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New Obama Foreclosure Plan Shifts Fraud Liability From Wall Street To Taxpayers

Photo - Obama and Jamie Dimon see eye to eye...

Zach Carter - Huff Po

WASHINGTON -- The Obama administration is introducing a new program on Monday designed to lower monthly mortgage payments for more troubled homeowners.

But a key new condition in the plan would shift the financial liability for refinanced loans from Wall Street banks to the American taxpayer. And by focusing on lower payments, the program does not confront what housing experts view as the core problem in the foreclosure crisis -- borrower debt that exceeds the value of one's home.

Faced with the weak response to the Home Affordable Refinance Program, the Obama administration is planning to open up the program to all borrowers who owe more on their mortgage than their homes' worth, commonly dubbed being underwater, and have not missed a mortgage payment. HARP had been limited to borrowers who owed up to 25 percent more than their home is worth. More than 22 percent of all home mortgages -- or 10.9 million homes -- are currently underwater, according to CoreLogic data. Fewer than 900,000 borrowers have elected to go through HARP to date.

The revised program also eliminates several fees associated with refinancing that can make the decision to refinance uneconomical for borrowers. But the potential benefit of the eliminated fees could be relatively small: If a few thousand dollars worth of fees made refinancing a bad deal for underwater borrowers, the ultimate benefits that refinancing can pose would remain limited.

On a conference call with reporters, White House National Economic Council Director Gene Sperling referred to the HARP expansion as "a win-win policy" that will result in "less defaults" and "fewer foreclosures." But one of the program's new terms will benefit private-sector Wall Street banks, potentially at the expense of taxpayers.

The newly expanded program would expunge legal liabilities associated with mortgages refinanced through the program for the original lenders of the mortgages. Each time a bank sent a loan to Fannie and Freddie, it certified that the loan met Fannie and Freddie's safe lending criteria. But many loans sent to the mortgage giants did not, in fact, meet those criteria. Currently, when borrowers default on those ineligible loans, the mortgage giants can "put back" the resulting losses onto the banks that pushed the loans.

Under the modified plan, "put back" liability at banks will be erased for any underwater mortgage that is refinanced through HARP, eliminating Fannie and Freddie's ability to sack lenders with losses in the event that the mortgage does not pan out.

If borrowers go through HARP, but decide after several months that the modest monthly savings do not outweigh owing tens of thousands of dollars more than their home is worth, taxpayer-owned Fannie and Freddie will have to take the full loss. Even if the original loan was sent to Fannie and Freddie with false or fraudulent guarantees from the bank -- promises that may directly be tied to the borrower's current financial problems -- banks will be immune from liability. Fannie and Freddie plan to charge banks "a modest fee" to extinguish this liability, but the administration has yet to determine what that fee will be.

While the revised program seeks to lower mortgage payments for underwater homeowners, the program does nothing to address the core problem -- owing more than the home is worth. Though borrowers may save hundreds of dollars a month in lower payments by refinancing, they routinely owe tens of thousands of dollars more than their homes are worth, even after receiving aid.

"In most cases people would probably be better off walking," said economist Dean Baker, co-director of the Center for Economic Policy and Research.

During a conference call with reporters, Department of Housing and Urban Development Secretary Shaun Donovan acknowledged that negative equity is a problem, and said the administration hopes to address the issue on other fronts. Donovan cited settlement negotiations with big banks over widespread allegations of foreclosure fraud and initiatives under the Home Affordable Modification Program, a separate Obama foreclosure-relief plan administered by banks, as key initiatives.

New York Attorney General Eric Schneiderman and Delaware Attorney General Beau Biden have both objected to the foreclosure fraud settlement talks on the grounds that they give away too much to banks without investigating the scope of fraud problems in the system. The Home Affordable Modification Program has been a hotbed for the kind of borrower abuses that the administration is pressuring lenders to settle over.



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Reader Comments (20)

Just one more way to let the banks pass their trash to us without consequence...it never ends...
Oct 25, 2011 at 12:18 PM | Unregistered CommenterJosie
Just one more example of privatizing profits, and Socializing losses. Bonuses, Accolades, and promotions will most assuredly abound.
Oct 25, 2011 at 12:58 PM | Unregistered CommenterS. Gompers
If you're underwater stop paying your mortgage and live in the house as long as possible then strip everything of any value from it and leave.
Oct 25, 2011 at 1:13 PM | Unregistered Commenterj r
We need a functioning real estate market, not only for a place to live and as an important component of our economy, but REAL estate was our refuge from dollar depreciation. It was Main St.'s Wall St.. Paying off the 30-year was a hedge against government mismanagement of SS and Medicare.

The longer housing isn't fixed, the bigger its drag on the rest of the economy. If they had let the whole thing collapse, at least renters would have gotten a windfall and more young people could have afforded to buy. Heck, even people underwater could have re-purchased their houses. It wouldn't have been pretty, but one day it would have been over instead of this ongoing impending doom and serial wealth transfers to the alligators.
Oct 25, 2011 at 1:57 PM | Unregistered CommenterG Street
Wow what a fucking bonanza for these pricks. They get liability expunged for the putbacks, but there's a lot more to all this that this article doesn't specifically address.


