Mod Squad Containment
I recently talked about some of the bailout plans in The Fatal Flaw in Housing Bailout Plans. But somehow I missed the "Bear Stearns/EMC Mod Squad" to Help Keep Customers in Their Homes.
Mortgage Corporation, a leading mortgage servicer that has specialized in subprime and Alt-A loans for 15 years, announced the formation of the "EMC Mod Squad" - a loan modification team dedicated to helping delinquent borrowers avoid foreclosure on their homes. Teaming up with local community groups, the EMC Mod Squad will meet with targeted groups of EMC Mortgage customers across the country. Concentrating on cities with higher numbers of at-risk EMC Mortgage customers, the team will conduct educational workshops and explore possible financial restructuring for these homeowners.
The EMC Mod Squad is comprised of 50 designated loan workout specialists and EMC Mortgage is committed to growing the team to meet borrower demand. The team will partner with local community groups such as the Consumer Credit Counseling Service to reach out to EMC Mortgage customers who are either delinquent or already in the foreclosure process to offer counseling and alternatives. In addition to one-on-one meetings with customers, the EMC Mod Squad will hold workshops across the country and its phone team will conduct outreach efforts to try to reach every delinquent EMC Mortgage customer. EMC Mortgage has set up a toll-free telephone hotline for customers to reach the EMC Mod Squad at 877-EMC-MOD1 (877-362-6631), staffed Monday-Friday 7 am to 9pm CST and Saturdays 7am-12pm CST.
The EMC Mod Squad will begin their six-city national road show in Dallas tentatively scheduled for May 4th and 5th, partnering with the local Consumer Credit Counseling Service. The team will also meet consumers in Atlanta, Chicago, Detroit, Minneapolis/St. Paul and Cleveland.
Observation: There is an amazing amount of effort being put forth to contain something that is supposedly already contained.
- Neighborhood Assistance Corp. has a $1 billion rescue of subprime loans.
- Ohio mortgage bailout plan gets off to slow start.
- Washington Mutual has a $2B program to help subprime borrowers.
- Freddie Mac promise to buy $20 billion in subprime mortgages.
- "Bear Stearns/EMC Mod Squad" to Help Keep Customers in Their Homes.
- Fannie Mae has a "HomeStay" program to offer "a range of workout" solutions.
- The Federal Reserve, Federal Deposit Insurance Corporation, National Credit Union Administration, the Office of the Comptroller of the Currency and Office of Thrift Supervision all want 'prudent workout plan' for borrowers.
It seems to me that we have a Mod Squad of Mod Squads with at least a dozen major programs and/or sponsors. I am sure there are more. But lost in the effort to contain what 5 Fed governors and Greenspan have said is already contained is any quantifiable reason to do so. Perhaps because there isn't one.
Should we bailout anyone?
The San Francisco Chronicle headline reads Why we shouldn't be bailing out subprime lenders or borrowers.
Dumb: Buying a house you can't afford with no down payment and a loan whose monthly payments will explode in a few years.
Dumber: Lending money to people who can't afford a traditional mortgage, especially when they have lousy credit ratings and don't substantiate their income.
Dumbest: Bailing out dumb and dumber, especially with taxpayer money.
State and federal lawmakers, community groups and housing advocates are proposing schemes to prevent the victims of the subprime loan crisis from losing their homes. I hate to sound callous, but it's hard for me to know who the victims are in this mess.
If mortgage brokers or lenders used inflated appraisals or made false or misleading statements, they should be prosecuted or at least forced to restructure the loans. If borrowers lied about their income or assets to get a bigger loan, they too should be prosecuted.
But many people got into the subprime mess because they were willing to believe a fast-talking broker who told them they could buy a home, or a bigger home, or take more cash out of their home than they could with a conventional mortgage.
Keeping people in homes they had no business buying is wrong in many ways.
For starters, there's no easy way to bail out homeowners without bailing out the lenders and investors who were largely responsible for the subprime mess.
Many experts say we are in the early innings of the foreclosure cycle. If we bail out people today, will we be willing and able to help people who fail later in the game?
Propping up borrowers who took a gamble on a house and lost reinforces gambling.
