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Prior to last weeks State of the Union address, Van Jones and George Goehl wrote a blog on The Huffington Post questioning whether or not President Obama would make a “sweetheart” deal with the banks – one that would cost them far less than what they’ve cost the American homeowner, in turn for full immunity from future lawsuits.

Well, it’s been a week and no announcement has been made yet, but that doesn’t mean we’re in the clear. Big banks hold enormous power in Washington and from everything I’ve read and heard, it’s unlikely a deal that supports the 99% will ever be realized. Still, Jones & Goehl have a very good idea of what real accountability would look like and I think it’s worth sharing some of their thoughts. Here are some of the guidelines Jones & Goehl believe the administration should follow:

1. Banks must pay a minimum of $300 billion in principle reductions for homeowners with underwater mortgages and/or restitution for foreclosed-on families.

Agreed. I’ve long been an advocate for principle reductions and it increasingly seems that people are coming around to feel the same. As the blog notes, U.S. banks raked in $35 billion in profits last summer alone, while sitting on cash reserves of $1.64 trillion. With the economy still in shambles, those profits would have been significantly less had the banks not been provided with TARP money. Keeping banks strong was one reason the money was leant out, ensuring that banks remained solvent. However, the money was also intended to provide assistance to homeowners in need and only a fraction of the money made available was sent in that direction.

2. There must be a full-fledged, full-blown investigation into Wall Street financial fraud, by the Department of Justice.

I agree with this as well. It would be virtually impossible for us to avoid a scenario like this again in the future, if no one is held accountable. Those responsible need to pay for their crimes. Fines, jail time and the inability to be in a position to commit these crimes again are all methods that must be used. Sadly, to date no one from the SEC has lost their job due to their oversights, while few charges have been brought against those in the banking/finance industry, minus a handful of ponzi-schemers. Unacceptable.

3. There should be no civil or criminal immunity for the banks from future lawsuits.

Just like the second point, accountability is a must. A strong banking system is essential (no argument here) but regulations are essential. There is no reason we can’t have appropriate banking regulations in place – which still allow capitalism to thrive – but with the appropriate checks and balances. Banks that acted irresponsibly must be exposed and regulations based on those actions must be put in place. Once again, if we don’t learn specifically how we got here and hold those responsible accountable for their actions, it’s going to be extremely difficult to put the necessary measures in place to keep history from repeating itself.

Many people argue that President Obama has done a poor job in his handling of the banking/housing crisis. Standing up to the big banks, forcing accountability and not letting them off easy, will go a long way in reversing that assessment – especially, with the 99%…

As the Obama administration continues to seek out the best route for fixing the housing market – which in turn, should help fix the entire economy – at least one Republican candidate has his own idea.

Rick Santorum, the former Senator from Pennsylvania and recently declared winner of the Iowa primary, seems to think we should just wait it out. In an article from Reuters Thursday, Santorum apparently told a potential primary voter in South Carolina “Markets have to find their bottom. Let the marketplace work and then build from there.”

As Reuters noted, the constituent he spoke with was less than impressed.

While I’ll be the first to concede that the President hasn’t done what has been needed to fix the housing mess, he certainly understands that letting the markets work themselves out is not the answer either.

As we enter what is basically year 5 of continued depreciation in most U.S. real estate markets, there are two conclusions most people have arrived at as ways that will not turn things around:

1) Provide the banks with billions of dollars in bail out money and hope it’s used to successfully modify mortgage payments and help keep people in their homes.

2) Let the markets “work” and wait for the upswing.

Yet, it seems like the second option could be the campaign cry for the Republican Party, as they try to secure Tea Party voters who believe no government is good government.

While I understand the argument against government intervention, let’s be realistic. If we’re happy with the status quo, then fine, let the markets work themselves out and prolong the problem for another decade, if not longer. But if the goal is to stabilize housing and in turn, the economy as a whole, then that will not work – whether you like it or not.

Too many homeowners that did nothing wrong – borrowed responsibly, paid their mortgage on time, etc. – are now caught in the net unleashed by the mortgage meltdown. They can’t sell their homes because the values have dropped too much, leaving owners too far underwater. As more and more people walk away, prices plunge further pulling more and more people in.

