Tag Archives: mortgages

Arnold Schwarzenegger, Economy

Arnold Schwarzenegger Wants The US Economy To Fail

That’s the only explanation I have for him vetoing AB1830:

Gov. Arnold Schwarzenegger vetoed a proposal today that would have imposed tougher restrictions on mortgage brokers, such as banning them from issuing exotic loans to subprime borrowers that cause balances to grow rather than shrink over time […]

The bill by Assemblyman Ted Lieu, D-Torrance, would have banned subprime borrowers from obtaining “negative amortization” loans, agreements that offer low initial payments but increase the principal balance over time, boosting interest costs and making them difficult to pay off.

AB 1830 also would have specified that mortgage brokers owe a “fiduciary duty” to borrowers. It would have prohibited brokers from steering borrowers toward higher risk loans than they would qualify for based on their income and credit. And it would have capped prepayment penalties for borrowers who want to refinance their loans to seek better terms.

Schwarzenegger, in his veto message, said the bill had laudable goals but that it “overreaches and may have unintended consequences.”

Overreaches into the profits of his mortgage lending industry buddies, that is.  Schwarzenegger’s concerns about putting state mortgage brokers at a “competitive disadvantage” compared to their unregulated federal counterparts is easily managed (like forcing anyone who does business in the state to work under one standard) and just a pathetic excuse.

We are in crisis mode on Wall Street right now because mortgage lenders, pressured by investment banks and securities markets, abused the process and came up with all sorts of exotic schemes to get borrowers into homes.  This bill would have curbed the worst practices of the industry.  The Governor would rather they continue.  He would rather mortgage lenders rip off their customers.  He would rather the economy sink into a deep recession.

One unexamined aspect of the Governor’s character is how much of a mindless puppet he is for Chamber of Commerce interests.  Let this be another example.

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Pass AB1830 To Help Fix The Financial Crisis

The big story today continues to be the Bush/Paulson bailout bill, which is now being debated on Capitol Hill.  In calling my representatives yesterday, Rep. Waxman seemed very wary of giving away $700 billion dollars to the Treasury Dept. without oversight or judicial review.  Sen. Boxer’s statement still buys into the “need for speed” that is accelerating this legislation in an effort to sneak through something very bad, but she does hit the real genesis of the crisis.

In addition, we must get to the root of the housing crisis and work to keep people in their homes through refinancing; if we don’t, housing prices will continue to freefall and we will still be in a mess.

In California, we have more foreclosures than any other state-in August more than 101,000 Californians received foreclosure notices and more than 33,000 lost their homes.

If the American taxpayers come to the rescue in this financial crisis, you have to provide assurances that they aren’t just taking on bad debt and further jeopardizing their future.

The housing crisis is the first mover here.  Lenders and financial industry actors had an extreme need to get people into mortgages, no matter their income or ability to pay, and they sweet-talked them into teaser rates and ARMs with no money down and low opening monthly payments.  The idea was to accumulate as many mortgages as possible to package them into mortgage-backed securities to sell overseas.  It was a bad bet predicated on perpetual growth in the housing market, and when it crashed there was no flight to safety.  

The most important protection for taxpayers comes with protection from the types of lending schemes we saw in the housing market, and that starts not just on Wall Street, but in the states.  Aggressive regulation of the housing market in California will go very far to protect against such a crisis from happening again.  The legislature passed AB1830 to address exactly this issue, and today Asm. Ted Lieu, the author of the bill, writes Governor Schwarzenegger urging him to sign it.

As you have said in advocating for budget reform, “Enough is enough!” Similarly, the past few years have shown the consequences of a system that failed to effectively regulate and reign in the out of control subprime mortgage industry. The laissez-faire policies previously advocated by much of the industry have turned out to be disastrous. As with budget reform, we need effective mortgage reforne. “Enough is enough!”

