Elizabeth Warren: We Must Open Our Wallets To All Deadbeats Everywhere Always

What does it say about Washington, DC's professional class when out of five people overseeing a $700 billion Treasury Department program, only two of them show any concern for American taxpayers, and one of those two is a member of Congress?

The Congressional Oversight Panel (COP) for the Troubled Asset Relief Program has put out a 210-page report [pdf] on foreclosure mitigation efforts. The amount of special pleading in this report shocks the conscience. COP has an interesting story to tell: that Treasury's decision to commit $50 billion in TARP funds to the Home Affordable Modification Program (HAMP) is a fiasco. But instead of sticking to that truth, COP repeatedly uses the program's failures as propaganda for expanding the program.

We're told, for example, that "the foreclosure crisis has moved beyond subprime mortgages and into the prime mortgage market" and that a crisis once limited to "home flippers, speculators, reach borrowers...and homeowners who were sold subprime refinancings" has now engulfed "families who put down 10 or 20 percent and took out conventional, conforming fixed-rate mortgages to purchase or refinance homes that in normal market conditions would be within their means."

First of all, this is overblown. The most recent OCC Mortgage Metrics Report has prime mortgage default rates at 3 percent -- double the usual average, but unalarming. Rather than bringing in outside reports, though, let's be sporting and find the inconsistencies within COP's own report. On page 30, we learn that "as many as 50 percent of at-risk mortgages also have second liens. Therefore, it is critical that second liens be addressed as part of a comprehensive mortgage modification initiative."

Those second liens, boy, they're like secondhand smoke and gay sex. You're just sitting there minding your own business when some goon comes along, hands you a barrel of money, and then expects you to pay it back. My heart goes out to all those families with fixed-rate confirming loans who put down a large equity portion and yet mysteriously are getting stuck by a greedy second lien holder. And the pixies, the sprites, the leprechauns and the centaurs -- my heart goes out to all of them too.

What makes the report interesting is that it's not the work of conscious idealogues but of earnest good-government believers. In a way, picking out the chop logic and weird passive phrasings (duly aped by the media in, for example, this A.P. piece that says foreclosures are "stalking" innocent home borrowers) is too easy. This is just what happens when smart, honest people try to tell dumb lies. Characteristically, the report brushes past what should be an "oversight" committee's main concern: that Treasury's accounting of TARP expenditures is laughably thin and incomplete.

In fact, it's because Chairwoman Elizabeth Warren (making the case for an improved and expanded program on the YouTubes here) and her cohorts believe they are acting in the nation's best interest that we need to remember something: This is not some nearly theoretical public choice exercise, where the distributed costs to taxpayers are balanced against the concentrated benefits to some group. To the (mercifully limited) extent a foreclosure modification program works, it imposes a very concentrated cost on a very large group: home buyers. There are millions upon millions of Americans out there who want to buy homes and would be able to do so if homes were affordable. If the Treasury Department wants to help out homeowners, it will let house prices lose whatever amount they still need to lose (I'm calling it 30 percent) to make home-buying an attractive proposition again. (And it's worth noting that the Secretary of the Treasury has a direct personal financial interest in supporting inflated home prices.)

And so I suggest you dispense with the main report and skip right down to page 138, where the dissents begin. Rep. Jeb Hensarling (R - TX)'s opinion makes the case against expanding foreclosure mitigation programs with great coherence and ample documentation.

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  • ||

    We're from the government, and we're here to help.

  • ||

    Fool that I was, I thought paying my debts was the correct thing to do.

  • smartass sob||

    Debts? What debts? We ain't got no stinking debts!

  • Phil||

    It is the correct thing to do... until it isn't. All the ethics and morality that mater are contained within the four corners of the contract you entered. "Deadbeat be damned"

  • smartass sob||

    Notice how the word debt could easily be a contraction for the word deadbeat.

  • loanless are the brave||

    Damn! I paid off my mortgage today. Seemed like a good idea at the time. Only fools and horses...

  • Tim Cavanaugh||

    Egg-cellent alias.

  • DJF||

    No, what is important is not whether or not you pay your debts but that Citi Bank, Goldman Sachs and the rest of the Federal Reserve Banks buddies get paid back. So if you can’t or don’t want to pay the money back the government will either get the taxpayer to pay it back or simply borrow money in the name of the future taxpayers to pay it back. If the government did not do this then the scam of bankers lending out $100 for every actual dollar they have might collapse along with the banks and the government

  • smartass sob||

    The bankers' scam will probably collapse anyway eventually, but I think the government would declare a state of emergency or martial law before it would give up power. In which case a "new" dollar or currency would be created by them and forced on us.

  • cmace||

    After they end the scam of fractional reserve banking you need to go one step further.

    Put marks on your gold coins. Then a few months later go to the bank and demand to see your coins. If they can't show you your coins put them to the sword.

