Tag: mortgage problems
“The Lost Bank” is Kirsten Grind’s compelling account of the rise and fall of Washington Mutual, the Seattle-based lender that grew from a relatively benevolent regional institution into a nationwide subprime mortgage behemoth before its spectacular collapse.
The strength of Grind’s book is her inside look at how bank executives managed to create a cultlike atmosphere that helped everyone at the bank tune out unwelcome information as they raced toward a moral and financial abyss.
In this review in Slate, Moe Tkacik savages Grind for her seeming acceptance of some bank officials’ rationalizations that that they were, at worst, stupid, even though her own book makes it clear how much blatant criminality occurred in the writing of WaMu mortgages. Her book makes it equally clear that top executives had ample evidence of that criminality and were blithely unconcerned as long as short-term profits were rolling in.
Tkacik’s criticism is valid. But don’t let Grind’s seeming lack of moral outrage put you off her book. It offers a vivid portrayal of an environment in which “nice” people became accustomed to doing bad things because everyone seemed to be doing them–while getting rich in the process.
Personally, I’m fascinated by the insane aspect of the WAMu corporate culture in the bank’s final years. Criminality aside, it should have been painfully obvious that the mortgage-lending binge was going to lead WaMu and companies like it to disaster. This graph from the Calculated Risk blog seems to provide pretty clear evidence of a housing bubble–and all of this data was available to people in the industry as the bubble inflated. Many people–including some people inside these companies–pointed out the folly of continuing to crank out real-estate backed loans at a time when real estate prices were roaring toward the precipice.
But people like WaMu CEO Kerry Killinger just tuned it all out and kept encouraging their employees to keep on selling mortgages as fast as they could. When mortgage lending rival Countrywide collapsed, the WaMu gang celebrated it as an opportunity to increase their own market share.
In the wake of WaMu’s collapse, Killinger and other WaMu execs faced civil suits from stockholders wiped out in the collapse, and from the FDIC. They settled those suits for multi-millions–but all but a tiny fraction of the settlement money came from insurance policies that WaMu purchased with the proceeds from its dubious activities. The New York Times reported on this in December 2011.
The big banks got very little relief from their legal liabilities from the $25 billion mortgage documentation settlement announced Thursday, Feb. 9, Bloomberg reports.
While the deal does seem to settle mortgage documentation issues with state and federal regulators, the individual homeowners affected by “robosigning” and other abuses can still pursue their own lawsuits on this issue, including class action cases. And the states reserved their right to pursue criminal cases when appropriate.
And the potential legal liability for the big banks goes far beyond the robosigning mess. What will it cost the mortgage lenders to settle widespread allegations that they resold mortgage loans and mortgage-backed bonds to investors without disclosing how risky many of those mortgage loans were?
After months of closed-door negotiating, a massive, multi-billion-dollar deal between big banks and state and federal regulators has been announced to partly resolve legal issues surrounding the questionable practices that have prevailed in documenting home mortgages and foreclosures.
But after a quick scan of initial news reports, it seems evident to me that the real impact of this deal on both homeowners and banks won’t be clear for months.
The deal itself is too complex to enable an expert–much less you or me–to quickly develop a well-informed point of view on what it all means. And there is no quick way to rework millions of mortgages caught up in the mortgage documentation mess.
UPDATE: Here’s a Q&A from Associated Press that offers the best overview I’ve seen at this point.
The terms of this deal do provide evidence that government regulators are willing to push much harder on these kinds of matters than they were 10 years ago, when Household International agreed to a $484 million settlement. That deal included no reductions on loan principal, only minor changes to loan terms, and nothing for those who had already lost homes in foreclosure. The deal also required individual homeowners to sign away their rights to sue the company in return for a modest share in the money that was distributed.
The latest settlement will offer a cash consolation prize of as much as $2,000 to those who lost their homes due to improper foreclosure practices. Some mortgage borrowers will qualify for principal reductions. The states did not bargain away their right to file criminal charges if they choose to pursue them. And borrowers who have kept their mortgages current, as well as those who are delinquent, may get some help.
But in this account in the Washington Post, debt counselors working with distressed borrowers don’t seem overly impressed by the amount of relief that people will get.
At the Naked Capitalism blog, Yves Smith picks the deal to pieces. Smith is among those who warned that financial Armageddon was heading our way, at a time when most government officials and big banker types were reassuring us that the fallout from “the subprime mortgage problem” posed no threat to the banks or the larger economy. She continues to call down fire and brimstone on the banking system and the people who are paid to regulate it.
Here is Washington Attorney General Rob McKenna’s take on the deal and its impact on this state.
Seattle area home prices hit a new low in November 2011, according to the latest Case-Shiller home price data reported in the Seattle P-I.
That’s just one bit of news from that data. Home prices in most major U.S. real estate markets are still in the doldrums, and the story quotes one economist as saying that weak demand and foreclosure sales, among other things, could push prices down another five or 10 percent nationally.