To much of the industry’s credit, many within the industry and Wall Street recognize that they need better regulation. That is why the following major industry institutions (collectively representing thousands of financial institutions) have all gone neutral on this bill and many of them have contacted your office asking you to sign this bill: The California Bankers Association, California Mortgage Bankers Association, California Independent Bankers, California Credit Union League, and the California Financial Services Association […]

AB 1830 provides consumer protections for subprime loans while maintaining access to credit and homeownership. This carefully crafted bill is the product of dozens and dozens of meetings and discussions with industry and consumer groups over an eight month period. Through our efforts to craft a balanced approach the leading organizations in the financial and banking industry have gone neutral on this bill. Although a minority of groups still oppose, such as the mortgage brokers and realtors, we have taken several of their suggestions and have worked hard to try to accommodate their concerns.

AB1830 would put mortgage brokers themselves on the hook for their predatory practices, imparting to them a fiduciary duty which would subject them to potential civil suits and loss of license were they not to put the economic interest of the borrower first.  It would end the practice of yield spread premiums, which actually financially incentivized brokers to put borrowers into riskier and more costly mortgage options.  It would prohibit steering prime borrowers into subprime loans, a common practice.  It would ban “negative amortization” loans that would cost the borrower more for the loan even after their initial payments.  It would increase enforcements, put caps on prepayment penalties, and go very far to prevent the kinds of abuses that led to this crisis in the credit markets.

It’s essential to the future of your stock portfolio as well as the future of the state’s economic picture to pass AB1830.  The Governor should do so as soon as possible.

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CA-37: Richardson declared a “public nuisance” to Dems who don’t like being constantly embarrassed

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Can you believe this?

First Rep. Laura Richardson was having problems making house payments, defaulting six times over eight years.

Then after a bank foreclosed on her Sacramento house and sold it at auction in May, the Long Beach Democrat made such a stink that Washington Mutual, in an unusual move, grabbed it back and returned it to her.

This week, in the latest chapter in the housing saga, the Code Enforcement Department in Sacramento declared her home a “public nuisance.”

The city has threatened to fine her as much as $5,000 a month if she doesn’t fix it up.

Neighbors in the upper-middle-class neighborhood complain that the sprinklers are never turned on and the grass and plants are dead or dying. The gate is broken, and windows are covered with brown paper.

“I would call it an eyesore,” said Peter Thomsen, a retired bank executive who lives nearby.

I think “embarrassing” is the best word for it.  Laura Richardson has no need or use for a home in Sacramento anymore, and in her letter to supporters trying to give an alibi for her recent conduct, she says that she isn’t rich and doesn’t have a second income to afford her lifestyle.  Then why the useless home in Sac’to that’s become decrepit?

If this was the only thing wrong with Richardson, it’d be enough, frankly.  But the fact that she voted to sink the Fourth Amendment and provide amnesty for lawbreaking to the telecoms in the FISA bill means that her votes are as embarrassing as her home upkeep.  It’s really unacceptable to have her as a representative of this state, honestly.

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Pre-Fourth Open Thread

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A few things of interest as we head into the holiday weekend:

• That mortgage legislation that I noted passing the Assembly yesterday was quickly taken up in the Senate (there were some amendments in the Assembly bill so concurrence was needed, and it passed easily (the vote was 32-8).  The legislation will now be sent to the Governor and there are indications that he will sign it.  Because of the 2/3 vote it received, most of its provisions will take effect immediately.  It’s a decent first step but it had better not be the last.

• The new Cook Report ratings are out, and among the slew of seats where Democrats are gaining, one race in California has shifted:

CA-46    Dana Rohrabacher    Solid Republican to Likely Republican

That’s pretty big news.  Charlie Cook’s report is widely read by insiders, and clearly they are taking notice as to the strength of Debbie Cook’s campaign.  Joe Shaw, communications director for Cook’s campaign, calls it “the first Orange County congressional race to be considered competitive since Congresswoman Loretta Sanchez’s 1996 race against incumbent Bob Dornan.”

• In CA-04, Charlie Brown announced a whirlwind schedule for the 4th of July, participating in events in King’s Beach, Lincoln, Roseville, Grass Valley, Auburn, and Alturas.  Tom McClintock must have seen that and scrambled up on the plane from his Thousand Oaks redoubt, because he hastily scheduled a couple campaign events.  In fact, the two candidates will be in the same parade in Lincoln.  That should be fun.