    That's how they did it in the middle ages.

  • smartass sob||

    Why would any libertarian keep gold coins in a bank? Sheesh! That's the first place the government will look when it decides to confiscate them.

  • ||

    But ya gotta admit, the thought of "putting bankers to the sword" has a certain appeal.

  • ||

    And lawyers. Don't forget the lawyers.

  • Ebeneezer Scrooge||

    And now they're saying the FHA may need to rape the taxpayer base just like everybody else, er, I mean it may need a federal bail out.

  • smartass sob||

    I wonder if the taxpayer base will be "not unresponsive." :-)

  • ||

    If the Treasury Department wants to help out homeowners, it will let house prices lose whatever amount they still need to lose (I'm calling it 30 percent) to make home-buying an attractive proposition again.

    It has nothing to do with that. It's about keeping home prices inflated because of the large number of already foreclosed homes that banks own.

    And wait until these "zero liability" commercial loans come up for refinancing. There are already huge amounts of empty retail and office space. If the property owners don't like the terms, they can simply walk away, and leave the banks holding all the properties. Then the bottom feeders come in and offer 30 cents on the dollar. Or, the banks can hold onto unprofitable properties. Who's going to eat those losses? In and of itself it probably wouldn't be much of a problem, but given the current state of some these banks, it could be the straw....But then there's always TARP II?

  • Solanum||

    Our commitment, customer is God.

    Well it seems my agnostic fencing-sitting days are over.

    Bow before me, fools!

  • ||

    Teh CRISIS has now engulfed "families who put down 10 or 20 percent and took out conventional, conforming fixed-rate mortgages to purchase or refinance homes that in normal market conditions would be within their means."

    Let me guess: these people are "underwater" and therefor tragic victims, despite the fact they willingly offered to purchase a home at a price which they deemed to be appropriate at the time, and still have jobs and the financial ability to continue making their payments.

    I'll go read some more.

  • ||

    Then the bottom feeders come in and offer 30 cents on the dollar.

    This is as it has heretofore been, and as it should be. Reward failure, and you sure as hell won't get less of it.

    And, to toss in the nearly obligatory Josey Wales quote:

    "Worms gotta eat. Buzzards, too."

  • JB||

    As a renter, to say this shit makes me angry is an understatement.

  • LarryA||

    To the (mercifully limited) extent a foreclosure modification program works, it imposes a very concentrated cost on a very large group: home buyers.

    Note it has nearly as much impact on home sellers. It doesn’t make any difference how much your house is “worth” if no one can afford to pay you for it.

  • ||

    Note it has nearly as much impact on home sellers.

    A government program designed to spend tax revenue to slow foreclosures on homes benefits the owners of the homes. For the most part that would be the government's best pals: too-big-to-fail banks.

    If home prices fell to the point that buyers could purchase a home without a loan, both the government and the banks would be screwed. The banks would have no interest to charge on a loan and the government would have to interest income to tax.

  • ||

    "If the Treasury Department wants to help out homeowners, it will let house prices lose whatever amount they still need to lose (I'm calling it 30 percent) to make home-buying an attractive proposition again."

    As someone whose household income is $140000 a year, but can't afford to buy a two bedroom house in my neighborhood, I hope this happens soon. I find it fascinating that although everyone agrees housing prices have collapsed from an unsustainable bubble, everyone also seems to be praying prices will start going up again.

  • Chad||

    I agree. Houses will continue to fall in value until they reach a level where they are affordable to young, new buyers. We can afford to spend about 2.25 our incomes typically.

    We aren't there yet in much of the country. However, we are getting closer, probably close enough that prices will simply stagnate for years until inflation finally gets the price right.

  • ||

    The dirty little secret is that the mortgage servicers and the mortgage trusts are manufacturing those defaults. THATS why they are "stalking" homeowners. I'm in federal court now about to shut them down here, where they have been stealing homes by the THOUSANDS. Watch this space, as they say.

  • Tim Cavanaugh||

    OK, I'll bite: How can you manufacture a default if the borrower can say, "Here are all the checks I wrote, and here are my bank statements showing they cashed, and here is my most recent monthly mortgage statement showing that I'm up to date"?

  • ||

    I wish conscientious renters would unite and demand the same treatment as deadbeat homedebtors. If we renters come on hard times, we get 3 days to pay or get evicted. Not 30 days to work out a payment plan, not 6 months to a year of free living during some moratorium, but 3 days before the landlord can move to evict us. And yet with all the talk about keeping people in their homes, nobody cares about keeping *renters* in their homes. If renters demanded similar treatment in terms of "lease modifications," all this B.S. would end tout de suite.

  • emw||

    lindalinda: i think if landlord defaulted on the property ownership and rentor has no funds to pay, the rentor should remain the permanent resident of the property

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