The Light: Hillary

The challenges on our economic landscape remain daunting. While employment and manufacturing may be stabilizing, the housing and mortgage markets remain mired with real issues.

The issues within housing and mortgages are at the base of our economic crisis encompassing both Wall Street and Washington. From structured transactions on Wall Street to financial regulatory reforms in Washington, the issues ultimately come back to housing and mortgages. I will discuss all these issues tonight from 8-9pm ET as No Quarter Radio’s Sense on Cents with Larry Doyle. Bill Berliner is uniquely qualified to address these topics. Bill has extensive experience within the financial industry and currently shares this experience from his firm, Berliner Consulting and Research, LLC:

Berliner Consulting & Research is devoted to providing information, data, and advice on mortgage lending and mortgage-backed securities acquisition and management. Formed in 2008 by William Berliner, the firm is dedicated to providing outstanding information, advice, and commentary to its clients.

The firm provides advice and analysis to clients on a wide variety of mortgage products and mortgage-backed securities. Located in Southern California, Berliner Consulting & Research provides assistance in developing loan origination, securities valuation, and risk-management systems. We also help lenders and investors deal with the increased reporting required for directors and regulators by providing expert writing and report-creation services.

In regard to Bill’s background:

A respected analyst and author with a wide variety of experience, Mr. Berliner began his career in the Government Operations department at Bear, Stearns & Company in 1985. He was promoted to the trading floor in 1986, and eventually ran the position tracking (“Pops”) desk for the MBS trading desk. He worked in CMO trading from 1988-1993, when he left to join Nikko Securities. After stints at Nikko, Prebon Yamane, and the New York State Banking Department, he joined Countrywide’s Capital Markets unit as a CMO trader in 1996. He moved to the Fixed Income Research Department in 1998, and eventually ran the firm’s highly-regarded Trade Strategies Group until September of 2008.

Please join me this evening for what will be an engaging and informative discussion. Listen LIVE at the BlogTalkRadio website. Dial in with questions at 347-677-0792 or join our always energized chat room. As a reminder, all NQR shows are taped, archived, and available as podcasts on iTunes.

LD

ACORN’s Leader, Bertha Lewis, recently spoke to a group of young people. Her talk, excerpts below, was mighty interesting:

Holy moley, did you catch all of that? Let’s see: Socialism, Check! Demean Tea Party members, Check! And on it goes.

Perhaps it was because of this speech that ACORN’s funds are once again on hold, as this article spells out:

Appeals Court Temporarily Reinstates ACORN Funding Ban

The ruling by the three-judge panel of the 2nd U.S. Circuit Court of Appeals in Manhattan will remain in place until full arguments on the issue can be heard during the summer.

A federal appeals court on Wednesday temporarily blocked a judge’s ruling that it was unconstitutional for Congress to cut funding to the activist group ACORN.

The ruling by the three-judge panel of the 2nd U.S. Circuit Court of Appeals in Manhattan will remain in place until full arguments on the issue can be heard during the summer.

Rep. Darrell Issa, the top Republican on the House Oversight and Government Reform Committee, who has led the charge against taxpayer funding for ACORN, cheered the ruling.

“I applaud the Court of Appeals for immediately addressing the effects of Judge Gershon’s attempt to legislate from the bench,” he said in a written statement. “With today’s action by the Appeals Court, the Obama administration must take immediate steps to re-implement the funding ban for ACORN Congress put into law.”

“In recent months, ACORN has undergone a rebranding campaign to disguise itself and its affiliates,” Issa added. “As a result, the White House and all federal agencies must be extremely vigilant to ensure that rebranded organizations who have continued to make deals and maintain connections to ACORN don’t receive taxpayer dollars.”

Well, this is certainly an interesting change of fortune for ACORN. Maybe all of that name changing sleight of hand raised some red flags. Or maybe the Court wanted to look a bit closer into the reasons why the Funding was restored in the first place:

U.S. District Judge Nina Gershon has ruled twice in the past six months that the funding cutoff was unconstitutional.