As I’ve said in the past, most are casualties of a decimated housing market that they had little or no part in causing.

Last week, I blogged about the report out of the Fed discussing the various problems plaguing the housing market, as well as some possible fixes. While the report debates various ideas, it does share one certainty – something must be done.

In a blog Tuesday on The Washington Post website, Ezra Klein discussed the possibility of President Obama (based on the suggestion of two Columbia University professors) authorize Fannie Mae & Freddie Mac lower the interest rates on millions of mortgages to where there rates currently are – around 4% to 5%.

The idea being the rate cut will act as the equivalent of “a high-powered tax cut” for those who took advantage of it. Further, the study released by the professors concluded, “Empirical evidence suggests that consumers spend a larger portion of permanent increases in income than temporary increases.“ These cuts would be permanent, meaning more money would be infused into the struggling economy.

I’m a little further to the extreme, thinking principle reductions are the only way to go. The point is, those who have followed the housing crisis closely virtually all agree that something must be done. Too many other components of the economy rely on stability in the housing markets and simply put, waiting will delay the overall recovery…

As election season heats up and the President’s opponent is decided on, I’m curious to hear how/if the rhetoric changes. Should the Republican candidate take the same stance as Rick Santorum, they could be in for a rude awaking when they encounter the millions of potential voters on the campaign trail, tied to the housing mess and looking for the fix…

On Tuesday, Federal Reserve chairman Ben Bernake released a white paper detailing the current conditions and policy considerations of the U.S. housing market. The study, which was released to leaders of the Senate Banking and House Financial Services committee, provided observations from the real estate collapse and mortgage meltdown to date, while offering potential resolutions.

At first read, much of the 25-page document reeks of “no kidding”. Many of the observations are obvious and very 2009. So are some of the proposed fixes.

Still, much of what was written needed to be brought to light, for those who don’t follow this sort of thing closely. Below, I’ve summarized some of the observations and potential fixes…

Highlights from the “Observations”:

• U.S. house prices declined 33% from their 2006 peak.
• More than $7 trillion in home equity was lost.
• The ratio of home equity to disposable personal income has declined to 55% - far below levels seen since this data series began in 1950.
• Currently, 12 million people are underwater on their mortgages.

Further, the report discusses the various hindrances to recovery, such as: difficulty in securing credit/mortgages; servicer issues (efficient processing of files, overwhelmed loss mitigation departments and the frequent financial incentive to foreclose versus homeowner assistance, i.e., short sale, loan modification, etc.); the cost and community impact of foreclosure; and unemployment.

The latter – unemployment – was something I’ve been waiting to see tied to housing in greater detail. As the report states:

“Another issue is the fact that many borrowers have gone delinquent or have defaulted because of income loss resulting from unemployment or other presumably temporary factors, which impairs their ability to meet previously affordable payment obligations. The basic HAMP modifications focus on longer-term payment reduction to a level that can be supported by the borrower’s income at the time of modification. This approach is often ill suited for those who have lost their jobs because the income of the unemployed borrowers is generally quite low.”

This is a conclusion that shouldn’t have taken 4 years to reach. We regularly hear about lenders telling borrowers “what a great deal they’re getting” when (if) a modification is offered. What they don’t get is if the borrower has lost their job, the only payment that works for them is $0. The example I like to use, is offering someone a Ferrari for $150k, when it usually sells for $250k. Great deal? You bet, but I still can’t afford it…

Highlights from the “Fixes”:

• Investigate whether the degree of “tightness” in the current mortgage market accurately reflects sustainable lender and appropriate consumer protection. Try to find an appropriate balance.
• Remove some of the obstacles to refinancing.
• Create loan modifications that make sense for each household, instead of blanket payment reductions. For example, if someone is unemployed, offer a 12-month forbearance program instead of a lower payment that they still can’t afford.
• Consider a more streamlined system for foreclosure alternatives like short sales & deed-in-lieu’s.
• Consider principle reductions
• Improve accountability and re-align incentives for mortgage servicers.
• Consider an REO to rental program.

