A Better Foreclosure Fix?

Good old American free-enterprise vultures may be trumping Obama's Treasury theorists in slowing down the rate of mortgage defaults.

Instead of complex schemes to lower interest payments for under-water home owners, speculators are buying up loans at distress prices and cutting the principal but still keeping it high enough to profit--a market-based solution if there ever was one.

The media have been quicker to endorse this approach than the government. A New York Times editorial notes that, rather than reducing interest, "A better way to lower the monthly payments for these people is to reduce the principal remaining on the loan. That way, the payments become affordable and, as equity is rebuilt, the borrower has both an incentive and the means to keep current. The Obama plan provides subsidies for lenders to reduce principal balances, but the option is not promoted as prominently as simply reducing the interest rate. That’s a shame. It is a better way to go..."

The day before, an OpEd piece had argued: "For subprime and other non-prime loans, which account for more than half of all foreclosures, the best thing to do for the homeowners and for the bondholders is to write down principal far enough so that each homeowner will have equity in his house and thus an incentive to pay and not default again down the line. This is also best for taxpayers, who now effectively guarantee the securities linked to these mortgages...

"For these non-prime mortgages, there is room to make generous principal reductions, without hurting bondholders and without spending a dime of taxpayer money, because the bond markets expect so little out of foreclosures."

Bloomberg reports a December study by the Comptroller of the Currency showing that, after six months, more than 55 percent of the loans modified last year re-defaulted while only 28 percent of homeowners whose modifications trimmed their principal by a fifth or more were late after six months.

Banks and other mortgage holders are resisting such immediate markdowns in the value of loans in the hope of more taxpayer bailouts and/or a rebound in the real-estate market.

Then, too, there is a natural revulsion that some of the new vultures are the same people who started this mess, such as the former Countrywide executives who wrote sub-prime mortgages and are now in business buying them back at 38 cents on the dollar. “It’s like Jeffrey Dahmer selling body parts to a clinic," Gail Collins notes.

But it seems to make economic sense--and, in the larger picture, even social justice--for the makers of bad loans to eat their losses now and stabilize the housing market sooner rather than later.

Homing In on the White House

With thousands of American families losing their homes to foreclosure every week, it's depressing to see presidential candidates in a food fight about how many residences John McCain possesses and how much help Barack Obama got from a fixer in buying his own.

Technically, McCain may be homeless, since none of the eight places he hangs his hat belongs to him but to his wife, children and trusts she controls, but haggling about that may strike voters desperate to avoid losing the places they live as not quite relevant to their concerns.

The hoo-ha about homes is symptomatic of the freefall from focusing on issues and turning the election into a barroom brawl that Rovian Republicans started with their attack ads and McCain's badmouthing of Obama to which the Democrats are now responding with kneecapping of their own.

Ironically, it was Cindy McCain, owner of the houses and condos in question, who started out by making it clear that she and her husband kept their finances separate and that she had no intention of telling the world about her own.

At the same time, she was adamant that, after all the sliming her family suffered in 2000, that this campaign would be different.

“We'd rather not win than to have to do that,” Mrs. McCain said last spring. “That's not worth winning for. This is about being a leader and a person that can be a good example for our children, and a good role model. There are many, many, many more things to this job than just being the president. You are an example. You have to--you have to be better than that. You have to be.”

She said she had asked her husband after the 2000 race not to try again for the presidency if it meant enduring all the attacks and slanders. But here we are, and this time it's John McCain who has found a home with the Republican politics of personal destruction.

Katrina to the Nth Degree?

Myanmar is one of those mirrors Nature suddenly holds up every so often to make human beings face hard truths about what we call civilization.

As tens of thousands die, many needlessly, and millions face disease and starvation, international aid officials struggle against the barriers set up by politicians to preserve their power.

"(W)ith relief efforts still largely stymied by the country’s isolationist military rulers," the New York Times reports, "frustrated United Nations officials all but demanded Thursday that the government open its doors to supplies and aid workers."