The Brooklyn judge said ACORN was punished by Congress without having gone through processes to decide whether money had been handled inappropriately.

A series of secretly taped videos filmed at ACORN offices around the country last year caught employees giving advice to a couple posing as a pimp and prostitute, sparking a national scandal and helping drive the organization to near ruin.

On Wednesday, attorney Mark Stern argued for the Justice Department that Congress did nothing wrong when it took action last year against ACORN after it identified “widespread mismanagement.”

Attorney Jules Lobel of the Center for Constitutional Rights said that funding for economically distressed people who receive government subsidies for homes was being blocked and that the money needed to be freed or some people would be homeless.

I am all for economically distressed people receiving funds to ensure they keep their homes. I am not all for the organization handling those funds to be rabidly partisan, and there is no doubt ACORN is that. It receives federal dollars – OUR dollars – as a non-partisan organization. That is but one of the many reasons why its funds are at risk, as well as charges of voter registration fraud, voter fraud, and a number of other potential hot-water issues.

It’s a shame, too – it didn’t have to be this way, but that is the road down which ACORN chose to go, no doubt emboldened by their relationship to Obama. They seem incapable of accepting responsibility for their own actions, blaming those who expect them to operate above board and want to hold them accountable for how they spend our money instead.

It could have been different, it SHOULD have been different. As a result of ACORN’s own actions, people who needed this money will not be able to get it. ACORN has no one else to blame for this but itself.

So, I wonder when we can expect their acknowledgment of wrong doing, and an apology for mismanaging our money? Yeah, I’m scheduling it for “Never.” How about you?

Or is it? Much has been made of late about the national office of ACORN shutting down, on April 1st, no less. Yes, that is a bit telling in and of itself. Hence this article, ACORN SWAP?. That pretty much sets the tone:

ACORN, the embattled community activist group, says it is disbanding.

The group, the Association of Community Organizations for Reform Now, claims it will close its affiliates and field offices by April 1st. But some of its critics think the move is really an April fool’s switch. They claim ACORN actually isn’t going anywhere, just rebranding under different local organizations with new names but with the same mission.

ACORN has faced a variety of allegations over the past two years, from voter registration fraud to Republican charges that it uses public funds for liberal political purposes. ACORN workers have gone to jail, and undercover tapes of ACORN workers seemingly giving advice on how to skirt the law especially made the group a lightning rod for criticism.

ACORN has denied the charges, pointing to its own commissioned investigation that found allegations against it baseless.

“ACORN has faced a series of well-orchestrated, relentless, well-funded right wing attacks that are unprecedented since the McCarthy era,” claims ACORN CEO Bertha Lewis. In a statement she said in part, “Our effective work empowering African-Americans and low-income voters made us a target.”

You know, I am so tired of being called a racist for calling people on their actions, and this is no exception. It has NOTHING to do with who ACORN helps, but HOW it helps them:

But critics say ACORN’s undoing is entirely its own fault.

“I don’t think we are done with this,” Iowa Republican Congressman Steve King, a noted ACORN critic, told Fox News. “This is a big step in the right direction because I believe they are a corrupt, criminal enterprise.”

King calls the move “a downsize of ACORN,” but believes its operations will be shifted to state organizations that “may well grow.” He says “tigers don’t change their stripes and neither to people who are operating in a corrupt fashion.”

Critics point to a variety of new local organizations that are springing up to apparently take ACORN’s place. In Brooklyn, New York the ACORN office now has a new sign: “New York Communities for Change,” and in Massachusetts the president of the new group, “New England United for Justice” is listed as Maude Hurd, the president of ACORN, in its articles of Organization.

There are a growing number of such local groups replacing ACORN, according to Matthew Vadum, of the Capital Research Center. He says ACORN Housing has changed its name to Affordable Housing Centers of America, Inc., and that other ACORN connected groups include: Arkansas Community Organizations, Alliance of Californians for Community Empowerment, and Missourians Organizing for Reform Empowerment.

