Bill Clinton’s favorite attack dog, James Carville, once said of Paula Jones: “Drag $100 bills through trailer parks, there’s no telling what you’ll find.”
Add a few zeros, and you can get the cooperation of much bigger players.
The noted financial services industry analyst Bill Clinton weighed in on the proposed $8.5 billion Bank of America mortgage settlement. Per Bloomberg:
Former President Bill Clinton said Bank of America Corp. (BAC)’s accord with mortgage-bond investors may give more “underwater” borrowers a chance to cut the amount owed on their home loans.
“You’d relieve the anxiety of countless Americans who would know they could hold onto their homes,” Clinton, 64, said in an interview yesterday with Bloomberg Television’s Al Hunt….
There is “enormous potential” to reduce the drag of U.S. housing on the economy if aspects of the Bank of America settlement are applied to the entire industry, Clinton said. The government could give an incentive to have that happen, he said….
By unclogging the housing market, “you lift not only an economic, but a psychological burden off of the homeowners and the banks,” Clinton said. “And we’re free to start lending again, we’re free to engage in normal economic activity.”
Since the Bloomberg clip of the interview did not include this section, I can’t tell whether Hunt brought up this topic or whether Clinton did. But as we’ll discuss shortly, this is not at all what the settlement (if it goes forward) is intended or likely to achieve. Yet Bloomberg reporter Hugh Son spun the story awfully hard to try to bolster this conclusion.
We must note that it seems rather peculiar that a former President would give a such a ringing endorsement to a deal. His approval was based on a feature that heretofore has not attracted much comment: that that Charlotte bank would be required to turn the servicing of delinquent loans over to special sub servicers. The argument is that special servicers can do a better job of giving principal mods.
Note the key word is “can,” not “will”. We’ll return to that, but let’s consider the matter of incentives, starting with Clinton.
Bank of America is participant in the Clinton Global Initiative meeting which is underway in Chicago. I assume that requires a financial commitment of some sort, although not at the level of a sponsor. The The mayor of Charlotte, North Carolina, which is where BofA is headquartered, was a “featured participant”. The CGI website lists only a sampling of “Notable Members: Private Sector” and they include Lloyd Blankfein, Jamie Dimon, Jeff Immelt, and Warren Buffett. His CEO is a former Goldman partner.
In addition, while we do favor mods, the idea that they will promote lending is questionable. First, banks have tons of reserves sitting at the Fed and could be lending if they cared to. The big constraint on lending now is not bank capacity, but the lack of willing and able borrowers, The head of M&T Bank, which is respected for its savvy in middle market lending, says he can’t find businesses that are strong enough to be good borrowing candidates. Consumers are for the most part in retrenchment mode, trying to pay down debt. The missing part of this equation is not credit, it’s lower unemployment and a real economic recovery.
And even if you took the Clinton theory at face value, it does not hold water. If banks (or those magical special servicers) do mods, that will force the biggest four retail banks (BofA, Citi, JP Morgan, and Wells) to take losses on their home equity portfolios, which total roughly $400 billion among them. Meaningful writedowns on these holdings would result in a major hit to their equity, and these banks are also expected to take losses on commercial real estate soon (certain accounting practices that have allowed for valuation gamesmanship will no longer be permitted after the third quarter of this year). Lower equity capital levels mean less, not more, lending. The top four banks don’t want to recognize the losses of the magnitude that any sort of market clearing event will achieve. The strategy has been extend and pretend: use regulatory forebearance to keep from showing how sick the banks are, and let them earn easy yield curve profits while the Fed keeps short term rates low. The hope is the banks will earn their way back to health. It might help if the banks would play along with this strategy and quit using these government gimmies to fund big bonuses.
Let’s now turn to how the Bloomberg reporter spun the story. He cited the highly respected analyst Laurie Goodman to support the “BofA deal will lead sub servicers to provide principal mods” thesis:
So-called sub-servicers “are often very effective at effecting principal-reduction modifications,” said Laurie Goodman, an analyst at Amherst Securities Group LP, which specializes in fixed-income assets such as mortgage bonds, in a note yesterday.