My thoughts:

All of the above “fixes” are excellent (if not somewhat delayed), steps in finally fixing this mess. It won’t be quick and it won’t be easy, but any combination of the above could get housing back on the right track.

Of all the fixes proposed, however, I expect the potential REO to rental program to be the most controversial.

As noted in The Huffington Post last month, fair and affordable housing advocates were rejecting the idea of receiving this type of assistance from the financial sector.

“It’s really a question of whether the banks that made so much money creating this crisis are going to profit again,” - Jeremy Rosen, policy director at the National Law Center on Homelessness and Poverty

He makes a point – the thought of big banks profiting from this mess is unconscionable. However, if tight regulations are put in place and there is an even mix of bank, for-profit and not-for-profit entities in place, it might be what’s best. We will have millions of homes on the market for years to come and there is no way they can be filled without some sort of rental or rent-to-own arrangement.

As I’ve written in other blogs recently, it’s long overdue that housing receive more attention, in the context of the overall economy. Hopefully, some the ideas presented in this report will be given some serious thought by those who have the power to do something about them…

This past weekend marked three months since the “Occupy Movement” began, starting with the “Occupy Wall Street” protest that took over Zuccootti Park in lower Manhattan back on September 17th.

The movement – which supports among other things economic inequality – has taken perhaps the strongest stance against corruption within the banking industry and the influence big banks have on the US government. The US economy was brought to the brink of collapse and to date, no one has really been punished for it.

People want answers, accountability and change.

The protests have been a means for the “99%” (a reference to the large concentration of wealth among the top 1% of income earners, compared to the rest) to be recognized and for their stories to be told.

Since it’s inception, the movement has spread around the world and continues to remain relatively strong – at least, relative to the duration of most protests.

Recently, the movement began taking on the housing crisis. Earlier this month, Occupy Our Homes (OOH) held a “national day of action” calling attention to the foreclosure crisis and the mistreatment of homeowners by big banks.

For the past several years, stories of people being removed from their homes – often illegally and without due process – have made headlines all over the country.

Now, the OOH movement is helping people fight the foreclosure process and stand up to the bank(s), by either remaining in their homes, or going back to homes they’ve been removed from and “re-occupying” them.

As you read the various stories posted on the OOH website, there is a general theme: banks received billions of dollars in bailout money from the government, which was specifically meant to help those with legitimate needs for assistance to stay in their homes. So far, only a fraction of that money has been used for its intended purpose.

One story – from our backyard here in metro Detroit – chronicles a family who said they would not comply with any foreclosure or eviction from their home. They purchased the home 7 years ago for $140k. It’s now worth only $40k-$50k. After an illness in the family, they could no longer make their payments. As the OOH website points out:

“The mortgage was originated by Countrywide Financial, which was later bought by Bank of America. Bank of America then received $45 billion in federal bailout funds with the expectation of issuing mortgage modifications to families like the Henrys. Bank of America’s CEO Brian Moynihan made $10 million in 2010 in cash and stock bonuses. Instead of using the government bail-out to arrange a more reasonable payment for the Henrys, Bank of America sold the loan to federal loan guarantor Fannie Mae, likely making a profit.”

As of December 6th, the family said they were still willing to work with Fannie Mae, but no one was returning their calls.

The event brought national attention to both the homeowners situation, as well as the goals of the movement. Similar events have been held across the country in Atlanta, Minneapolis, New York, Chicago, San Francisco, Seattle and more.

In the end, many of those either staying in or “re-occupying” their houses will end up losing the battle and their homes. The law looks at contracts and usually doesn’t take fairness and equality into consideration.