1) When folks participate in these asinine programs the loans change from nonrecourse to recourse. That means that these bastards that jacked up the prices of housing fraudulently with all their securitization schemes in the first place, now instead of just taking the house back as collateral can come after the homeowner forever for anything and everything they have. Bloody brilliant!

2) The other dirty little piece of this - if a homeowner goes for this refi/mod, specific language is placed in the new docs that the homeowner cant or wont sue the banks/servicers. There is a BIG reason for this that most of us who have been following this whole housing debacle are aware of- the banks cant produce the notes as they were separated from the security instrument during the securitization process violating hundreds of years of contract law!

So uh huh getting new paperwork with this clause inserted therefore eliminates the biggest problem these douchebags have-- given they cant remarry the two essential documents--- and therefore even prove they have the right to foreclose or even collect payments given the broken chain of title-- so folks are unwittingly giving them a pass (letting them paper over the original fraud) if they sign up for a program like this ....

Welcome to lawlessness, pure and simple.
Oct 25, 2011 at 2:16 PM | Unregistered CommenterNixon
Another fairy dust toss & magic wand act from the "O". These people are addicted to their own brand of B.S. It's going to be interesting to see if the people are going to buy his latest piece of crap? Perhaps some will, but you can bet that most wont, and for 10 extra years of paying for it? At the rate the economy is going, even the brains who bought "GOLD" are getting nervous. They may take more, but then, where are they going to spend it? Money, at least the dollar is becoming more worthless as each day of this folly continues. Lets just hope that the revolution is a peaceful one, not like the normal type where the aristocracy gets the guillotine or the firing squad.
Oct 25, 2011 at 2:22 PM | Unregistered CommenterNorman
For anyone interested....George Babcock - Foreclosure Attorney Extraordinaire - will be live on the Buddy Cianci Radio Show today (10/25/2011). This should be fun!

Oct 25, 2011 at 2:35 PM | Unregistered Commenterchunga
The risk of having a zero experience ideologue as a president continues to be exposed. The left and the media continue to present the Rs as the bidders of big business. Yet, the OWC and the little guy are constantly abused by the Ds with policies that benefit no one but those that donate the most money to Obama; big business banks. The left, the NY Times, NPR, and all the pointy heads present the idea that verbal skills and academic qualifications of the ebony figurehead equal competence while they ignore the fact that Obama does the dirty work for bloated and poorly run US banks, corporations, and unions. The Rs offer little in the way of solutions because they do not have to. With a President this stupid they do not need solutions. When the primary interest is winning an election, which is the main interest of Ds and Rs, the Rs let this Nubian puppet dance to the tune of those that contribute to his re-election. As with binge drinking, the affirmative action president made us feel good about voting for and believing in him, and we now are weary from the hangover of the next morning. We as a nation are getting what we deserve. Placing 'O' in office is the keystone of all those social policies, academics, and feel good Oprafied non-sense that have led us astray. Just as Affirmative Action was corrupted from guaranteeing opportunity to guaranteeing results, the events that are unfolding were predictable. However, we have truly become a color blind society. As we raise generations (black and white) that believe that the drunk, addicted, and the unemployable are entitled to a understanding, income, health insurance etc., it is only natural that insolvent banks and companies (think GM) deserve a pass as well. As we invent a new sociological order, the blending of socialism and fascism, we devolve into thugs and tattooed pirates that though illiterate, express themselves at every turn. Yep, we feel good about our demise, as we become proud expressive parasites in nature.
Oct 25, 2011 at 4:16 PM | Unregistered CommenterTom Kane
Its ALL about enriching the bankers.
Tired of the banks that run America?
November 5th its time to Run the "Too Big" Banks
Oct 25, 2011 at 4:34 PM | Unregistered CommenterThebes
I can see Winston Churchill looking down from the clouds or maybe up through the steam, gazing at the octopus of Britannia foreign policy with its Rothschild/freemasonry/neocon/Israel gameboard tentacles sweeping all equity present from the banks and safes and file cabinets of Wall Street. And in gazing at the CIA's orchestrated seating of Barack Obummer in the president's chair to be the hand-carved placebo instead of the cure, I can hear Winnie say of this legion of invaders and traitors, "This, was their finest hour".
I read obviously involved people commenting on particulars of the world of finance, but nobody raising their eyes to see the main beneficiary to this looting. The barbarians are within the walls.
Oct 25, 2011 at 4:49 PM | Unregistered CommenterHoward T. Lewis III
This can't be good in the long run. Seems like we've gone down this road before when people didn't have to verify their income. We know how that worked out. Once again, the taxpayer will be on the hook when these people default or walk away from their loans. He is only trying to buy votes. Has anyone addressed the senior citizens who are mortgage bondholders and are counting on that income? No, it's just about redistributing the bondholders income. People who saved all their lives in the hopes of being able to live comfortably in their golden years, can forget that.
Oct 25, 2011 at 6:31 PM | Unregistered CommenterGG
("Lets just hope that the revolution is a peaceful one, not like the normal type where the aristocracy gets the guillotine or the firing squad.")