“This is a trick, a public relations trick,” says Vadum, calling the move an attempt “to dupe Congress and the American people to think they have gone away and they have not.” He says “the same people are running the new chapters that have sprung up and in some cases, out of the same offices.”

Yep, that’s pretty much what I think, too, that this is more smoke and mirrors from the group for whom our Smoke and Mirrors President did his internship.

As a reminder of why ACORN’s funds were cut:

The moves in Congress to cut ACORN’s funding came after the shocking undercover video-tapes made by conservative activists James O’Keefe and Hannah Giles who posed as a pimp and a prostitute trying to secure ACORN’s help to open a supposed brothel using underage girls. A federal Judge has since declared the Congressional move unconstitutional, but the financial damage may have been done. Several federal agencies have cut their ACORN funding and ACORN even tried to use the example of the tapes for fundraising purposes.

Giles has not returned a request for comment on ACORN’s announcement, and O’Keefe told me he cannot comment because of the on-going investigation of another of his video projects. He and three others have been charged with trying to “manipulate” the phone system of Democratic Louisiana Senator Mary Landrieu. O’Keefe says he was engaged in a journalistic endeavor, going undercover to try and show that there was no problem with the Senator’s phone system during the run-up to the health care vote.

Another article goes into a little more detail from ACORN’s perspective:

ACORN to Shut Down in Wake of Scandal

The once mighty community activist group ACORN announced Monday it is folding amid falling revenues — six months after video footage emerged showing some of its workers giving tax tips to conservative activists posing as a pimp and prostitute.

“It’s really declining revenue in the face of a series of attacks from partisan operatives and right-wing activists that have taken away our ability to raise the resources we need,” ACORN spokesman Kevin Whelan said.

Again, it apparently has NOTHING to do with this organization engaging in voter registration fraud, voter fraud, and counseling in ways to subvert the tax system, among other issues. Yeah, it’s all “partisan.” Way to take any accountability there. What else is new??

But are they really disbanding? Like I said, I don’t think so. An ACORN by any other name is still ACORN:

Several of its largest affiliates, including ACORN New York and ACORN California, broke away this year and changed their names in a bid to ditch the tarnished image of their parent organization and restore revenue that ran dry in the wake of the video scandal.

ACORN’s financial situation and reputation went into free fall within days of the videos’ release in September. Congress reacted by yanking ACORN’s federal funding, private donors held back cash and scores of ACORN offices closed.

Earlier this month, a U.S. judge reiterated an earlier ruling that the federal law blacklisting ACORN and groups allied with it was unconstitutional because it singled them out. But that didn’t mean any money would be automatically be restored.

Bertha Lewis, the CEO of ACORN, which stands for the Association of Community Organizations for Reform Now, alluded to financial hardships in a weekend statement as the group’s board prepared to deliberate by phone.

“ACORN has faced a series of well-orchestrated, relentless, well-funded right wing attacks that are unprecedented since the McCarthy era,” she said. “The videos were a manufactured, sensational story that led to rush to judgment and an unconstitutional act by Congress.”

ACORN’s board decided to close remaining state affiliates and field offices by April 1 because of falling revenues, with some national operations will continue operating for at least several weeks before shutting for good, Whelan said Monday.

For years, ACORN could draw on 400,000 members to lobby for liberal causes, such as raising the minimum wage or adopting universal health care. ACORN was arguably most successful at registering hundreds of thousands of low-income voters, though that mission was dogged by fraud allegations, including that some workers submitted forms signed by ‘Mickey Mouse’ or other cartoon characters.

Yes, Mickey Mouse was but one fictional character “signed up” by ACORN workers. As I have noted about a GAZILLION times, they have been under investigation in up to 14 states, including Florida, Nevada, and Louisiana, for submitting THOUSANDS of false voter registrations. Recently, a conviction for voter fraud was returned in Pennsylvania for an ACORN worker.

So, enough with the “poor me” victim crapola. ACORN brought this on themselves with their underhanded, illegal dealings. Having to disband because their funding is cut is just what happens when organizations operate in unlawful ways.