However, if the movement can keep even a couple extra people in their homes, while bringing broader attention to the banks poor handling of the foreclosure crisis, it could make the Occupy Our Homes movement as important as the Occupy Wall Street movement…

“On the application, you don’t put down a job; you don’t show income; you don’t show assets, but you still got a nod. If you had some old bag lady walking down the street and she had a decent credit score, she got a loan - You’ve got somebody making $20,000 buying a $500,000 home, thinking that she’d flip it. That was crazy, but the banks put programs together to make those kinds of loans. The bigwigs of the corporations knew this, but they figured we’re going to make billions out of it, so who cares? The government is going to bail us out. And the problem loans will be out of here, maybe even overseas.” – James Theckston, former regional vice president for Chase Home Finance in southern Florida.

For the better part of a decade, this is how business was done with banks and mortgage companies. If you had a heartbeat, you could “own” a home. No questions asked.

When everything fell apart, blame was tossed in many directions – though the brunt of it seemed to fall on the shoulders of those being foreclosed on: people accused of buying more than what they could afford, while taking out irresponsible loans.

Now, James Theckson is coming clean and helping to dispel some of those myths by calling out his former contemporaries. As Nic Kristof noted in the New York Times last week, the former Chase regional VP is now acknowledging that he and other bankers are mostly responsible for the country’s housing mess.

Granted, he’s a “former” VP with Chase, so you have to take his newfound wisdom with a grain of salt, but it supports an argument I’ve been making since the start of the real estate crisis and ensuing mortgage meltdown – low-income families becoming homeowners are not the cause of the meltdown.

A component? Sure, but not the cause.

There is no doubt that the blame can be spread around. People at every income level over-extended themselves and bought more than they could afford.

Now that the bubble has burst, I assure you the home with a mortgage of $1 million that’s only worth $350k, is far more damaging to banks (and economy in general), than the home that was worth $50k and is now only worth $25k.

The real problem, however, was the creation of the bubble.

As prices skyrocketed, people who didn’t want to overextend themselves ended up doing it out of necessity. In various parts of the country, waiting for something “affordable” wasn’t an option. People knew they were spending more than they could afford, but if they didn’t move forward, they’d lose out and end up having to pay more on the next offer, as prices continued to climb.

Making matters worse were aggressive mortgage brokers and representatives advising people that the home was an investment, so it would be ok to extend themselves now because they’d make it back as the value increased. Even if it meant doing an interest only loan, it was ok, you could refinance in a couple years and start paying down the principle then. “No problem!”

I can only imagine how many people heard “no problem” from a mortgage rep between 2000 and 2007.

On the other end of the income spectrum, low-income families were being told the dream of owning their own home was now a reality. With the promise of no money down combined with mortgage payments that were less than a rental payment, the idea of homeownership seemed too good to walk away from.

Unfortunately, few states required that mortgage reps be licensed, so it was very easy to sell someone - rich or poor - on something the mortgage rep knew wasn’t good, or safe: to tell them “no problem” when in fact, they knew down the road there would be big problems. There were, quite simply, very few repercussions for those peddling the loans irresponsibly.

Yes, personal responsibility says people should read the fine print, but reading doesn’t necessarily mean understanding. Regardless of education level, most are clueless when it comes to mortgages and it can be reasoned that you should be able to at least moderately trust the guidance of your mortgage rep.

So while there is no doubt that borrowers made mistakes that contributed to the mess we’re in, our friend from Chase expands on the much larger problem – the banks.

In the NYT article, Kristof writes: “One memory particularly troubles Theckston. He says that some account executives earned a commission seven times higher from subprime loans, rather than prime mortgages. So they looked for less savvy borrowers — those with less education, without previous mortgage experience, or without fluent English — and nudged them toward subprime loans.”

The truth is, it wasn’t only the less educated who were less savvy. People in just about every tax bracket were taken advantage of and in turn, the foreclosure epidemic has affected everyone.
The question I’m often asked is, how were the banks were able to dump as much money as they did into the mortgage markets, allowing more people than ever to qualify for a mortgage? How was that much money all of a sudden available to – seemingly – virtually anyone? Where did it come from? I’ve heard many theories, but one of the more interesting theories goes like this:

After 9/11, the Federal Reserve infused the nations largest banks with cash to prevent the financial markets from collapsing under the weight of the terrorist attacks.

