Can The Nationwide Foreclosure Settlement Help The Construction Industry?

Unfortunately, probably not. Government officials filed papers Monday, March 12 asking the federal court supervising the litigation to approve a $26 billion settlement worked out between Bank of America, JP Morgan Chase, Wells Fargo, Ally Financial and Citigroup on the one side, and forty nine state governments on the other side. Oklahoma, the 50^th state, made a separate deal. More banks are expecte to join in the settlement terms if the court approves them.

Documents supporting approval of the settlement include employee reviews at Bank of America reflecting company requirements for employees processing foreclosure paperwork to process 49 affidavits per hour, and 51 mortgage assignments per hour. That means reviewing, correcting and signing almost one court document per minute. A review of chase paperwork reflected that only 12% of foreclosure filings actually documented the amount allegedly owed by the homeowner, and only about 3% of the foreclosure complaaints were accurate in respect of the amount claimed to be owed. A Wells Fargo E-mail told employees to expect 100 affidavits delivered at 9 a.m., and they must all be signed by noon the same day. This would mean reviewing and signing the documents at the rate of one every two minutes without a break of any sort for three hours.

One employee at Ally signed up to 10,000 affidavits in support of foreclosure litigation each month – or a rate of one every 64 seconds during an 8 hour work day, with no time for breaks.

Of the $26 billion, $2.5 billion will go to state governments, including Wisconsin and Missouri, which have already announced their intention to divert settlement funds for reduction of general state budget shortfalls rather than using them to help struggling hoimeowners to avoid foreclosures. Three quarters of a million homeowners who already lost their houses in foreclosures will receive about $2,000 each in compensation – accounting for the next $1.5 billion. Up to $17 billion will go toward reduction of mortgage balances on homes which are underwater in today’s depressed real property market. Another large chunk will pay more than $100,000.00 each to active duty military servicemen and women whose homes were foreclosed in violation of the Soldiers and Sailors Civil Relief Act.

Even the state officials who negotiated the deal acknowledge that it won’t do much to relieve the glut of foreclosed homes depressing the housing market, because the total depth of the underwater housing phenomenon could reach a staggering $750 billion. Even if the number of participating banks increases to the anticipated total of 14, and the value of the settlement goes up to the predicted level of $30 billion, it’s just a 4% drop in the bucket.

It could take years for the residential real property market to clear the inventory of foreclosed and to be foreclosed houses, so new home construction might resume some semblance of its former healthy pace.

Biggert Continues Her Assault On The Construction Industry

Continuing her direct attack against any potential for recovery of new housing construction in America any time soon, 13th District Republican Representative Judy Biggert succeeded this morning in securing House passage of the fourth in a series of separate bills she cosponsored, terminating programs which provide relief to homeowners plagued by the economic crisis. Biggert is a cosponsor of HR 830, the FHA Refinance Program Termination Act, and HR 836, the Emergency Mortgage Relief Termination Act, passed by the House and sent to the Senate Banking Committee March 14, as well as HR 861, the Neighborhood Stabilization Program Termination Act, passed in the House March 17 and sent to the Senate Banking Committee. This morning the House also passed HR 839, the Home Affordable Modification Program Termination Act, cosponsored by Biggert, which will go to the same Senate Banking Committee.

Under Biggert’s leadership, the House has now succeeded in pushing through bills to completely gut all the programs in the Obama Administration stimulus legislation which gave some hope of stabilizing the tottering housing market, and stemming the bleeding in the housing start statistics so critical to recovery of jobs and activity in the construction industry. The fate of these critical programs is now in the hands of the 10 Republican, 12 Democrat Senate Committee on Banking, Housing and Urban Affairs. The Democratic members are Chairman Tim Johnson of South Dakota, and Senators Jack Reed of Rhode Island, Charles Schumer of New York, Robert Mendez of New Jersey, Daniel Akaka of Hawaii, Sherrod Brown of Ohio, Jon Tester of Montana, Herb Kohl of Wisconsin, Mark Warner of Virginia, Jeff Merkley of Oregon, Michael Bennet of Colorado and Kay Hagan of North Carolina. Republicans serving on the committee include Ranking Member Richard Shelby of Alabama, and Senators Mark Crapo of Idaho, Bob Corker of Tennessee, Jim DeMint of South Carolina, David Vitter of Louisiana, Mike Johanns of Nebraska, Patrick Tooney of Pennsylvania, Mark Kirk of Illinois, Jerry Moran of Kansas, and Roger Wicker of Mississippi.

While pundits predict all four bills will die in the Senate, or be vetoed by President Obama in the unlikely event they do pass, it is incumbent on every voter whose economic progress depends in any way on recovery of the construction segment of our economy to get in touch with the members of the Senate Banking Committee and let them know how important it is to construction companies and construction workers to see that this destructive legislation never reaches the Senate floor.

U. S. House Deals Construction A One/Two Punch

Last week the U. S. House of Representatives passed, and sent across the capitol to the Senate Committee on Banking, Housing and Urban Affairs, two unheralded pieces of legislation which represent direct attacks on the potential for economic recovery in the construction industry and the U. S. housing market: HR 830, passed March 14, would terminate the FHA Refinance Program; and HR 861, passed March 17, would terminate the Neighborhood Stabilization Program. The two programs on the Republican Party death list were part of the stimulus package of legislation aimed at assisting homeowners, whose house values fell below the principal balances on their home mortgages, refinance their loans, and assisting neighborhoods with large numbers of foreclosed homes avoid the urban blight associated with a situation where many homes in the same area stand vacant and unmaintained.