Not a chance!!!!
Oct 25, 2011 at 11:23 PM | Unregistered CommenterSagebrush
Evening Sagebrush, love your comment[s]. It's not often that I bust out laughing before I turn my keyboard off for the night, but right now, I'm having difficulty spelling. (I use the 2 finger mode of old) As the saying goes, laff & the world laffs with you, or something like that. As I said I'm going to sleep. You have a good night of it.
Oct 26, 2011 at 12:38 AM | Unregistered CommenterNorman
Republicans will continue to put the failed economic policies of GWB that caused the mortgage debacle on the present President, but I know most voters are smart enough to see through their smoke and mirrors!
Oct 27, 2011 at 1:07 AM | Unregistered Commenteraccessiblemediaone
At least Obama is trying to do something to help the people, even though the greedy banks don't want to. The GOP plan is to let the middle class fail, so the top 1% can take advantage of it and make themselves even richer at the expense of the 99%, while cutting funding to programs that actually help the 99%. What a lovely choice they're forcing the people to make come 2012.
Oct 27, 2011 at 1:08 AM | Unregistered Commenterabsolutetotalfreedom
I notise some fundamental missundertandings about the Greeks and whats their problem.
First their pension retirment age is 55, and compared with My ret.age that is 65, is due to average working Time during a year.
The Greeks works 2150 hours, while I have 1750 hours.
So it explains its self I hope.
The notion of lazyness is somwhat weird, and comes from a coplet missunderstandings of sosialsystem practising.

The major difference in some European counrtys, basicly Nothern is that Health and Scools are free. Thats payed for thru Tax, a Tax that is, contradictoring whats the average American viue, same as in USA.
And our goverment usess Less than USA pr. inhabitant than the USA do, and still its free.
Thats not fu.. comunism, its what we expect to gett back from the fu.. Tax money.
You are the one been Fooled.
But in every other aspect, the monopolyism and goverment incompetance, crappy preformances and utter stupidity, we have the same problem, a elite that do what It wants and their sponsores want, and dont even care what the People want and belives(AGW etc). Even wars that we dont aprove, they are involved.
Democracy anyone.
Its a western hemipher problem, the old rule of robberbarons are fading.
The only problem is that they wont give up without a fight, the only consern I have.

Just follow the Money, it always, always ends up some where.
Oct 27, 2011 at 7:16 AM | Unregistered Commentermikael
Great stuff everybody, I haven't been here in a while. Nah, I wouldn't worry too much about guillotines for this one. These Mega Crooks paved the way for several years so that it was planned to happen after the populous had become illiterate and whose education was CNN for a few decades. Most do not know what a guillotine is. For example, the OWS people consider The Wall Street Crowd that caused this Mess Capitalists. Andrew Carnegie was a capitalist. Henry Ford was a capitalist. These people are Mega Crooks. And yet there is so much illiteracy, lack of thinking skills and CHAOS that a scaffold will not go up in Times Square..............We will have Focus Groups, group therapy, International Human Rights organizations etc. ad nauseam.......Chaos..............But no guillotine..............Kadhafi was ripped off by Goldman Sucks and it was reported that he was going to have some people killed...........Something like that maybe but no public guillotine by the Masses (I am not advocating, just speculating what others might do or contemplate)..........Regards..........
Oct 27, 2011 at 5:11 PM | Unregistered CommenterLeo McCormick
Please stand up and figth back for our basic property rights! The banks are stealing our houses with their through their ponzi mortgage securitization and now by fraudulent robosigned documents! This MUST be stopped! http://boston67.blog.com/peoples-hero/

and - Delaware AG Biden talking about his lawsuit against MERS: "NY and MA Attorney Generals are also working on the central issue of the mortgage securitization/foreclosure crisis which is: MERS and robosigning. The issue is criminality - blessing the conduct and making it very difficult to prosecute that conduct; deceiving the homeowners about who owns their mortgage..."
Oct 30, 2011 at 10:58 AM | Unregistered CommenterSenka
Treasury's latest housing plan: Start demolishing houses



A federal housing program originally designed to help keep people in their homes is increasingly being used for a dramatically different purpose — the demolition of vacant homes that keep property values from rising.

But the move has been criticized by some who say the Obama administration should not be spending money to destroy buildings that could be used as homeless shelters.
The Treasury Department this week agreed to let Ohio use $60 million in federal money to demolish abandoned properties. That followed a June decision to allow Michigan to spend $100 million in federal funds on demolition efforts.
The funding comes from Treasury's Hardest Hit Fund (HHF), a initiative born of the Troubled Asset Relief Program (TARP) that gave 18 states and the District of Columbia a total of $7.6 billion in housing aid. Until this summer, the money was used by states to help homeowners stay current on their mortgage payments or make insurance or property tax payments.
Aug 23, 2013 at 8:45 AM | Unregistered Commenterjohn
Holy fucking shit John. The worst news possible. With the advent of Baltimore marking homes that are not to be saved in the event of a fire, with rampant arson a problem, well this is just a tacit nod to just fuck everyone. son of a bitch.
Aug 23, 2013 at 12:32 PM | Unregistered CommenterSKINFLINT

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