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Mortgage Legislation Passes Assembly – What’s In It?

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Yesterday, the Assembly passed SB 1137, which would alter the mortgage industry in California and aid those in danger of losing their homes.  It got through the Assembly by one vote, with 10 Republicans voting with the Democrats.  The Senate will need to pass it again to conform to some amendments and then this will go quickly to the Governor’s desk.  As Frank Russo writes:

The bill that passed, SB 1137 is authored by Democratic Senators Don Perata, Ellen Corbett, and Michael Machado, and coauthored by Speaker of the Assembly Karen Bass and principal coauthor Assemblymember Ted Lieu, who presented it on the Assembly floor. It goes beyond federal laws and received broad support from consumer groups. The legislation requires lenders and servicers to: 1) contact borrowers (or engage in a prescribed process to do so) to schedule telephone or in-person meetings on restructuring options before beginning the foreclosure process, 2) requires a 60-day notice to be given to tenants of buildings facing foreclosure before they can be removed from a rental housing unit; and 3) allows fines of up to $1,000 a day for owners of foreclosed properties that fail to adequately maintain them.

I like aspects of this legislation, particularly the steps toward removing blight in homes that aren’t properly maintained, which is a big problem in heavily foreclosed areas.  But this bill is a watered-down supplement to the raft of bills presented by Ted Lieu earlier this year, which would have really reformed the mortgage market.  There would have been enhanced regulation, limits to penalties for prepayment, a requirement to translate loan terms to non-English speaking customers (yes, that’s not current law), eliminate yield spread premiums (which rewarded lenders for getting their customers into higher interest-rate loans) and gotten rid of weasel language in mortgage documents like involuntary legal waivers.  Almost all of those bills were gutted to the delight of the lending industry.  What’s in its place is vaguely helpful to borrowers, but not at all the industrywide reform that is needed to ensure that a runaway market like we saw a few years ago will never be repeated.  Lieu modeled his reforms after those in North Carolina, where they work very well.  This was a case of the lobbyists getting a hold of legislation before it could actually do any good.

Here’s Ted Lieu’s statement (on the flip):

“Senator Don Perata’s SB 1137 sends a strong message that the California State Legislature will go further than federal law to address the mortgage foreclosure crisis. Recently and unfortunately, the Senate Banking, Finance and Insurance committee killed a comprehensive package of Assembly mortgage reform bills based on industry’s argument that California should do nothing other than conform to federal law. SB 1137 is a clear and stunning rejection of the ultra-conservative industry argument that California has no role other than to follow the federal government. This bill shows we will lead, not just follow, and that relying on the same federal regulators that failed us during the mortgage crisis is not an option.

“California was the hardest hit and therefore needs to be at the forefront of creating such a comprehensive plan. Such states as New York and North Carolina have already passed comprehensive mortgage reform. It is time we do more.

“Again, I would like to commend Pro Tem Perata on his recognition that sensible mortgage reform requires California to go further than federal law. SB 1137 is a solid first step, but we certainly need to do more to address adequately the mortgage crisis. The Assembly already passed a solid package of comprehensive reforms to the Senate. The ball is now in the California Senate’s court.”

Sen. Mike Machado was instrumental in getting industry’s back and gutting the most far-reaching aspects of the Lieu bills, and Democrats in the Assembly gave some payback by killing most of the legislation he offered this year.  Rather than an elementary school slap-fight, it’d be nice if there was some conviction from the leadership to go beyond the most cosmetic solutions and fight for their constituents.

Jerry Brown

AG Brown Sues Countrywide

Here’s a statement from the Attorney General’s office:

California Attorney General Edmund G. Brown Jr. today sued Countrywide Financial, its chief executive Angelo Mozilo, and president David Sambol, for engaging in deceptive advertising and unfair competition by pushing homeowners into mass-produced, risky loans for the sole purpose of reselling the mortgages on the secondary market.

