She was surprised to learn that mortgage servicers had pushed 99% of those surprise-reset mortgages (whose en masse defaults sparked the crisis) into foreclosure rather than modifying them. So she voiced her frustrations in an article.
According to the NYTimes:
[In an op-ed in the New York Times, she] called on mortgage servicers to reset adjustable-rate mortgages en masse. “These borrowers would still be required to make their monthly payments... Avoiding foreclosure would protect neighboring properties and hasten the recovery.”
Although she made no mention of the Treasury Department, everyone in the bureaucracy knew that it was her real target. It was now official: Sheila Bair was difficult.
That's one of two interesting things about the foreclosure process that we learned reading an interview with Bair in the NYTimes. Basically, that mortgage servicers "promised" (whatever that means, we don't find out. Obviously, it wasn't in writing.) to modify mortgages, but instead, they foreclosed on most properties and modified just 1%.
The second is that when explaining the rush-to-foreclosure process she says, “I think some of it was that they didn’t think borrowers were worth helping. There was some disdain for borrowers.”
Honest! And totally unproven because she doesn't go into detail. But it reminds us of the opposite of when Jamie Dimon said, "Giving debt relief to people who really need it. That's what foreclosure is."
It's a homeowner's worst nightmare: That banks rush to foreclose 99% of the time because (Bair suspects) bankers have a disdain for borrowers.
The entire "exit interview," which Bair gave to the NYTimes as she's leaving the FDIC for Pew Trusts, is a good read >
Two other interesting points:
1. She echoes the voice of the public when it comes to capital requirements (they should be higher to discourage risk-taking behavior) and the foreclosure process (banks should instead help homeowners modify the loans). She similarly seems to forget that politicians encouraged banks to loan to riskier candidates by throwing lawsuits at them if they disqualified borrowers with low income, and instead blames mostly the securitization process and banks' eagerness to make risky bets.
2. She also thinks that Bear Stearns should have failed, not given to Jamie Dimon as a Christmas present, like the book, Too Big To Fail put it.
Bair told Joe Nocera:
“Let’s face it.. Bear Stearns was a second-tier investment bank, with — what? — around $400 billion in assets? I’m a traditionalist. Banks and bank-holding companies are in the safety net. That’s why they have deposit insurance. Investment banks take higher risks, and they are supposed to be outside the safety net. If they make enough mistakes, they are supposed to fail. So, yes, I was amazed when they saved it. I couldn’t believe it. When they told me about it, I said: ‘Guess what: Investment banks fail.’ ”
Two key data points in the ongoing foreclosure crisis were released this week on just one of the looming economic disasters we face: the ongoing mortgage crisis. One is new polling from CBS/NYT showing that most Americans still think home ownership is central to the American dream, but are less than confident about the wisdom of buying a home. Particularly signficant, "most also say the government should help homeowners in trouble with mortgage payments as a means of improving the market."
Overall, 45 percent would like to see government do more, but three in 10 say it's doing enough right now. Another 16 percent said the government should be doing less.Pluralities of all partisans would prefer the government do more, though Republicans (at 31 percent) are the most likely to say government should do less.
More than half of Americans, 53 percent, say the federal government should provide help to people who are having trouble paying their mortgages, but 40 percent of Americans disagree. Most Democrats agree, while Republicans and independents are mixed.
The other data point on housing this week is a report from the Office of the Comptroller of the Currency, which regulates national banks.
The report said that some 19.7% of mortgages held in banks’ portfolios were delinquent at the end of March. By contrast, nearly 6.8% of mortgages backed by mortgage giants Fannie Mae and Freddie Mac were nonperforming, and 11.4% of all mortgages that are serviced by banks.Nevertheless, Fannie Mae and Freddie Mac are more crippled than the biggest banks because their holdings of mortgages are so large, they held little capital, and they don’t have other business lines to offset mortgage losses. Fannie and Freddie guarantee more than $5 trillion in mortgages, double the amount held by all of the nation’s banks and thrifts.
While many subprime and other risky mortgages were packaged into securities and sold off to investors, banks chose to keep certain loans or were stuck with them after securitization markets froze in 2007. Loans held on bank balance sheets “in and of themselves are reflective of lesser quality loans” than those backed by Fannie, Freddie, or federal agencies, said Bruce Krueger, a senior OCC mortgage examiner....
Overall, mortgage delinquencies have declined for five straight quarters, but the share of loans in the foreclosure process remained at its highest level since the foreclosure crisis began and was unchanged in the first quarter from the fourth quarter, according to the OCC report. Banks have been forced to revamp their foreclosure processes after improper legal filings and other document-handling issues surfaced last fall.
Here's where the stories converge. One thing that could be done pretty easily for Fannie and Freddie, that wouldn't take congressional action? Institute a right to rent, something Dean Baker has been talking about for a while. The basics: "As part of the foreclosure process, homeowners would be offered the opportunity to stay in their home, paying the market rent, as determined by an independent appraiser."
It's as good a solution as any and allows families to stay in their homes. The GSEs could get at least some income from the property without having to carry it for months and months trying to get it sold, paying for the maintenance (if they bother with it) and creating neighborhood blight with another vacant home. The good part? "President Obama could unilaterally act to require Fannie and Freddie to go this route."
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