I have her report here. This is not merely cherry-picked but taken out of context in a way that renders it misleading. It is also important to note that Goodman is quite cool on the deal and thinks there may be enough pushback by certain investors that it will not get done.
Goodman’s comment came in a parenthetical in a section titled “Implications for the State Attorneys’ General Settlement”. She says the BofA deal will make it harder to get the state attorneys’ general deal done and expresses doubt that it will happen at all (we and others deem it to be a non-starter, given that New York attorney general Eric Schneiderman has said he is out, and some other state AGs are almost certain to be non-participants (six to ten Republicans who signed on only to sign off later, plus at least the AGs of Arizona and Nevada, who have filed litigation of their own and are reported to have no intention of dropping it). Here is the entire section:
Since this settlement contains both sizeable monetary penalties and mandates to
improve servicing practices by the largest servicer in the nation, we believe it will be harder to obtain consensus on the Attorneys’ General settlement. We have a hard time seeing a settlement with fines in the $20-$25 billion range, as originally discussed. We think that it will have much lower penalties than originally proposed, if it happens at all.Moreover, we believe it will be harder to gain consensus on some of the more heavily contested servicing reforms. However, the transfer of high risk loans to subservicers was not in the original AG settlement, and the Bank of America settlement opens the door to placing it in the next version. (From our point of view, subservicers are often very effective at effecting principal reduction modifications. So even if the mandatory principal reduction language were eliminated, emphasis on sub-servicers for high risk loans would achieve much the same effect.)
Yet if you read her much longer discussion of sub servicers in the section on the pending BofA deal, she stresses the difficulty of moving servicing over to a sub servicer and getting incentives right. There are at least five types of “high risk” loans that are to be transferred:
(i)Mortgage loans that are 45+ days past due without right party contact (i.e. the Master Servicer has not succeeded in speaking with the borrower about resolution of a delinquency);
(ii) Mortgage loans that are 60+ past due and that have been delinquent more than once in any rolling twelve (12) month period;
(iii) Mortgage loans that are 90+ days past due and have not been in the foreclosure process for more than 90 days and that are not actively performing on trial
modification or in the underwriting process of modification;
(iv) Mortgage loans in the foreclosure process that do not yet have a scheduled sales date; and
(v) Mortgage loans where the borrower has declared bankruptcy regardless of days past due.
If a borrower is current for a full year, he gets transferred back to BofA. However, Goodman also indicates that some borrowers will fail before the program kicks in and queries whether the capacity is there. And this will take a lot of tuning to work well for borrowers (and servicers have incentives to be bad at this as a way to earn more fees):
We applaud this idea, but implementation of the transfer will take time. Bank of America is going to have to put into place systems to monitor the sub-servicers. In particular, the sub-servicers must make sure they are reporting to the Master Servicer consistently for the purposes of the remit reports. In addition, there must be some way to monitor the incentive fees from the sub-servicers, to make sure they are being charged appropriately. It is hard to verify if a contact (incentive fee $100) has been made if it does not result in action. Finally, Bank of America is going to have to fine tune some of the incentive fees. If a borrower is 87 days delinquent, there is an incentive to wait until the borrower is 91 days delinquent to make the contact (fee of $124 per month rather than $60 per month).
She also notes (emphasis ours):
The agreement also requires improvement in the mortgage servicing by the Master Servicer but not in sub-servicing. For first liens, the Master Servicer is required to benchmark its timelines from delinquency to foreclosure and from foreclosure to liquidation performance against industry standards. If these timelines are not met, there is an agreed upon series of fees that will be paid from the Master Servicer to the Covered Trusts.
In other words, Bank of America is expected to meet “industry standards” in the speed of its foreclosure process. As we’ve indicated in other posts, robosigning and other abuses were the direct result of pressure on foreclosure mills to meet strict time deadlines set by Lender Processing Services (which in some cases may indeed have come from the servicer; Fannie and Freddie are strict, but we suspect LPS may have encouraged the use of rigid timetables in other cases in an effort to prove its value to clients). And my recollection (and I’ve found some evidence to support it) is that Countrywide loans were slower to move through foreclosure than other loans, including those originated by Bank of America.