“Countrywide exploited the American dream of homeownership and then sold its mortgages for huge profits on the secondary market,” Attorney General Brown said. “The company sold ever-increasing numbers of complex and risky home loans, as quickly as possible. Countrywide was, in essence, a mass-production loan factory, producing ever-increasing streams of debt without regard for borrowers. Today’s lawsuit seeks relief for Californians who were ripped off by Countrywide’s deceptive scheme.”

It is certainly true that lenders like Countrywide had to feed the beast of mortgage-backed securities, which investors were gobbling up at the height of the housing boom.  They absolutely valued getting a mortgage into the secondary market over securing a mortgage that the buyer could actually pay back.  The question is the level of criminality here.  Atrios, an economist who’s been following “Big Shitpile” for quite a while, isn’t fully convinced:

We do know that at some point the product that mortgage companies were selling essentially flipped. They went from providing mortgages to people, to providing bundled mortgage securities to Wall Street. While it’s quite possible that there was actual fraud going on with respect to mortgage borrowers, the greater fraud might have been perpetrated against the investors which eagerly bought up their chunks of big shitpile. Obviously I sympathize less with the latter who are paid big money to, you know, have some idea what they’re doing.

Tanta at Calculated Risk is similarly unimpressed with a similar lawsuit out of Illinois, saying that it it trying to sue over established industry practice.

Volume-based compensation structures? There have been volume-based compensation structures in this business since long before Tanta got into it. Does it create perverse incentives? Sure. Do we have to like it? No. Has it operated all these years in plain sight of regulators, investors, and the public? Yes. Is CFC’s pay structure all that different from anyone else’s? I profoundly doubt it.

And if anyone who has ever underwritten a loan in 30 minutes has to go to jail, the jails will be full indeed. I wonder if they’ll let me take my new Kindle. Jesus H. Christ on a Process Re-engineering Consultant Binge, folks, anybody who didn’t tell the analysts on the conference calls that they’d got their average underwriting time down to 30 minutes was Nobody back in 2000. Not to mention the AUS side of the business where underwriting had gotten down to 30 seconds.

The problem with Countrywide valuing volume over quality is that they appear not to have to pay the price for that.  In a traditional system, Countrywide getting stuck with a lot of bad loans would hurt them, creating a disincentive.  Now, they’re passing on that pain to investors, and the feds are swooping in to bail the financial institutions out anyway, so it’s guilt-free.  I don’t know that the remedy here is a lawsuit, other than allowing the market to punish bad actors, something we never do in this country, because for decades we have socialized risk and privatized profits.

Economy

Welcome To Youngstown

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California is starting to look more and more like the factory states in the 1980s after everybody pulled out.

California’s deteriorating economy is demonstrated anew by a sharp jump in the state’s unemployment rate to 6.8 percent in May.

The Department of Employment says 60,000 fewer Californians held jobs last month than in April, and 18,000 fewer than in May 2007. Unemployment, meanwhile, hit 1.3 million, up by 300,000 from May 2007.

That’s an over 30% increase in the unemployed in just one year.  

The paralysis of the state’s government is slightly more manageable when job growth is expanding, sectors are booming and money is flowing into the coffers.  When you have a dramatic downturn like this, government simply must have the flexibility to act.  It actually needs that flexibility all the time, but in a downturn people suffer visibly from the structural stasis.

If the Democrats can use the Youngstown-ization of the state economy as a lever to argue for legitimate, long-lasting structural changes, they’d gather a lot of support.  The LA Chamber of Commerce is talking about restoring the car tax, fercryinoutloud.  The problem, of course, is that California’s government is being held for ransom, in a bipartisan way, and it simply eliminates any opportunity for moving forward.

The backers of a package of bills to overhaul subprime lending regulations pointed to a deepening crisis that has put one of every 242 California homes into foreclosure in February, the second highest rate in the nation […]

The package of subprime bills had been approved by the Assembly. But it hit rough waters Wednesday in the Senate banking committee, chaired by Sen. Mike Machado, D-Linden.

