Congress feeling pressure to get to the bottom of housing crisis. No more bailouts!

NY Times story on agreement between states and banks


“The large banks say they are doing everything they can to avoid foreclosure, but that is not the reality on the ground,” said Patrick Madigan, an assistant attorney general in Iowa who is a lead figure in the investigation. “The question is, Why?”
Mr. Madigan mentioned some theories, saying any or all could be true: “Is it the fact that the current servicing system was not designed to do large numbers of loan modifications, is it being understaffed, incompetence or the servicers having the wrong financial incentives?”
The major lenders are scheduled to appear on Capitol Hill on Thursday for the second hearing this week on their foreclosure procedures. The pressure to reach a settlement with the attorneys general will likely intensify after the hearing, which will be led by Representative Maxine Waters, a Democrat from California and outspoken critic of the mortgage lending industry.
But quick fixes are not likely, the attorneys general said. Richard Cordray, the Ohio attorney general who lost his bid for re-election this month, was hesitant to predict a significant outcome.



“Something will come of this, no question,” Mr. Cordray said of the inquiry. “The question is whether it will be a meaningful resolution that will make a real difference or a missed opportunity. It’s not entirely clear at this point.”



Some experts were willing to go even further, saying the lenders were impervious to change. For 18 months, the Obama administration has promoted modifications that would keep families in their homes over foreclosures that would kick them out. The programs have had some success but ultimately have done little to stem the tide.



“The banks’ act was to put their tail between their legs, act contrite before Congress and change nothing,” said Adam Levitin, an associate profesor of law at Georgetown University who testified before Congress on Tuesday and will testify again on Thursday.

More on the PR effort from the lenders here in The banks continue to play victim in crisis

The banks hope to buy off the attorneys general with money, perhaps to establish a compensation fund for victims, Mr. Levitin said. That, he said, would prevent attorneys general from “digging deeper and uncovering more rot in the mortgage system. My fear is that the banks’ calculus is correct.”

There were fresh reports on Wednesday that the foreclosure situation was deteriorating. Another 35,000 households entered foreclosure in October, the data company Lender Processing Service said, despite freezes instituted by lenders as they reviewed their practices. About 4.3 million households are either in serious default or in foreclosure.

The housing market also showed fresh signs of trouble. CoreLogic, a data company, said Wednesday that home prices fell 2.8 percent in the last year. Earlier this week, another information company, DataQuick, said sales in the Southern California market had dropped 24 percent in October from last year.

“We agree with the attorneys general that a housing market recovery is vital to restoring economic growth, and the sooner we resolve the outstanding issues, the better,” said Lawrence Di Rita, a Bank of America spokesman.

For the banks, the immediate cost of halting foreclosure is not significant. Brian Moynihan, the chief executive of Bank of America, said it totaled $10 million to $20 million a month. Bank of America has frozen foreclosures in 27 states.

A far greater threat to the broader financial system is the possibility that investors will force financial institutions to buy back hundreds of billions of dollars in soured mortgages, according to a Congressional Research Service report prepared for Thursday’s hearing and obtained by The New York Times.
Loan buybacks could shift $425 billion in losses on mortgage-backed securities from the investors that owned them to the banks that helped originate or assemble the securities, according to the report, far more than most estimates floated on Wall Street.

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