We’ve also heard of some very dubious fixes which suggest that documentation/chain of title issues may have been the source of the slower process, such as BofA claiming to be the noteholder on Countrywide originated loans, when Countrywide’s own SEC filings said it securitized 96% of the loans it originated (so the noteholder would have to be a trust, not Bank of America. This sort of finesse appeared to happen on what appeared to be all foreclosures on Countrywide originated mortgages in certain parts of the county and thus was implausible that so many loans could be in that 4% that Countrywide retained.
The bottom line of this discussion of timeframes is that this requirement in the settlement is certain to lead to faster foreclosures, perhaps considerably faster foreclosures. Having to maintain fixed timetables to foreclosure is ANTI, not pro, mortgage mods. Indeed, the settlement effectively imposes penalties if BofA or its subservicers were to end dual track (the widely criticized process by which the foreclosure process is kept in motion while a bank considers a mod). The problem is that banks have never built the infrastructure to coordinate the two processes well. The usual result is the foreclosure crosses the finish line first. And that is probably a feature rather than a bug, since it is more profitable for banks to foreclose rather than do a loan modification.
So the Ministry of Truth, with one of the biggest brand names as mouthpiece, has spoken. A settlement that if it were implemented, is certain to lead to fewer mortgage modifications, is spun as the reverse. But what do you expect when so much of the officialdom is directly or indirectly on the banking industry meal ticket?
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The damn puppeteers behind all this kabuki must be getting tired as hell.
Its too bad they aren’t going broke as well or that we would have less shills for their cause.
They are still winning and none are in jail.
“The damn puppeteers behind all this kabuki must be getting tired as hell.”
Good one.
Yves has already got you on that one. Sex makes everything new & fresh. Just keep those 20-somethings coming, aka trolling for trailer trash. C-notes are cheap, don’t you know.
It’s not only the puppeteers who are getting tired but also the taxpayers at having to pay out so much money to rebuild trust in America. Invisible Hand acting in all our interests? Try clipping all the corruption articles turning up in Naked Capitalism and other media. Computer driven Carpal Tunnel Syndrome will soon appear in your not so invisible hand. As to carpal tunnel in kabuki puppeteers hands well that’s a story that will never get clipped.
Great analysis per usual.
I would really love to hear your thoughts on the now infamous Meredith Whitney “forecast of 50 to 100 significant municipal defaults totaling about $100 billion this calendar year”. She is not a pundit. She is a business women who sells investment advice to she does not make predication lightly. I heard her defend her predication last Jan. and she was passionate about the amount of analysis her firm (not just her) put into it.
I assume her data was accurate. Therefore her predictive model was built on fallacies. I wonder what they were.
Do you have any thoughts?
Tom,
Yves can speak for herself but, did you notice New Jersey taking a bridge loan from Wall Street or Minnesota shutting down?
There would appear to be something wrong with municipal government two years into the recovery.
Chris,
Thanks for you comment. Yes, I did notice that and in general I’m thinking that money has been funneled to the municipalities but I don’t have the foggiest from whom. I’ve read that tax collections are up but Federal transfers are down. But, the Bond market is international and what affects it is a mystery to me. That’s why I’m hoping that the incomparable Yves might address the issue.
The Ponzi affects it. There will be massive muni defaults. What don’t you get?
America, the patient, is very weak and gravely Ill, to the extent she now requires intensive care. While she lay dying on the operating table it is becoming painfully apparent that the environment in the operating room is septic. There are those who wish to see her survive and there are those who do not. In this medical metaphor, we are the surgeons, our understanding of how to treat the patient and the tools we use are not scalpels and sutures. The tools we use are laws and our ability to articulate them.
We have an epidemic on our hands. A plague. While the specific individual steps required to cure each patient may differ from the next, the pathogen is the same. Just as it would be irresponsible of a Chief Medical Officer at a hospital to realize a deadly plague exists, and to deny to all his surgeons their need to be aware of it – so it would be if a judge were to deny the fact we are suffering from a financial plague brought about by widespread deliberate indifference to the Law. Confining each individual case to the issues in the instant matter without considering that millions are succumbing to this plague, in increasing numbers, creates an impediment in the quest to find a cure.