When the markets remained (relatively) stable, the lenders held on to the money, used it to sell mortgages to anyone who could fill out a form, paid back the Fed thanks to skyrocketing property values – often based on shady appraisals – and let business boom.

No doc loans. No interest loans. You name it. Say what you want about the borrowers, but they didn’t invent the ridiculous programs they were sold. The banks did and – as the article points out – they were pushed heavily from the top down.

To make matters worse, people were encouraged to use their homes as ATM’s by refinancing into even sketchier mortgage programs, stripping all equity from the home and ensuring that prices would tumble with even the slightest hint of a recession. Which is exactly what has happened.

Since then, the larger banks have weathered the storm; while homeowners have seen their life savings evaporate to nothing. To add insult to injury, the very people who often talked borrowers into the higher purchase or sketchy refinance, are now the one’s lecturing those underwater on moral responsibility regarding their mortgage-related obligations.

That is, until now.

Kudos to Mr. Theckston for admitting the role he and his contemporaries played in helping to create this mess – hopefully, this is a beginning of a trend. It might not help the hundreds of thousands of borrowers who have lost their homes and savings to date, but it will eventually help hold those truly responsible for this mess accountable… the banks.

Over the course of the recent real estate collapse, many homeowners have become familiar with Mortgage Electronic Registration Systems, Inc. (MERS) – a company developed by the mortgage industry to keep track of the servicing rights on home loans. It was designed as a paperless property registry to facilitate the transfer of mortgages.

Simply put, MERS allows properties to change hands without the necessity of recording each transfer.

As banks bundled mortgages together and resold them, it became increasingly difficult to prove who actually owned the MERS-related properties the mortgages were attached to.

When the real estate bubble burst and home values plummeted, the foreclosure rate skyrocketed.

As people dug in to fight to keep their homes, many began questioning who actually owned those properties and the legality of foreclosing without proof of ownership.

Last spring, the Michigan Court of Appeals ruled that MERS did not meet the requirements under state statute to foreclose by advertisement.

That decision meant that banks could still foreclose on your home, but they would now have to do it judicially – through the courts.

Prior to that decision, your lender could foreclose by advertisement: meaning the lender must post a notice over four consecutive weeks in a newspaper that covers the county in which the property sits. Within 15 days of the first publication, the lender must also post a copy of the advertisement on the premises.

As is often the case, many people saw the headlines, but didn’t read the content. They assumed that as long as their mortgage was somehow connected to MERS, they couldn’t be foreclosed on. Unfortunately, they were wrong.

Now, it seems like foreclosures by advertisement can resume.

On Wednesday, the Michigan Supreme Court overturned the lower courts decision, allowing the MERS to resume foreclosures non-judicially, taking us back to where we started. In a 4-3 decision, the prevailing judges wrote that the electronic mortgage database is a valid record holder.

Still, there are other suits in Michigan that have been brought against MERS – and different angles to the argument that haven’t been approached, so the issue isn’t over yet.

What does this all mean to you?

It means that uncertainty around MERS and how they can foreclosure might continue for the time being, but I wouldn’t sit around and wait for a conclusion. It’s still in your best interest to work with your bank on the various loss mitigation options available (loan mod, short sale, etc.), as opposed to just assuming they can’t foreclose. They can, and they certainly will try…

The movement to transfer money from big banks to smaller, local banks and credit unions has gained some serious momentum over the past few years.

From websites like moveyourmoneyproject.org to bloggers handing out flyers in front of branch (and corporate) offices of the “too big to fail” banks, the word is out on the benefits of banking smaller and local.

Earlier this week, The Detroit News profiled several metro-Detroiters who made the move themselves.

I’m a firm supporter of the movement and have closed several accounts with some of the larger banks myself, but be warned – smaller might not be the way to go for all your lender/banking needs.

Those looking for a mortgage should inquire about more than just the current rate, when dealing with the smaller local banks and credit unions – most of whom have had limited exposure to the mortgage market.

Without feeling the pain many of the larger banks have felt, it’s been our experience that smaller banks and credit unions have been far less willing to negotiate when it comes to short selling your home.

