Are We There Yet?

Are we there yet? Children ask that question endlessly on a long car trip. Federal Reserve officials are asking it about their drive to curb inflation.

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The long-anticipated “robo-signing” agreement resolving complaints about foreclosure abuses in multiple states is expected this week, but it’s not clear at this point how many state attorneys general will go along with it. That list seems to change day-by-day.

California Attorney General Kamala Harris initially deemed the settlement terms “inadequate” for that state, but news reports when this update was posted indicated that she “has returned to the negotiating table after a four-month absence” – that from the New York Times.  The Times also reported that New York Attorney General Eric Schneiderman, who had also withdrawn from the negotiations, is viewing the revised settlement terms more favorably.  Both AGs, reportedly, are happier with a narrower liability waiver provision and stricter oversight requirements – provisions that may bring these and other recalcitrant state officials on board, but may also make the deal less palatable to the targeted financial institutions.

The agreement would require states that have initiated individual actions against the mortgage servicers to resolve those pending suits.  That list includes Massachusetts, which has sued all five banks (Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial) that are part of the deal.

Settlement details haven’t yet been announced, but preliminary reports indicate that it will levy penalties of around $25 billion against the five largest mortgage servicers and mandate new foreclosure procedures, probably similar to those included in a separate agreement already negotiated with federal financial industry regulators.

Oregon Attorney General John Kroger – one of the AG’s who has accepted the agreement, told reporters that, while not perfect, it is probably the best the states could get, providing the fastest relief possible for consumers who have been harmed by the foreclosure violations.   

“I am not confident we could get a better agreement on this limited set of issues if we litigated for several more years,” Kroger said in a press statement.  The agreement is drafted narrowly enough, he noted, to allow states to pursue expanded investigations of other issues – specifically mortgage securitization practices – that, many contend, also contributed to the mortgage foreclosure crisis.

How many of the AGs who have balked in the past will ultimately agree with that assessment remains to be seen.  But some consumer advocacy groups are already criticizing it.   

The agreement is “beyond fixing,” George Goehl, executive director of National People’s Action, told Bloomberg News.  “People are very disappointed in what this is going to be both in terms of dollars and release of claims,” he asserted, adding, “We’re giving away the store.” 


Massachusetts Attorney General Martha Coakley, who has not yet indicated whether she will sign the revised multi-state robo-signing agreement,released some statistics recently underscoring the extent of the mortgage crisis in the Bay State and, implicitly, supporting her decision several months ago to opt out of the negotiations.

Cooley’s office tallied 983 mortgage and foreclosure-related complaints filed last year, a four-fold increase in the past two years, far outstripping all other categories of consumer complaints. The complaints were filed with the state’s Public Inquiry and Assistance Center Hotline, plus other agency offices and non-profit assistance centers.  

“This data confirms what we have known for some time – the subprime lending and foreclosure crisis is a major concern for homeowners who are often faced with losing their most valued possession,” Coakley said in a press release.

The statistics support her decision to pursue separate actions against five of the nation’s largest mortgage servicers (Bank of America, Wells Fargo, JPMorgan Chase, Citi, and GMAC), Coakley suggested, noting, “[R]esolving this foreclosure crisis is the single most important thing we can do to restore a healthy economy.”  


Another day, another Obama Administration effort to help homeowners avoid foreclosure.  The latest initiative, which President Obama unveiled in his State-of-the-Union address, targets approximately 3.5 million homeowners excluded from existing assistance programs because their loans weren’t sold to Fannie Mae or Freddie Mac. 

Eligible homeowners, who would have to be current on their existing loans and meet fairly flexible underwriting requirements, would be able to refinance at today’s lower interest rates, even if they have little or no equity in their homes.   The Federal Reserve estimates that more than two-thirds of the 12 million underwater borrowers are current on their loans. 

The plan has gotten mixed and largely predictable reviews – support from consumer advocates and liberal Democrats; opposition from conservative lawmakers and economists. 

“This is a positive plan that is mostly simple common sense,” Dean Baker, co-director of the Center for Economic and Policy Research, told the Washington Post.  “Why shouldn’t we want underwater homeowners to benefit from the low-cost financing available to everyone else?”

"We've done this at least four times where there's some new government program to help home owners who have trouble with their mortgages [and] none of these programs have worked,” Speaker of the House John Boehner countered. “I don't know why anyone would think that this next idea is going to work."

Boehner’s comments underscore what is likely to be a major obstacle for this new initiative – it will require Congressional approval.  And that won’t come easily, partly because of the political dynamics in a presidential election year, but also because the Federal Housing Administration (FHA) would guarantee the refinanced loans, and that agency is already struggling with outsized claims against its insurance fund.  Financial institutions also are unlikely to embrace the plan, which would be financed in part by a new tax on banks. 