Machado has dealt with mortgage issues for years. His district is one of the national epicenters for foreclosures. But Machado is seen by some consumer advocates as overly sympathetic to the industry.

“The arguments he makes are certainly quite similar to those made by the industry folks we are negotiating with, and in many cases don’t seem to put the protection of consumers at the forefront,” Leonard said.

Machado isn’t alone in being bought and paid for, of course.  The lobbyists talk about “regulatory nightmares” that will stop anyone from getting credit and stunt job growth.  They spend lots of money to ensure their argument will be heard.  And they water everything down.  

This is why we have a bitter, angry electorate.  Democrats have the opportunity to channel that anger.  But the universe of those who put their constituents first is narrow indeed.  Broken government leads to broken lives.

Welcome to Youngstown.

(alternatively, you could call it Bankruptsville, USA.  But I like Youngstown.)

California

The Money Goes In, The Favors Go Out

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This article by Frank Russo got me pretty depressed about the state of California politics.

There’s something amiss in the state of Sacramento-and it has something to do with the state’s banking and lending institutions and the stacking of committees that deal with them with legislators that are either weak kneed or just a bit overfriendly with the industry that they should be protecting us from.

What else is new?

Well, this afternoon, the Senate Committee on Banking, Finance, and Insurance, Chaired by Senator Michael Machado of Stockton, will be hearing two bills that have been gutted down behind a closed door process such that today’s public proceedings on them may amount to little more than a sham […]

It’s difficult enough to get bills passed through the Assembly Banking Committee and the Assembly floor when going up against the behemoth banking industry which has a lot of spare change to throw around in legislative races and many high paid lobbyists scurrying about the Capitol.

It looks like AB 69 by Assemblymember Ted Lieu, originally a great bill, has been amended since it left the Assembly-and before today’s hearing-such that the Center for Responsible Lending, a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices, initially listed in support, has withdrawn that position.

Read the whole thing.  The bottom line is that in this recent primary election special interest groups spent nearly $10 million, and a good bulk of them were business interests who are now playing inside Democratic primaries in traditionally liberal areas to sell low-information voters a bill of goods.  This doesn’t always work, but it works just enough to frustrate progress in Sacramento.

Lesson 3: The business lobby can influence Democratic politics, even in a largely minority district.

Former Assemblyman Rod Wright, a moderate, defeated liberal Assemblyman Mervyn Dymally — reversing the pattern of leftist victories — in a South Los Angeles Senate district after business donors invested roughly $1 million in Wright’s campaign.

“Business has tended to stay out of black politics,” says Sragow, who advises the business lobby. “But some black politicians ask, ‘Why? We’re always out looking for economic development in our districts.’

“The business community has decided it can’t get a Republican Legislature, so it will play in districts where there’s a Democratic candidate it can work with.”

A major Democratic strategist has all but said that Don Perata shepherded along the candidacy of Rod Wright, and actually put it in terms that come very close to illegal coordination (note “a flurry of record spending by closely-aligned IE groups focusing all of their attention and ammo in one, concerted direction.”)

This is the game.  IE’s are increasingly the only way to reach the electorate, as the low-dollar revolution has pretty much not reached the Golden State.  So the Chamber of Commerce and industry groups fill the pockets of the politicians who, once elected, feel obligated to repay them.  The US Constitution allows the right for anyone to petition their government for redress of grievances; outlawing lobbyists or the ability of merchants to consult their politicians is not tenable.  What is tenable is to either create a parallel public financing system by employing the residents of the state to pay attention to local politics enough to fund progressive-minded candidates, or to bring clean money to California, where it’s arguably needed more than anywhere else, and end the pernicious influence of special interests in state elections.  Otherwise, you get a steady parade of mortgage relief bills that offer no relief.

Arnold Schwarzenegger

Weekend Odds And Ends

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Here are a few tidbits on this GOTV weekend!

• Obviously everyone is going to be working hard for their causes and candidates, so it may be a little quiet around here.  I’ll be out walking all day tomorrow.  Oh, and don’t vote for the racist guy, Bill Johnson, as a Judge of the Superior Court (Office number 125) in LA County.