In many instances – with credit unions particularly – full repayment was expected in return for short sale approval. With the larger banks and lenders on the other hand, it’s fairly common to negotiate the deficiency down to 20-25% of what’s owed.

In part, it’s just the cost of doing business for the larger banks. With heavy exposure to the mortgage crisis, they’ve been forced to negotiate better deals – simply because the cost to accept a short sale and cut their losses is far less than foreclosing and pursing. Especially, if the person they’re pursuing is insolvent – which is often the case.

The number of situations where a smaller bank or credit union decides to play hardball, only to take a loss when the borrower can’t be pursued, is dwarfed by what the larger banks would face if they took the same stance/risk.

Smaller banks and credit unions are fantastic for checking accounts, savings accounts – most personal banking. They might be the right place for your mortgage as well, but do the research before committing…

Earlier this week, President Obama announced that the Federal Housing Finance Agency (FHFA) would be making changes to one of their programs, allowing more homeowners to refinance their current mortgage.

Specifically, those who currently owe more than what their home is worth.

With 28% of US mortgages underwater (roughly 11 million), it’s been virtually impossible for almost 1/3 of homeowners to refinance for the past 5 years or so. Without contributing – often a sizable amount – cash at closing, many have been forced into foreclosure when the various hardships that accompany a recession, prevented them from keeping up with their payments.

For those who have continued to pay on time, many have been forced to scrape by, limiting any discretionary income.

Both segments have had a huge impact on the economy.

From a White House Blog post by Gene Sperling, 10.24.11:

Helping more responsible borrowers refinance their mortgages (10/24/11): Today, the Federal Housing Finance Agency (FHFA) announced a set of changes to help a greater number of creditworthy borrowers refinance – particularly those who are underwater on their mortgages. By eliminating the maximum cap on underwater borrowers participating in the program, as well as eliminating certain risk-based fees and encouraging competition by addressing the issue of representations and warranties, these changes should help more Americans save several hundred dollars each month by taking advantage of today’s historically low interest rates.

Make no mistake, this will certainly help, but it’s not enough.

By allowing more people to refinance, up to a million homeowners will receive at least some relief via a reduced interest rate.

However, a general misconception about lowered interest rates is the direct affect they will have on the monthly payment.

Many seem to think that your interest rate dropping from 6% to 3% will correspond directly to the reduction in your monthly payment, cutting it in half.

Not so.

A reduced rate will only affect the interest you pay, each month. Now, that could mean your payment will drop a couple hundred bucks – or more – which will certainly be beneficial. For many people however, more help is needed.

For quite some time, I’ve supported the idea of reducing the amount borrowers owe (also known as principle reductions) as a way of not only fixing the real estate market, but possibly the entire economy.

As Binyamin Applebaum points out in his article in The New York Times, economists from both sides of the political aisle seem to agree.

A principle reduction would (ideally) lower the actual mortgage amount to the current fair market value.

It’s the difference between, for example, cutting your interest rate from 6% to 3%, versus lowering the total amount you owe from $200k to $100k.

Or on a monthly basis: the difference between a couple hundred dollars in your pocket, versus considerably more.

My blog from 9.12.11 “The Hole In The Presidents Economic Plan: Housing” provides some specific examples.

By reducing the principle, you’re not only helping people stay in their homes, but you’re also helping facilitate significantly more home sales – without the need for time-consuming short sales or neighborhood devaluing foreclosures. At the same time, you’re injecting a large amount of cash into the economy, via the increase in discretionary income/spending.

While the expansion of this FHFA program will help keep more people in their homes, thus improving the real estate market, principle reductions will directly help both the real estate market AND the overall economy…

On Wednesday, The Huffington Post published adapted testimony that was set to be delivered on 10.6.11 to the House Committee on Financial Service, Subcommittee on Insurance, House and Community Opportunity, discussing the lessons learned (or not learned) by the governments involvement in attempting to assist both Wall Street and Main Street.

Neil Barofsky, the former Special Inspector General for the Troubled Asset Relief Program (TARP), would deliver the testimony.