Locally, online information from the Whatcom County Assessor shows that for 2011-12, Fannie Mae owned 46 Whatcom County homes and Freddie Mac had 26. That’s just a snapshot, because these two financial institutions are constantly unloading some homes while acquiring others through foreclosure. Still other homes are owned by banks or other lenders through foreclosure.
What’s all this doing on the politics blog? Well, to me it seems evident that the housing market and the new housing industry–key engines of job creation for the U.S. in past years–are not going to revive any time soon. The housing boom that lasted long enough to seem like “the new normal” was actually anything but. It was a bubble, based on unsound lending practices.
Here’s more on national home price data from Associated Press.
Efforts to revive the economy and return to pre-bust levels of employment are not going to enjoy quick success. That’s a political problem for Barack Obama. If voters decide to replace him in 2012, it will also be a problem for his successor, it seems to me.
What do you think?
In the Washington Post, Ezra Klein has a thought-provoking column today reminding us that governments can have only limited impact on the state of the economy.
That has become painfully obvious this week, after the U.S. government more or less resolved the “crisis” that resulted from its own debt ceiling rules. Stock markets responded with a scary selloff that is continuing today, Aug. 4.
Governments here and abroad have no quick fixes for the fundamental problem of this economy: The prosperity that peaked in 2006-2007 was based on borrowed money. Money was borrowed and lent on the assumption that there was no limit to the rise in real estate prices. When that foolish assumption became demostrably false, there was a crash. Household mortgages were under water, banks had books full of bad loans, and the big financial firms were stuck with all kinds of complex instruments that multiplied their losses.
Now everyone is retrenching. Lenders have less to lend and are more cautious with what they do have. Consumers are (rightly) cautious about borrowing and spending.
The economy needs some real productivity to replace the collapsed economy based on borrowing and consumption. Eventually, we hope, entrepreneurs will provide that. But it won’t happen fast.
Here’s another good summary of the current situation from Fox.
Over at the Seattle Times, Jon Talton is always worth a read too.
Here, prominent conservative David Frum, on his blog FrumForum, suggests that events are proving that Paul Krugman, not the Wall Street Journal editorial page, has been proved right about the economy.
Bipartisanship is much-discussed but seldom on display in the nation’s capital. Today, we see a significant exception. A U.S. Senate panel has issued a report that accuses Goldman Sachs and other major financial players of self-dealing in the runup to the financial crisis that shook the global economy. Sens. Tom Coburn, R-Okla, and Carl Levin, D-Mich., issued a joint press release on their findings.
You can also get to the full report of more than 600 pages by following the links listed here, on the website of the Senate Permanent Subcommittee on Investigations.
While news accounts of this report tend to focus on Goldman, there is also a lot of unflattering post-mortem on Washington Mutual, the giant mortgage lender that became one of the biggest casualties of the real estate bust. The report underlines WaMu’s risky mortgage lending practices, and the failure of federal regulators to curb those practices, even though people within the bank itself were trying to warn top management about the danger.
Levin also accused some financial executives of making misleading statements when they testified before the panel. Roger Clemens is awaiting trial on similar charges.
Back in June 2005, the Federal Open Market Committee, a key component of the Federal Reserve system, discussed an ominous real estate bubble that was building in south Florida.
The transcript runs to 171 pages and I don’t plan to speed-read it this afternoon. But it contains some interesting insights into our recent civil conversation here about the role of Fannie and Freddie, aka “The GSEs” in the housing bubble.
Among other things, the committee members note that the “interest only” loans that were causing concern were being transferred to private bond investors, not to Fannie and Freddie.
Maybe some of you would enjoy studying it over the weekend and reporting back here next week.
In Whatcom County and most other places, home mortgage foreclosures have been occurring at unprecedented levels for two or three years now.
Federal efforts to help homeowners have had limited success at best, with only a fraction of homeowners getting meaningful relief from mortgage modification programs.
But as the wave of foreclosures grows and to some extent feeds on itself, we may expect to see more government action at both the state and federal level, as political pressure grows along with homeowner distress.
The Washington Post reports that Congress is expected to confront the situation this year. Key development: Giant investors are now allied, to some extent, with homeowners to force reform of mortgage lenders’ record-keeping practices.
At the state level, Washington AG Rob McKenna and his peers in other states are several months into an investigation of mortgage loan servicing practices and foreclosure procedures.
How bad is the situation in Whatcom County? My own unofficial tally for the month of December, 2010 shows 71 homes in the county got a notice of trustee’s sale — meaning the home will be auctioned by the mortgage holder within 90 days if nothing can be worked out.
At least 36 homes were actually sold in foreclosure during the month, although these are more difficult to track online than the foreclosure sale notices. In most cases, there were no bidders at the auction, and title to the home simply went back to the mortgage holder.