New proposal to help underwater homeowners

Today or tomorrow all 50 states are expected to sign off on a $37 billion settlement with Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial that will provide compensation to homeowners who were harmed with nefarious foreclosure practices. 

This deal between the big banks and the states’ attorneys general will result in mortgage principle reductions, refinancing at lower rates and cash to the wronged homeowners.

While this is good news for those who suffered and will give some help to the economy from an influx of money at the local level, we need to help the rest of the underwater homeowners in this country and put the final nail in the coffin of this down-economy.

In his State of the Union address last month President Obama said:

I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates. No more red tape. No more runaround from the banks. A small fee on the largest financial institutions will ensure that it won’t add to the deficit, and will give banks that were rescued by taxpayers a chance to repay a deficit of trust.

But with the GOP in Congress unlikely to allow any Obama-proposal that will help improve the economy before November, a New York Times editorial proposes another path to helping homeowners struggling to pay mortgages while invigorating the new housing construction market.

According to the editorial the Treasury Department can, without Congressional approval, give stronger financial incentives to Fannie Mae, Freddie Mac and private banks to help homeowners by reducing the principle on underwater home loans.

If a politically paralyzed Congress is not going to take action to accelerate our economy by reducing foreclosures and thus jump-starting the home building industry, then the Administration must do what it can on its own.

A needed message in State of the Union address

One of the issues we are expecting to hear about in President Obama’s State of the Union address tomorrow night is the housing crisis.  Economists tell us that the nation’s economy won’t dramatically improve until the housing market stabilizes and demand for new homes gets back on track.  That’s how important the housing construction industry is to creating jobs.

But that industry won’t be coming back for a while if there is no effective action taken by the federal government.

As I pointed out last October, according to an analysis by McClatchy Newspapers, at that time there were 2.2 million homes whose owners had received initial foreclosure notices or notices of default but hadn’t yet been foreclosed on.  Another 1.9 million properties at that time had owners who were 90 days or more behind on their payments but hadn’t yet been served with foreclosure notices.  That’s 4.1 million homes that are soon to be put into the foreclosure bucket.  To put that into perspective the official number of all houses for sale in the nation is only 3.5 million.

The drum beat for the President and Congress to take strong action to solve this crisis to boost our economy has been growing.  Last week 27 Congressional Democrats from California asked for a meeting with the President after meetings with top Administration officials such as Tim Geithner failed to produce needed action.

For some time I’ve been advocating that we should “muscle the private banks and Fannie and Freddie to do everything in their power to keep the current home owners in their homes by letting them refinance at today’s rock bottom rates (no questions asked) and, if necessary, reducing the principle they owe.” 

There is a push in the House to have the government-controlled Fannie and Freddie write down mortgage principles for owners deep under water.  Federal Reserve Chairman Ben Bernanke wrote this month that “it might be worth the expense to lose money now in an effort to shore up the books of the government-sponsored enterprises for the long term while helping the economic recovery.”

But what about the big private banks of JPMorgan Chase, Citigroup, Wells Fargo, Bank of America, and Ally Financial?  The states’ attorneys general have been working since the fall of 2010 to have these financial giants help the homeowners they victimized by their earlier foreclosure papers robo-signing scandal.  However this agreement is expected to compensate only about one million homeowners with principle reductions.  That will be too late for many and a drop in the bucket to really help our economy.

It is time for these private banks to give back to the country for bailing them out.  The profits they’re reeling in now wouldn’t exist if it wasn’t for the taxpayer. 

A call for principle reductions and the lowering of interest rates for both public and private mortgage holders in trouble should in the President’s speech tomorrow night.  If he really wants to get the economy rolling sooner than later, this is the course of action we must follow.

Honoring Dr. Martin Luther King Jr.

A rally at the South Carolina State House to honor Dr. Martin Luther King Jr. is being held today.  At the same location just four days ago, hundreds attended another rally in support of an issue surely Dr. King would have approved—the promotion of homeownership for all Americans. 

Last week’s rally sponsored by the Home Builders Association, S.C. NAACP, Urban League and others organizations including the South Carolina Small Business Chamber of Commerce was to support homeownership through keeping the mortgage interest tax deduction and easier access to mortgages for qualified loan seekers.

Unfortunately, one reporter for a national publication mischaracterized those attending as “anxious homeowners” demanding “greater attention to housing problems, particularly the expected surge in foreclosures.” 

But while the reporter got it wrong, he did point out a major obstacle facing homeownership today—the glut of present and future foreclosures due to the great recession that are standing in the way of a revitalized economy and a reinvigorated housing industry.

The administration and Congress have failed to take adequate steps to address this terrible problem.  Now this same reporter says that the administration is looking at the issue again. 

We don’t need more talk.  We need immediate action by our elected leaders to take the same crisis-mode style steps that they did with TARP to bail out the banks.   Those are the same banks that are giving lip service to helping struggling homeowners stay in their underwater homes. 