Even the modified version is fairly long (especially for those whose eyes roll directly to the backs of their heard when this topic comes up), but it’s worth the read (see here).

For those who don’t feel like skimming though, here are some of the highlights that caught my attention:

• There were just 675,000 ongoing permanent modifications as of July 2011. Rather than 3 to 4 million promised mortgage modifications, HAMP’s output looks on pace to meet the Congressional Oversight Panel (”COP”)’s December 2010 projection of just 700,000 to 800,000 effective permanent modifications through the lifetime of the program, a small fraction of the original goal.

• In May 2011, the Government Accountability Office (”GAO”) released a survey of housing counselors who work with borrowers seeking HAMP modifications. The results confirmed the widespread anecdotal evidence of the servicers’ failures. A staggering 76% reported their views of borrowers’ overall experiences with HAMP as “negative” or “very negative.” Asked to list borrowers’ three most common complaints, 59% of counselors answered “lost documentation”; 54% answered “long trial periods”; 42% answered “wrongful denials”; and 37% answered “difficulty contacting servicer.”

• Going forward, Barofsky recommended the following: First is the importance of comprehensive planning. Treasury rushed HAMP out the door in a manner best described as “ready, fire, aim,” leading to mistakes that are still ricocheting today. Second is the importance of clearly articulated goals. HAMP began with the goal of 3 to 4 million permanent modifications, but rather than acknowledge the failures and adapt the program, Treasury has simply made up new goals, followed by an instant declaration that these new goals have been met. Third is the necessity of meaningful incentives and sanctions for third parties. HAMP was unable to secure meaningful compliance from mortgage servicers when it mattered most because it has neither effective carrots nor sticks.

The stats listed above and the problems reported in dealing with loss mitigation departments all make sense to me. Plenty of people who request our assistance with short sales have already tried loan modifications, often with a corresponding failure to success ratio, due to the reasons cited in the survey. Barofsky’s recommendations going forward make sense as well.

In conclusion, he states the following:

• … it is becoming increasingly difficult to argue against those who advocate that the government should simply get out of the way and let the market’s cruel efficiencies take over. Such a process will inevitably result in near-term losses that are higher for both homeowners and lenders, but absent an effective alternative, it may be the only way to finally end the painful and ultimately fruitless game of kick-the-can that Treasury has been playing. And perhaps, in its aftermath, that will lead to recovery.

I disagree. The government has a responsibility to fix a problem they helped to create, via deregulation and a lack of oversight. There is no excuse for shelling out billions of dollars to lenders with no strings attached, while leaving the very taxpayers responsible for providing the money out to dry.

What we haven’t learned, is that for every dollar provided to a lender, it must be tied to a troubled homeowner. Preferably, retro-actively…

I’m sure neither the title of this article, nor the content will surprise many people. That Countrywide, Bank of America or any other large lender operated in a less than honest manor prior to the collapse of the real estate market is far from shocking.

Still, it’s interesting to read some of the first-hand accounts of what was actually going on behind closed doors – especially coming from an internal fraud monitor.

Four years removed from the collapse, people still want to blame the person who purchased a $100k home when they could only afford $60k.

Sure, they’re part of the problem – but only a small part.

Fraudulent activities by lenders, mortgage brokers, mortgage reps, etc., still deserve the brunt of the blame.

Make no mistake, I’m not negating personal responsibility, but it goes beyond knowing what you can afford and what you can’t.

Fast-talking mortgage reps regularly pushed buyers into homes they couldn’t afford and loans that made no practical sense. They sold people on future value, or re-financing in a couple years, or whatever they had to be told to sign on the line.

Attorneys, doctors, accountants, you name it – regardless of profession, most people are remarkably naïve and uninformed when it comes to mortgages, so they trusted their lender.

Going forward, it’s going to be different. Mortgage reps must be licensed. Lenders will (hopefully) be more regulated. Appraisers will be forced to work within far stricter guidelines.

However, this idea – as put forth in the article by BofA – that this is “water under the bridge” – is wrong. More articles like this need to come out and more whistleblowers need to be heard. It’s the only way we’re going to avoid this happening again down the road…