Those that do not wish to see the patients survive either the financial plague or my imaginary medical plague are at every crack and crevice of the operating room, relentlessly and remorselessly pumping pathogens towards the patients in an effort to further add to the sepsis. The surgery still needs to be performed individually – but it must be acknowledged that the waiting room is full of new patients.
$lick Willie’s notion of principle reduction is more shit-lipping.
Submit all your financial information, list all you assets and income to The Ministry of Fairness…sure.
In the process you’ll be sized up for a deficiency judgment and denied.
You’ll also waive the right to question how many “books” your loan landed in and how many Credit Defaults Swaps lived in each “book”.
Bullshit.
The Ponzi plankton at the bottom of the fraudulent food chain, the borrowers, should crank up civil suits of their own en masse.
At some point in time, in the realm of foreclosure litigation, the distinction between negligent representation and fraudulent representaion needs to be drilled home.
Brilliant comment to another excellent but depressing post by Yves.
Thanks.
The puppets continue their efforts to influence the minds of “We The People” while failing miserably at being influential.
Were we to hold court with the issue at bar being our survival in imaginary case:
Citizens [Plaintiffs]
vs.
America, Inc. [Defendants]
The Plaintiff’s could adequately plead the necessary elements of fraudulent representation in order to defeat a Motion to Dismiss.
Defendant’s would offer no valid case law to support their position because there is none.
The court would rule in favor of the Defendant’s based on economics as opposed to the Law.
Any relevance your argument may have is completely negated by your apparent ignorance of the fact that plurals DO NOT REQUIRE APOSTROPHES.
Good point teacher. Have an apple on me.
Paging the moderator: can someone please remove my replies?
I can certainly look past a passion induced typo.
You are exactly right. The BIG BET the TBTF’s have booked is that people are too dumb, too afraid, too timid, too cash poor and not able to get adequate counsel to bring civil suits. They allow that some will, but they’ve baked that into the cake.
There is no AG, no Governor and certainly no Federal official who is going to be able to effectively provide relief and remedy. Only individual actions and the (building) case law to support it will. The tide has certainly turned vis-a vis 2 years ago, and if individuals continue to press for relief and damages in the courts, a much more effective result is likely to be had for them as well as others who similarly act.
Be smart, be courageous and do diligence. It can and must be done.
And if you are overweight you have no rights at all. Petridish, you are an arse. Did I misspell ass?
Oh, so it’s shoot the messenger day on NC is it?
“…direct result of pressure on foreclosure mills”
There are human beings in these law firms? Yes? Lawyers who must know they don’t come into court and lie unless they know they are going to get away with it (so far)?
“Bill Clinton’s favorite attack dog, James Carville, once said of Paula Jones: ‘Drag $100 bills through trailer parks, there’s no telling what you’ll find.'”
Off-topic, but even though it’s years later, the sheer offensiveness of this comment still impresses me. Rank misogyny and unapologetic class snobbery all rolled up together.
Peripheral Vision,
When you consider who Carville is married to [Mary Matalin sounds like Magdelyn?] he may have direct experience trolling through trailer parks with Ben Franklins…
But I must admit I have more respect for the “swamp people” of Louisiana than I do for either Slick Willie or his swamping dog, Carville.
Dear P V;
Alas and alack, trailer parks get such a bad rep nowadays. Go trolling through a trailer park around here flashing hundreds and you’ll probably end up getting rolled, and not in the hay.
Hey! I grew up in trailer parks. Dang if there was never a single Candy Man in sight.
Dear Dave;
Things have changed for the worse since we lived in ‘Trailer Courts.’ (Remember the ones with mowed lawns and a little swimming pool in the middle for the kids?)
