The Obama administration doesn’t have a plan for part two of the mortgage meltdown

Mike Riggs Contributor
Font Size:

Housing and Urban Development Secretary Shaun Donovan kicked off his report on the state of the mortgage industry Wednesday by declaring, “We’re committed to forcing banks to change the way they do business.”

But not just yet, Donovan added. Eleven federal agencies, ranging from the DOJ to the SEC and even the Office of Thrift Supervision first have to complete the coordinated review process they began in May.

In the meantime, said Assistant Treasury Secretary Michael Barr, “We’re not trying to interfere with private suits. It’s happened in the past, and it’s going to happen in the future,” he said, referencing the avalanche of lawsuits brought both by investors and homeowners against mortgage servicers and lenders.

Neither Donovan nor Barr would go so far as to reveal a due date for what will likely be a multi-tome report, but intimated that the end of the calendar year was a reasonable expectation.

Besides reassuring consumers and markets alike that the various problems plaguing the mortgage industry — unclear ownership of mortgages, robo-signing, and other indicators of fraudulent foreclosures — are not systemic, Donovan revealed little about the investigation his agency is conducting.

“We found that significant reviews of service and performance at the Federal Housing Authority we’re not being done, and had never been done,” Donovan said, in a not-so-subtle jab at the tenure of Bush-appointee Alphonso Jackson.

The purpose of HUD’s investigation, which supposedly runs both wide and deep, is to “review practices that do not comply with state foreclosure law or applicable federal laws.” Those practices include the aforementioned foreclosure tactics, which have led to foreclosure moratoria by some of the country’s largest lenders, as well as the failings of the Home Affordable Modifications Program, or HAMP.

“We are very focused on the servicing process throughout,” Donovan said with regards to HAMP, claiming that to investigate only the end of the process (foreclosure) neglects the root of the problem: Borrowers bought homes that they could not afford at the time of purchase, and cannot afford now. Donovan made no bones about the Obama administration’s deep belief that it is the federal government’s job to keep a nation of fry cooks in their McMansions, and that the HAMP program has failed — spectacularly — at doing exactly that.

Declining to issue specific stats, Donovan essentially admitted that the HAMP program deserved much of the heat it has received from liberal Democrats and Republicans alike, many of whom say the program is a sham.

“The foreclosure process may be sound,” Donovan said. “But you don’t have servicers following the procedures” established by HAMP, which requires servicers to take steps to basically keep homeowners out of rental units and home prices unnaturally high.

“The primary issue is: Is the foreclosure process being followed correctly?” Donovan said. “The second set of issues, are servicers taking steps to keep borrowers in their homes?”

Myriad critics have said that the foreclosure process isn’t actually sound, citing forged documents used by foreclosure mills, and it’s unlikely Donovan’s claims will assuage those concerns.

But Donovan and Barr both made clear that the Obama administration is once again talking over the heads of the professional left and directly to Wall Street.

“We’re not saying that there couldn’t be real problems hurting real people,” Barr said. “We’re saying there’s no reason to scare the financial market.”
When asked if the federal government would take action against servicers and banks before it finished its review, Donovan said that his agency did not disclose that information, but that “homeowners need clarity as quickly as possible, markets need clarity as quickly as possible.”

“Fundamentally,” interjected Barr, “this is a problem for banks and the servicers to fix. They can fix it as quickly as they want.”

Donovan subtly defended President Obama’s refusal to sign legislation requiring a foreclosure moratorium, arguing that “stopping the sale of foreclosed homes could damage local markets,” due to the fact that foreclosed homes comprise one-third to two-thirds of home sales in hard-hit states, and a quarter of home sales nationwide.

“We have not found systemic problems to date,” Donovan reiterated towards the end of the press conference.