The answer is not to just rush all the millions of homes yet to be foreclosed through the process as quickly as possible as one prestigious local home builder told me the other day.  To do so would result in property values falling through the floor making today’s prices look good.   This is what Mitt Romney has advocated to help all those who want to invest in cheap rental property but the human and economic toll on the rest of us would be catastrophic.

At a Bank of America conference last month featuring President Bill Clinton talking about the housing crisis among other issues the New York Times  reported the following:

“We’ve got to do something to clean these books up, and to do it in a hurry, in my opinion,” Mr. Clinton said. Stabilizing housing and dealing with foreclosures is vital for the entire economy, he contended. “I still think that’s the single most important thing we could do to loosen everyone up, go back to a free-market, full-employment economy and have the normal transactions occurring again,” he said.

Anne Finucane, BOA’s top image-maker, was on stage with Mr. Clinton and according to the story made this response, “Sounds like we need a workout deal.”

Really?  BOA and the other big banks are already trying to work out a deal with the state attorneys general for their bad subprime mortgage lending practices.  But all we’ll probably get is some homeowners getting their principals reduced.  That’s some punishment for an industry that as a whole is doing quite well thanks to the American taxpayers. 

The workout deal we really need is for the entire country.  Forget about “punishing” certain banks for past deeds.  We need to tell all the banks to take their mortgage losses on the front end of every homeowner in trouble by keeping people in their homes at all costs to avoid foreclosures.  If that means additional government help, so be it.

If we make this a national priority, property values will stabilize, demand for new homes will go up and our economy will revive quickly. 

And American families will keep their homes, their investments and their dignity.  Now wouldn’t that be good way to honor the life of Dr. King.

Small business loans and BOA

Here we are in a new year and there are signs of hope for access to capital for small businesses…unless you are a customer with Bank of America. 

First the good news.

The Thomson Reuters/PayNet Small Business Lending Index showed that in November lending to small business hit its highest level in nearly four years.  According to PayNet founder, Bill Phelan, this is also good news for the economy.  "Businesses are betting on the future with increased investment spending."

But if you have a small business line of credit or are trying to get one with Bank of America, your economy might not look so good. 

According to a story today in the Los Angeles Times:

Bank of America Corp., under pressure to raise capital and cut risks, is severing lines of credit to some small-business owners who have used them to stay afloat.

The Charlotte, N.C., bank is demanding that these customers pay off their credit line balances all at once instead of making monthly payments. If they can't pay in full, they are being offered new repayment plans for as long as five years, but with far higher interest rates than their original credit lines had.

And it’s not just Bank of America that has called small business bank loans on clients who have not been late on payments.  Back in November the owners of Hot Dog Heaven in Woodstock, GA, were victims as well.  But fortunately for Becky and Barney Wentzel, the public furor over being treated so poorly by Ameris Bank, regardless of their perfect payment history, resulted in them and the bank reaching an agreement.

Let’s hope that the personal stories of Bank of America’s targeted small businesses also generate the needed negative publicity for that financial giant.

BofA should make an even better business decision

Bank of America’s recent announcement of its intention to eliminate 30,000 jobs over the next few years has caused some concerns in the bank’s home-town of Charlotte.  How many of the company’s 15,000 Charlotte employees will be affected we don’t know.  But if that community is worried today, just think of the panic there would have been in 2009 if the big banks had not been bailed out—the lost jobs would have been greater and immediate.

But now this “too-big-to-fail” bank has made the business decision to trim down to increase its bottom line. If only this business decision would be followed by an even better business decision for the bank and the country.

Nobody I have talked to in the mortgage business understand why financial institutions would rather foreclose on a house instead of working with the owner to save the mortgage.  It’s simply a terrible business decision for the lender. 

A foreclosed property, even if investor-owned, must be resold in order to recoup some of the banks’ losses.  But with a market glutted by foreclosed properties, the banks are losing up to 50% of the money they’re owed.  This in turn dramatically reduces the value on the bank’s other mortgaged homes in the same neighborhood leading to more defaults from underwater homeowners and more losses for the bank.

Foreclosing on a house is also bad for the economy that needs a revival in housing construction to get back on its feet.  But that won’t happen until the number of foreclosed properties is dramatically reduced.  Then there are all the previous homeowners who have now lost much of their personal assets.  These primary homeowners and investors won’t be contributing anywhere near as much to the increase in consumer spending we desperately need.    

Then there is the negative effect on families struggling to keep together. New research is showing the incidence of child abuse has risen with the recession. Foreclosing gone wild is not good for the nation’s economy or families.

If Bank of America is going to lose much of the value in the homes it has foreclosed on and all the higher interest the homeowner was paying anyway, then the no-brainer better business decision would be to simply cut the borrower’s interest to today’s low rates and possibly extend the life of the loan. This would keep most homeowners in their houses and investors in the game due to much lower payments.  Families would not be uprooted, neighbor property values would stabilize and there would be a demand for new housing construction. 

A small business person would easily make this decision—so should Bank of America.