Last year, as an example, several members of an extended family were killed by druggies looking to score both goods and money off of a small time dealer, who shared the trailer with the other victims. Happened in Slidell, south of here. Drugs have become so prevalent in the suburban and exurban areas, especially the trailer parks, that drive byes, exploding meth labs, and related sordid behaviour are serious problems for otherwise ‘clean’ but poor people. Add to this the growing trend for apartmant complexes checking your credit history as a condition for renting and you get a de facto concentration of misery.
I’ve been waiting for someone to mention the politicians dream commodity to be procured in trailer parks with cash; Votes. Walking Around Money anyone?
Clinton said. “And we’re free to start lending again, we’re free to engage in normal economic activity.”
That’s the key phrase, “we’re free.” Clinton assumes that we’ll assume the “we” is us. To engage in the “normal,” as in restart the con of privatize the profits and socialize the losses, and reduce the people to indentured servitude to the corporate feudal system. Clinton is damaged goods
Dear rps;
Clinton was always damaged goods. Look at his record.
Well aware of the scoundrel’s record. The best republican president the GOP had.
My Dear Sir;
Spot on. I used to twit a seriously True Believer Republican I worked for with that line. It never failed to piss him off and get me thrown out of the office. Usually just in time for lunch, which wasn’t free.
“What sexual favors were exchanged so that Clinton….”
Oh, please, limp willy is on so many heart medications and viagra is not an option with these drugs. No, Bill is just another mean old man angry at the world because little bill has been retired.
You forgot about pumps. They work every time.
Dear Dave;
I once worked with an old Korea Vet who had “a G I Monkey in his pants.” (“Best d— thing the V A ever did for me!”)
Now that’s a benefit package!
It’s sort of amazing how fast this ex-President’s reputation is doing a crash and burn, and this despite the fact that during his term in office nearly 23 million jobs were created. Ronald Reagan was a dreadful humbug, the very definition of an empty suit until Bush II came along. Still 23 years on, he maintains his saintly status.
Clinton was the consumate con artist, the kind of guy who could throw his arm around you, tell you how he felt your pain, even as he continued the building of the kleptocracy that is stealing us all blind. Ronnie knew when to exit the stage, and Alzheimers kept him off it. But Clinton can’t help himself. He’s that sad case of a con man still trying to run his cons when his line is no longer working. The reaction is not sympathy but derision.
The truth is he was always more Burt Lancaster’s Elmer Gantry than Jimmy Stewart’s Mr Smith Goes to Washington. That he is whoring for the banksters and the kleptocrats is completely unsurprising. The mask slipped long ago. This is who Bill Clinton is, more what he always was.
That Clinton is out there on his high-horse leading this nonsensical charge for the banksters is a pretty obvious indication of the desperation of the banksters. They don’t want to limp along for the next 50 years on the largesse of the Federal Preserve and they also do not want to invest in jobs because there is such malaise. Money down a rathole. Nevermind that they caused this mess. So this nonstarter by Clinton is just a PR service to the banks to float a teaser – a mere suggestion that “everyone will benefit” if we help the banks sweep all of their fraud under the rug. But any hard express terms would ultimately be fudged to death so no benefit ever reached either an investor or a borrower.
could you fix this paragraph? since the headline is about pimping, it would be good if the graph about the john was done a little better:
“Bank of America is participant in the Clinton Global Initiative meeting which is underway in Chicago. I assume that requires a financial commitment of some sort, although not at the level of a sponsor. The The major [MAYOR?] of Charlotte, North Carolina, which is where BofA is headquartered, was a “featured participant”. The GGI [CGI?] website lists only a sampling of “Notable Members: Private Sector” and they include Lloyd Blankfein, Jamie Dimon, Jeff Immelt, and Warren Buffett. His [unclear who the pronoun refers to] CEO is a former Goldman partner.
Thanks, have taken care of it.
Thanks for the performance, Willy. Now go away.
Yves, when you refer to “MM&T bank” are you refering to the Buffalo NY based M&T Banking corporation, the 29th largest bank holding company in the US ? Its stock symbol is MTB. I could find no large bank named MM&T bank.
Aargh, another typo. Yes, M&T Bank, the CEO apparently commutes to NYC four days a week and pays himself Buffalo level compensation.