acknowledge that the complexities of the commercial paper market aren’t quite what people talk about over their coffee or during a break at work. You’d have to be a high-level economist to understand half of what’s going on in this crisis, and even then, those people don’t always fully get it, either.

To help, here’s This American Life, which over the weekend ran a piece explaining the mess we’re in right now, including what’s going on with the commercial paper market and how credit default swaps worked. Like an earlier story the program did on securitization of subprime mortgages, the piece explains in understandable terms why we should all be very, very nervous about the credit crunch.

I heard it in my car on Saturday and pulled over to listen to the whole thing. As one example, the story looked at commercial paper from the perspective of the pest control company Terminix, and its need for short-term debt. From the piece:

“Let’s just say you have Terminix come out and treat your house, you write a check,” [Mark Peterson, treasurer of Servicemaster] explains. “Our billing department marks your account as having been paid. What’s our cash position? Do you have money or do you need money? Today, our company, we have money.’ ”

Peterson’s company might or might not have cash money the next night. It’s no big deal — maybe it needs to buy a lot of termite poison or upgrade its fleet of termite-fighting vans. All companies move between having cash on hand and not having it every day. Some days they have extra money. Some days they need to borrow.

If you’re an ordinary consumer, you might use a credit card to bridge the gap. If you’re a gigantic company, you use the commercial paper market, a way of borrowing a lot of money.

And if suddenly you can’t borrow that money.. well. Think about that.

It’s why the Fed is considering such aggressive steps toward freeing up more money for businesses. While the stock market’s drop is cause enough for concern, the possible freezing up of the commercial paper market is probably why you really should be worried these days.