As Americans watch in horror, Myanmar is a demonstration of how high the price of political self-protection can go, how much life can be lost to incompetent and uncaring exercise of power.

As we distance ourselves from such behavior, questions arise about Katrina, Iraq and the games that our own leaders are now playing in Washington over efforts to keep tens of thousands from losing their homes to foreclosure.

As we silently congratulate ourselves that life here is not held as cheaply as it is in Southeast Asia, it may be a good time to take a look in that mirror Nature is holding up there and ask our ourselves some hard questions about how much better we are doing here.

The Home-Foreclosure Picnic

Hearts aching for millions of Americans in danger of losing their homes, the Senate has been working hard on the Foreclosure Prevention Act, which will provide billions of dollars in tax breaks for airlines, automakers, alternative energy producers and home builders.

As they always do, lobbyists have been hijacking the bill that has bipartisan support in an economic crisis to lard it with help for their clients, everybody but homeowners.

“The Senate legislation gave corporations and Wall Street billions in tax breaks,” the president of the Laborers International Union of North America said at a news conference yesterday. “Tax breaks for corporate home builders won’t help stabilize the housing market, won’t create jobs and won’t prevent a single foreclosure.”

In the House, New York's Charles Rangel is pushing a bill to give tax breaks to first-time home buyers, but the realtors lobby would like it to apply to all buyers as would the National Association of Home Builders, the Mortgage Bankers Association, the Securities Industry and Financial Markets Association and the Council of Federal Home Loan Banks.

Meanwhile, the only help beleaguered home owners are getting is from some states and cities. "This month alone," the Washington Post reports, "Philadelphia's sheriff delayed foreclosure auctions of 759 homes...Maryland extended the time it takes to complete a foreclosure. State leaders in Ohio recruited more than 1,000 lawyers to aid distressed borrowers."

Nine states have committed more than $450 million to loan funds to refinancing mortgages of at-risk borrowers, according to a study by the Pew Charitable Trusts. Some have brokered deals with lenders to ease terms for troubled loans. A few states have lengthened the time it takes for foreclosure.

When they face the voters this fall, members of Congress may have trouble figuring out why some of them are so...bitter.

The Ultimate Triumph of George W. Bush

He set out to show that government is useless, expensive and stupid, and in the waning days of his Presidency, the man is proving it beyond all doubt.

Forget Katrina, the war in Iraq, the violation of individual rights--misadventures that might have happened to any brain-dead President--but now our lame duck is giving us his "What, Me Worry?" grin as the economy crumbles around our ears. A catastrophic Bush Depression would be the final gift to his government-hating supporters.

Watching the leader of the Free World address the Economic Club of New York yesterday, Gail Collins muses that "you had to wonder what the international financial community makes of a country whose president could show up to talk economics in the middle of a liquidity crisis and kind of flop around the stage as if he was emcee at the Iowa Republican Pig Roast.

"We’re really past expecting anything much, but in times of crisis you would like to at least believe your leader has the capacity to pretend he’s in control. Suddenly, I recalled a day long ago when my husband worked for a struggling paper full of worried employees and the publisher walked into the newsroom wearing a gorilla suit.

"The country that elected George Bush--sort of--because he seemed like he’d be more fun to have a beer with than Al Gore or John Kerry is really getting its comeuppance. Our credit markets are foundering, and all we’ve got is a guy who looks like he’s ready to kick back and start the weekend."

Home prices are plummeting, foreclosures are soaring, the Fed pumps billions into propping up Bear Stearns and his Treasury Secretary belatedly starts talking about overseeing cowboy mortgage lenders, but the President is sure that our country is still "the economic envy of the world" and that "sending out over $150 billion into the marketplace in the form of checks that will be reaching the mailboxes by the second week of May" will cure it all.

But then again, why worry? He probably owns the ranch in Crawford free and clear.