The fate of these two programs is now in the hands of the 10 Republican, 12 Democrat Senate Committee. The Democratic members are Chairman Tim Johnson of South Dakota, and Senators Jack Reed of Rhode Island, Charles Schumer of New York, Robert Mendez of New Jersey, Daniel Akaka of Hawaii, Sherrod Brown of Ohio, Jon Tester of Montana, Herb Kohl of Wisconsin, Mark Warner of Virginia, Jeff Merkley of Oregon, Michael Bennet of Colorado and Kay Hagan of North Carolina. Republicans serving on the committee include Ranking Member Richard Shelby of Alabama, and Senators Mark Crapo of Idaho, Bob Corker of Tennessee, Jim DeMint of South Carolina, David Vitter of Louisiana, Mike Johanns of Nebraska, Patrick Tooney of Pennsylvania, Mark Kirk of Illinois, Jerry Moran of Kansas, and Roger Wicker of Mississippi.

Termination of these two federal programs will be like a knee to the groin of an already prostrate residential construction industry in the United States. Without the economic support from the federal dollars these two significant programs provide, housing starts, already on a steep slalom down the mountain, will just turn their tips into the fall line. Seems like the Republican Senators and Congressmen favoring these bills, who already own their homes, want to destroy the American Dream for anyone in the middle class who still rents housing. If your business depends on housing construction for any part of its revenue, you should write your elected representatives on the Senate Banking Committee and point out the folly passage of either one of these proposed laws would represent.

Republican Subcommittee Chairman Lauds Obama Housing Smackdown

Illinois’ 13th District Republican Representative Judy Biggert, Chairman of the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity, is looking forward to joining with other committee Republicans to quickly extract the federal government from its role as primary financial risk taker in the housing market in this country. Joining in the Obama Treasury Department attack on any continuing role for federal housing subsidies in the form of residential mortgage guarantees, Biggert said in her E-mail message to constituents yesterday: “Taxpayers cannot continue to shoulder the financial risks associated with [federally chartered mortgage guarantors] Fannie [Mae] and Freddie [Mac]. … Our goal should be to choose a path that will quickly and prudently wind down the government’s role and restore stability to the housing market.”

In other words, Republican leaders are climbing aboard the Obama Treasury train of proposed measures which will raise home mortgage interest rates, cut back availability of 30 year fixed rate mortgages to even the most creditworthy borrowers, and altogether eliminate availability of low down payment lending to first time homebuyers. If you don’t already own your home, the American Dream may be pulling out of your station and rapidly receding into the distance as the train whistle hoots its demise. In a long awaited white paper released yesterday by Treasury, the Obama administration proposes cutting the size of mortgages Fannie and Freddie can purchase from private lenders, from the present $729,750 down to $625,500 as soon as the third quarter of 2011. Minimum required down payments will go up to 10% for conventional loans, and rise from the current 3.5% up to 5% for FHA first time buyer mortgages.

Finally, Treasury proposes increasing the fees Fannie and Freddie charge conventional lenders for guaranteeing the mortgages these lenders underwrite.

In a related Obama administration attack aimed specifically at lower income home owners, the administration proposes a $2.5 billion reduction in the LIHEAP home heating fuel assistance program. What’s the point in owning your home if you can’t afford to heat it?

While, admittedly, excesses in home mortgage lending, and the securitization of home loans into derivative instruments, contributed heavily to the near collapse of worldwide financial markets and drove the U. S. economy into the worst recession in decades, it is beginning to look like the Obama administration’s use of a purgative on Fannie Mae and Freddie Mac could be the cure that proves worse than the disease. Available credit for both the construction and purchase of new homes has already dried up into a syrupy consistency clogging the arteries of any hope for quick recovery in the construction sector of the American economy, and the Obama Treasury Department recommendations for home mortgage market reform will keep construction workers, trade contractors and home builders on the sidelines of the economic recovery for years to come.

Modification Of Home Mortgage Modifications

The Treasury Department's announcement that it has met its self imposed November 1, 2009, deadline for half a million voluntary home mortgage modifications under its HAMP program is being met by skepticism that many of these modifications will ultimately save the borrowers from foreclosure. The Congressional Oversight Panel released a report Friday morning recommending that Treasury criticizing the home loan modification process as outdated, "targeted at the housing crisis as it existed six months ago, rather than as it exists now." Harvard University law professor Elizabeth Warren, who chairs the panel, says it does nothing at all to help borrowers at risk because of a job loss in the family.

House Financial Services Chairman Barney Frank is threatening to add a provision to the financial regulatory reform bill authorizing bankruptcy judges to reduce the principal amounts of home loans for bankrupt borrowers. The House has already passed a stand alone bill to achieve the same result, but that measure has not been called in the Senate. Senate Majority Whip Dick Durbin is expected to push the bankruptcy mortgage cram down measure hard, though the Senate already rejected the earlier House proposal.

Congress Begins Debating Fannie/Freddie Restructuring

The fate of government sponsored enterprises in the mortgage markets will be a "long distance relay between Congresses, not a 100 meter sprint within the 111th Congress" according to House Financial Services Capital Markets Subcommittee Chairman Paul Kanjorski of Pennsylvania. His subcommittee began hearings yesterday on restructuring of Fannie Mae and Freddie Mac, both of which were put under Treasury Department conservatorship last September. House Financial Services ranking member Spencer Bachus says "any discussion of the long-term future of the GSE's must include a bailout exit strategy."