“The mass refinance proposal will have appeal to those that are sitting in homes, underwater, and feel like they have been left on the sidelines during this interest rate rally that has brought mortgage rates to near historic lows,” David Stevens, president and CEO of  the Mortgage Bankers Association, told the Washington Post. “[But] the funding mechanism, the moral hazard, the re-default risk, and the role of government intervention in housing will likely create divides on both sides of the debate that will make the likelihood of this moving forward an uphill climb.” 


As the Obama Administration tries to launch another foreclosure prevention plan, yet another oversight report has concluded that the Home Affordable Mortgage Program (HAMP), the focal point of Administration assistance efforts to date, has fallen far short of its goals.  Actually, a more fundamental problem has been the lack of clearly stated goals to guide the initiative, a Congressional oversight panel concluded. 

Sen. Ted Kaufman (D-DE), the panel’s chairman, said he wouldn’t brand the program a failure as many critics have, because it has helped many homeowners but not nearly as many as hoped.  "This has turned out to be a lot more complicated and a lot harder" than expected, Kaufman told reporters.  As a result, the program “has just turned out to be smaller and has had a lot less impact" than anticipated.

The oversight report cites a familiar litany of problems that have plagued HAMP from its inception, among them:

  • Conflicting incentives for lenders, who would benefit from refinancing underwater borrowers and mortgage investors, who benefit more from allowing lenders to foreclose.
  • Reliance on incentives to encourage servicers to participate rather than regulations requiring them to do so.
  • Inability to overcome the resistance of second mortgage holders, who blocked many refinance requests.

For these reasons and many others, HAMP's straightforward plan to encourage modifications has proven ineffective in practice," the oversight panel concluded. 

Responding to the report for the Treasury Department, Tim Massad, acting assistant secretary for financial stability, termed its critique “somewhat unfair,” because it ignored, or at least discounted, the more than 500,000 homeowners who have been assisted by HAMP.  “That’s a lot of people,” he told reporters.

He acknowledged that the program has faced many challenges, including the need to balance aid to struggling homeowners against the obligation to reduce the burden on taxpayers as much as possible by ensuring that owners whose loans are modified will be able to handle the future payments.  

The biggest problem with HAMP, the oversight panel said, was the failure of Treasury officials to recognize and respond to its shortcomings quickly enough to make it effective.  With the government-funded bailout program ending in a few months, the report notes, "the ability to [make] any major modifications to the program has been lost.”  As a result, “an untold number of borrowers may go without help - all because Treasury failed to acknowledge HAMP's shortcomings in time."  


Consumers are making huge strides toward whittling down their credit card debt, which is good for their personal finances but could be bad news for the economy.

Credit card debt outstanding declined by 11 percent last year, with reductions in consumer debt loads recorded in every state.  Average balances declined from 7,404 to $6,576, according to statistics compiled by 

Analysts cited the sluggish economy and lingering concerns about the pace of the recovery and the employment outlook as the major factors encouraging consumers to reign in their debt.  Signs that the economy is strengthening may reverse that trend, CreditKarma CEO Ken Lin said.  “I believe we are just about at the bottom of the debt trend," he noted.

Reflecting the conflicting economic signals that have characterized the economic recovery, another recent report found that consumers are beginning to increase their spending, and are raiding their savings in order to support that renewed activity.

A noticeable pick-up in consumer spending at year-end was fueled by declining savings rates, Federal Reserve analysts reported, and Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, finds that trend worrisome. 

"I question whether this consumer spending momentum will be sustained without a pickup in income growth," he told Reuters in mid-January.

The January employment report was considerable more positive than most analysts had expected, suggesting that income growth may, in fact, provide more support for spending than Lockhart saw in January. 

"It's not like it was a year or two ago when it really felt like a recession, and there was no job growth," Scott Hoyt, a senior director of consumer economics at Moody's Analytics, told Reuters. "It's better than that and you can see that in the spending. But there's still no reason to go back to the free-spending days prior to the recession."

Mark Vitner, managing director and senior economist at Wells Fargo Securities, sees fundamental changes in consumer spending patterns that will become more apparent over the next year or two.  With employment prospects better, but still far from robust, and the housing market likely to remain depressed for several years to come, Vitner told Reuters, Americans are still coming to terms with fact they're not going to earn as much income as they once thought and they are not going to have as much wealth.  They are now trying to work out how they are going to have to adjust their lifestyle to fit that."