More Criticism of the Bush Subprime Mortgage Plan

The Times, echoing to some extent earlier criticisms of the Bush subprime mortgage plan (referred to here and here), published an editorial titled "Show Us the Mortgage Relief," in yesterday's edition and Paul Krugman's column, "Henry Paulson's Priorities," today.  Here's an excerpt from the editorial:

The plan is too little, too late and too voluntary. Mr. Paulson and his boss, President Bush, have left it to the private sector — the mortgage industry — to protect the public interest, without any negative consequences if it does not. That is not the way the private sector works. And it is not how government is supposed to work at a time when Americans are facing mass foreclosures that threaten entire communities, financial markets and the wider economy.

Many mortgage servicers . . . fear being sued by mortgage investors. For some investors, letting a troubled borrower default would actually be better business, for others not. It all depends on how their particular security is set to pay out.

* * * [L]lenders that stick to the government-brokered guidelines have no guarantee that they cannot be sued.

And here's some of what Krugman (drawing on Elizabeth Warren of Harvard Law School and the Credit Slips blog, has to say:

[T]here’s a growing consensus among financial observers that the Paulson plan isn’t mainly intended to achieve real results. The point is, instead, to create the appearance of action, thereby undercutting political support for actual attempts to help families in trouble.

* * *

* * * Relief is restricted to borrowers whose mortgage debt is at least 97 percent of the house’s value — which means that in many, perhaps most, cases those who get debt relief will be borrowers who owe more than their house is worth. These people would be nearly as well off in financial terms if they simply walked away.

And what about people with good credit who were misled into bad mortgage deals, who should have been steered to loans with better terms? They get nothing: the Paulson plan specifically excludes borrowers with good credit scores.

How The Subprime Mortgage Implosion Has Hit One Area

This detailed, fact-intensive article in today's Washington Post describes how home foreclosures have risen sharply in recent months in the D.C. metropolitan area. 

Improving Your Credit Score By Buying Someone Else's

Check out this wild LA Times article about a San Diego company, TradeLine Solutions, Inc., that, for about $1200, effectively sells better credit scores to people with bad credit scores by putting their customers' names on paid-up mortgage loans. The company's website says its business model is "100% legal." But, according to the Times, the company's chief executive Ted Stearns concedes that other folks may not see it that way: "Are there people out there who are going to say that it's mortgage fraud?" Stearns asks. "Sure, there could be." He goes on to say that though it's "possible" that his customers might  face legal problems, but noted "that it is really hard to enforce the law." The company's website describes its services succinctly:

TradeLine Solutions is proud to be the only company offering Seasoned Primary Accounts to our customers including a Rapid Rescore! What does this mean? Now, a customer with a 550 credit score can come to us on Monday and walk into a bank by Friday with great credit ready to refinance or obtain a loan. How? By purchasing someone else's perfect credit history.

More Important Information on The Subprime Mortgage Deal - - And A Snafu In Announcing It

Several CL&P bloggers have been posting about the deal between the White House and major mortgage lenders and servicers that purports to provide some relief to some homeowners facing foreclosure in the subprime mortgage meltdown. If you are following the issue, you should check out the following:

First, how about reading the the actual deal?! As you will see, it's long and complex -- the executive summary is itself 5 dense pages long.

Second, check out three posts over at Credit Slips, where Elizabeth Warren and Bob Lawless argue that the deal is essentially worthless: Slick Deal On Subprimes; Show Us The Fine Print!; The Sandbag Plan! In the latter, Prof. Warren maintains that the deal may be worse than nothing at all because it is part of a political calculus designed to beat back bankruptcy legislation that would provide meaningful relief to homeowners.

Third, and finally, as you may have heard, President Bush caused chaos when, at his press conference announcing the agreement, he gave out the wrong toll-free number for homeowners who might benefit from the deal. See reports here, here, and here.  Watch the President give out the wrong number below.

Thursday's other Foreclosure News

by Alan White
Valparaiso Law School

Perhaps not coincidentally, the American Securitization Forum and the Bush Administration announced the “teaser freezer” plan on the same day that the latest quarterly foreclosure numbers were announced by the Mortgage Bankers Association. The numbers are appalling.