"If people think they can take out a bad mortgage and they get bailed out, that's called moral hazard in social insurance and it's a very bad thing," says Thomas Davidoff, an assistant professor in the Haas Real Estate Group at UC Berkeley.
Bailout advocates say they want to help people who were duped, not gamblers. But even if you could separate the swindled from the speculators, there's no guarantee that people who get a bailout will keep their homes. It could be an expensive form of life support.
Nobody offered to bail out investors who bought tech stocks in 1999. Nobody bailed out Enron employees who lost their jobs and chunks of their 401(k) plans because the company was a fraud. Nobody offers to bail out credit card abusers.
Kathleen Pender, your logic is impeccable. Also hitting the nail on the head is Laura Rowley talking about Footing the Bill for the Subprime Fiasco.
"It makes good sense to make sure families and neighborhoods are protected from rogue lenders and lax government oversight," Schumer said in a speech last week, adding that he's working on the legislation. "It'll save homeowners from losing their equity, save cities and local governments from losing their tax revenues, and save neighborhoods from taking a big hit."
Good sense? If a bailout is good sense, Schumer should also sponsor a bill funding free cardiac bypass surgery and liposuction for anyone the government failed to protect from eating repeatedly at McDonald's.
"The real tragedy here is that 2.2 million homeowners face the real possibility of losing their homes because they were misled, or just plain swindled by modern-day bandits," Schumer said in a hearing in March.
On the other hand, as far as I can tell, none of these modern-day bandits held a gun to anyone's head and forced them to take out a loan.
Lenders Take Their Medicine
Some lenders were clearly predatory, and should be prosecuted for swindling consumers. But most were businesspeople looking to profit on vulnerable borrowers. We all know profit has a twin -- it's called risk. These financial institutions, and the investors who bought their bonds, knew what they were doing. Now let them pay for it.
Schumer said families were "teased into unsuitable subprime loans."
"Teased into"? What kind of language is this? When did we transform from being a culture of opportunity to a culture of victimization? Taking out a mortgage is a choice, and choices have consequences. If we want to own our financial successes, we also have to own our financial mistakes.
And what kind of message does a government bailout send to Americans who did things the right way? People who had a job, paid their bills on time, built solid credit scores, saved for a down payment, read their loan terms, and scrutinized their budgets to make sure they could afford not only the mortgage payments, but the taxes, insurance and maintenance on their homes?
Government and the Fed created this Mess
Government intervention helped create this mess. It started with GSEs to designed to promote affordable housing. That was followed by 300 or so additional programs to create affordable housing (all of which had the opposite effect). The Greenspan Fed certainly threw fat on the fire panic to cut rates to one percent. Greenspan himself also endorsed ARMs right at the bottom in interest rates. Bush piled on with his "Ownership Society". Of course there are huge mortgage interest rate deductions for home owners. In Illinois, Governor Rod Blagojevich went off the deep end with an Opportunity I-Loan mortgage loan program for illegal aliens. Right near the height of insanity (in May of 2005) the Housing and Urban Development Secretary Alphonso Jackson stated: "I am absolutely emphatic about winning back our share of the market" that has slipped away to subprime lenders. Somewhere along the line, lenders and borrowers both lost all sense of risk, especially when huge fees could be obtained by passing the trash to Fannie Mae or securitizing the loans in investor pools.
In light of the above, who is it we want to bailout and why? Close observation will reveal two facts.
- This is political vote buying by Schumer because he thinks he can get away with it. It is akin to senseless programs designed to "save the family farm" or to promote ethanol that do nothing but jack up the prices paid by consumers while padding the pockets of rich and powerful constituents.
- The little guy will not be bailed out by these programs. These programs all have their roots in attempting keep people underwater and in trouble from declaring bankruptcy. The idea is to make people debt slaves forever. The last thing any lender wants is to be stuck with an overpriced home with no one to sell it to.
It will be interesting to watch going forward how many more programs will be brought forth to contain that which is already said to be contained. But that won't stop the reality of the situation: These plans are nothing but political pandering by Congress, and/or acts of desperation by lenders fearing they will lose debt slaves to bankruptcy.