Thursday, August 13, 2009

Banks’ Part in Mortgage Screw Up

I have been sitting here in a DC hospital for almost a week and I found out this morning I’ll be here for another four days. Merde!!

I’ve tried two blog efforts, but have lost my enthusiasm part way through. In those I tried talking about Jim Lockhart’s departure, but not Jim Lockhart. (Let him go peacefully.) He did a more responsible job—consistent with the former GSE’s new conservatorship status--after the Bush Team left town than before.

I waxed about what I knew of some of the individuals whose names have shown up as possible successors at FHFA. Then, I wrote about the systemic implications of Freddie’s recent profits, as well as what it means for whoever next heads the company. However, the Muse escaped me.

Not any longer. in this blog, I want to discuss what the Obama Administration needs to do to fix this problem of banks slow walking the necessary process of re-writing billions in toxic mortgage loans.

First off, there are too many Administration “chefs” trying to cook this mortgage meal. Treasury, the Fed, FDIC, CoC, Fannie and Freddie, etc. etc. etc (positioning themselves for "huzzahs, when the job is completed).

They are using different operating systems and rules and not doing well, at all.

Geithner would have done far better picking on the GSEs and paying them $500 or some amount for every successfully converted bad loan to good loan.

A motivated Fannie or Freddie could have produced 2 or 3 million mortgage refis by now.

Last week, the Obama Administration was hyperventilating and gnashing its teeth about the snail effort by the mortgage industry to restructure underwater loans.

Treasury published a bunch of names of the least successful lender-mortgage restructurers, i.e. those that had most successfully avoided their responsibilities.

That’s a positive step, but ignores a major part of the “pace” problem, and it hardly is enough. These guys have armadillo skins, while claiming they are sensitive.

But, back to the banks. The other reason why the mortgage investors and servicers are moving so slow is that the government (Treasury) has supplied them with so much money that they think the Feds will give them more to do the necessary mortgage work they should have been doing all along.

The mortgage mess is more one for Treasury than the individual institutions.

Instead of just publishing the names of the miscreant big bank lenders, Secretary Geithner should fire as many major banks execs as it takes before the larger members of the industry get the message. Take away their status, cash, and perks and they can move quite quickly.

The banks don’t respect anything but brute regulatory force. Once displayed, you’ll see how soon they move to overcome the problems they claim are stopping them from doing the required mortgage restructuring.

Do it, Tim. Just do it and then step back and enjoy all of the rose petals and congressional praise aimed at you.

(Excuse any typos, etc. Written under less than ideal circumstances.)

Maloni 8-13-2009