For example, in the 3rd quarter (July August and September) 4.72% of subprime ARMs went into foreclosure, up from 3.84% the previous quarter. This represents a filing rate rapidly approaching 20% per year, i.e. nearly 1 million more new foreclosures just on subprime ARMs, which represent fewer than 7% of outstanding mortgages. In one state, Ohio, 25.67% of subprime ARMs are now 90 days past due or in foreclosure. Combining all delinquencies (20%) with foreclosures (10%), 30% of all subprime ARMs nationwide are in trouble.

The rate of new foreclosure starts in the quarter, and the percentage of all outstanding mortgages now in foreclosure, for all categories combined, have now reached their highest rates ever (since MBA has done the National Delinquency Survey).

More Coverage of the Bush Administration Mortgage Meltdown Plan

The Times has a couple of interesting reports today on the Bush administration's plan to help distressed borrowers.  First, this article about people who won't be helped by the plan.  An excerpt:

Jason Bosch, president of Home Center Realty in California’s hard-hit Riverside County, [commented] “We were selling $300,000 homes to people who could only afford $175,000 homes,” he said. “Even if you freeze their payments, they still can’t handle it.”

If they knew the borrowers couldn't make their payments, why were they selling them the homes?

The second article goes into more detail about the program and includes a considerable amount of criticism.  An excerpt:

Nonprofit housing groups that try to help troubled homeowners renegotiate mortgages were underwhelmed by Mr. Bush’s plan.

The Greenlining Institute, a housing advocacy group in California that began raising alarms about subprime loans nearly four years ago, estimated that only 12 percent of all subprime borrowers and only 5 percent of minority homeowners would benefit from the rate freeze. The Center for Responsible Lending, a nonprofit group that supports homeownership, said the freeze would help only about 145,000 people.

* * *

Some Wall Street analysts were equally unenthusiastic. “This plan only really amounts to a set of recommendations for lenders that is sure to meet some resistance from investors” in the mortgage-backed securities, wrote Paul Ashworth, an economist at Capital Economics.

Latest Tool in the Subprime Fight: A Wiki

Robert Doggett, a lawyer with Texas RioGrande Legal Aid in Austin, has had no end of spare time on his hands, so he set up a wiki for homeowner advocates.

As Doggett tells it, ”There are tons of websites for borrowers and some for advocates but I could not find a wiki based one for advocates to get the latest news, legislation, and stuff like that. Therefore, in between my day job and burping my newborn daughter, I created www.foreclosurebuzz.org.”

Doggett has divided the home page into several sections: What’s Hot, Fun Stuff, and Main Topics.

If you handle foreclosures, you owe it to yourself to give this wiki a gander every so often.

Doggett wants contributors, so if you'd like to become a Wikite (Wikonian?), get in touch with Doggett.

Report on Rebate Laws

The American Association for Justice's Trial Magazine has an article here about recent litigation and legislation involving rebates.  The article mentions our blog (except that it says that I host it for Public Citizen rather than that Public Citizen hosts it and I'm just one of the people who posts to it.  Oh well).

New Study: Overweight Children Prone To Heart Disease As Adults

A few weeks ago, considerable press was given to a study that showed that people who were somewhat overweight were not at a higher risk of death than people who are not overweight.  In fact, having a bit extra weight, the study indicated, helped some people survive some illnesses.  So, are we supposed to intentionally try to carry a little extra weight?  Or not worry about being a bit overweight, but when we hit ideal chubbiness then begin to worry about sliding into obesity?

Seemingly more important is today's report on a massive study of 276,000 Danish children that "found that [kids] who were overweight when they were 7 to 13 years old were much more likely [than non-overweight kids] to develop heart disease between the ages of 25 and 71 -- even those who were just a little chubby as kids, and possibly regardless of whether they lost the weight when they grew up."  Read the study itself in today's New England Journal of Medicine.

More On The Bush Admnistrations's Mortgage "Freeze" Deal

Here's a Washington Post story on the deal the Bush Administration has apparently struck with major mortgage lenders "to freeze interest rates for five years for financially troubled homeowners -- a plan advocates say will help forestall a major foreclosure crisis but some conservatives say amounts to a bailout of people who made bad financial decisions."  The story describes the deal -- which will be announced formally by the White House this afternoon -- and discusses conservatives' complaints that the plan is at odds with their free-market principles and Hillary Clinton's complaint that it does not do enough for homeowners at risk of foreclosure.