• Yesterday was the deadline for bills to get passed out of their chamber of origin, and the Assembly passed major subprime mortgage legislation, without help from Republicans (6 of them abstained despite being seated right in the chamber).  This bill has some good homeowner assistance elements that will allow people to restructure their financing before foreclosure.  A mortgage bill has also passed the State Senate, so some form of legislation will hopefully get to the governor post haste.

• One of the biggest problems with the housing crisis is that, as home sale prices lower, homeowners are reassessing their value and getting their property tax lowered, decreasing state revenue yet more.

• Sticking in the shiv before riding off into the sunset, Fabian Nuñez writes a puzzling op-ed in the Sacramento Bee approving of the Governor’s horrible idea to borrow against future lottery revenue.  Considering that the only sustainable solution to the permanent crisis mode that we have in our budget is to reorganize the tax structure instead of constantly borrowing, I have no idea why any Democrat would veer so far off message and undermine the new Speaker’s ability to move forward.  What’s more, lotteries are regressive taxes on the poor.

• One spot where there will be a lot of action on Tuesday is in Ventura County, where Democrats now outnumber Republicans and which could have contested elections in the Assembly, Senate and US Congress.  However, the LA Times shows its political acumen by writing:

One of the more closely watched contests on Tuesday will be the Democratic primary in the 24th Congressional District. Insurance agent Mary Pallant of Oak Park; Marta Jorgensen, a Solvang educator; and Oxnard businesswoman Jill Martinez are running.

Marta Jorgensen quit the race over a month ago and endorsed Martinez.  Way to go, LAT.

• Excellent news out of Los Angeles: there’s been a $1 million dollar settlement with Hollywood Presbyterian Medical Center for their dumping homeless patients on Skid Row.  They will also be monitored by a US Attorney for five years.  This unethical practice has reached a reasonable conclusion.  Hollywood Presbyterian deserved punishment.

• Trying to get rid of marijuana grow houses in Arcata is like trying to get rid of the Pacific Ocean on the California coast.

Enjoy!

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Laura Richardson’s Foreclosure Problem

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This Laura Richardson (CA-37) loan default story is growing.  The Hill is reporting that she’s had three homes in default and is currently renegotiating with her lender to save one of them.  It seems like she’s engaging in what amounts to a pyramid scheme – buying new homes with little money down, and at the same time loaning her campaigns for state Assembly and Congress tens of thousands of dollars.  So the money that would be used to pay off the loan is paying for her political upward mobility.

A third home that Richardson borrowed heavily to move into in Sacramento was sold at auction earlier this month — at a $150,000 loss to the bank that issued her the $535,000 loan. …

Even as that was happening, ethics watchdogs were crying foul over Richardson’s personal finances and questioning how she was able to lend her campaign to Congress $77,500 in the midst of multiple home loan defaults. …

Federal Election Commission (FEC) reports show that Richardson loaned her campaign a total of $77,500 — in three installments — between June and July of 2007.

Richardson’s year-end FEC filing showed that her campaign still had $331,000 worth of debt but $116,000 cash-on-hand. …

Meredith McGehee, policy director for the Campaign Legal Center, said it would be reasonable for the FEC to look into the timing of the loan against the timeline of Richardson’s home loan defaults.

“In situations like this it’s very important for whoever loaned her the money to demonstrate that they treated her equitably, not favorably,” McGehee said. “Otherwise, you’re getting into a situation of a corporate underwriting of a campaign.”

It was pretty clear last year, when Richardson ran a divisive, racially-toned campaign to win the Congressional seat against State Senator Jenny Oropeza, based in part on saying how this was “our” seat (referring to African-Americans), that she was potentially bad news.  This confirms it.  I won’t defend her because these types of financial improprieties are unaceeptable.  Getting behind on one loan because it’s a fact of life that you need to practically go broke to win a political campaign is one thing.  But this to me looks like a series of efforts to possibly use borrowed money and plow it into political activities.  And that’s wrong.  I don’t think she’s in danger of losing her primary next week, but she should be.