But is ACORN really running out of money? Not if Peter Orzag has anything to say about it, and he does. That would explain the name changes, and the April 1st date:

While America is distracted by Democrats’ attempts to unconstitutionally ram government-run healthcare down the throats of the American people, the Obama administration began preparing to resume funding to President Obama’s favorite community organizing group.

The fiscal floodgates are opening for the Association of Community Organizations for Reform Now (ACORN), the president’s former employer and legal client, despite a congressional ban on funding the activist group that has long been a practitioner of election fraud.

In a March 16 memo Office of Management and Budget (OMB) director Peter Orszag quietly ordered federal agencies to resume funding the group whose employees were caught on hidden camera videos last year condoning a variety of crimes including child prostitution and tax evasion.

Well, I’ll be darned. Someone inside Obama’s office is making sure ACORN gets its funds restored, all while we are focused on the Healthcare Legislation. The ol’ “Look over there!” trick. Well, that sleight of hand almost worked. But now we know Obama’s buddy is looking out for his his buddies. Seems ACORN, or whatever it’s calling itself these days, is here to stay, if Obama has his way…

My blood is boiling. Why?

The assault on the principles of free market capitalism is escalating with news that banks are poised to start reducing principal balances on certain mortgages.

I empathize with those who are strapped, but I have never felt more strongly on a topic than this principal reduction. Despite any and all bulls*%# put forth by those in Washington, the principal reduction program is an enormous escalation of the violation of moral hazard which our country sadly continues to embrace. I have no doubt it will expedite the development of a socialized housing finance system.

Do not think for a second that banks will take the hit on these principal reductions. Who will take the hit? Me and you. Those who have worked hard, saved, played by the rules, and taught our children to do the same. I have no intention of changing that approach and will work that much harder to instill these virtues in my children. That said, these virtues are under assault under this program. My children’s future is being negatively impacted as the costs of principal reduction will be pushed off on them.
(more...)

U.S. Rep. Barney Frank (D-MA)

Banks are increasingly healthy, right? Our nation’s accounting rules promote real transparency and integrity in our financial reporting, right? Housing is bottoming, right? No, no, and no!

Why so pessimistic, you may ask? I am not pessimistic at all. I am merely searching for the truth in the midst of the smoke and mirrors on Wall Street and in Washington.

Thank you to our friends at 12th Street Capital for sharing a recently released letter from Congressman Barney Frank imploring the four largest banks involved in mortgage originations to write off second liens they are holding on their books at inflated values.

Why does Congressman Frank believe these loans need to be written off? The liens must be largely written off so that Washington can then compel banks to engage in writing down principal on first liens in an attempt to keep people in their homes. Keeping people and families in homes is certainly a worthy cause, but the process is fraught with all kinds of violations of moral hazards and assorted unintended consequences. When you hear that your neighbor receives a principal reduction, how long will it take you to go to your bank and demand the same?

Let’s review Frank’s brief, two-page letter (click on image below to access pdf document). Focus on Frank’s comment that the second liens have no real value but accounting rules allow the banks to carry them at artificially high values. Can you say, “cooking the books”?

What are the projected losses in these second liens? Well, how much of this paper is outstanding? The Wall Street Journal provides a bar graph in an article, Home-Savings Moves Afoot:

So, with $1 trillion in outstanding second liens on the books, the question begs as to how much of this indebtedness is current, how much is delinquent, and how much is truly worthless but not yet acknowledged. In discussions with those in the industry, suffice it to say, the most optimistic assessment is that the industry has at least a few hundred billion in losses yet to be acknowledged.

The larger banks addressed by Congressman Frank are the largest holders of these second liens. These banks do have earnings power given the free flow of liquidity provided by the Fed and accompanying capital markets activities. That is not the case with smaller institutions. How many of those institutions are already dead, but not yet buried?

Wonder why banks are reluctant to provide credit? They need to increase capital knowing these second liens are truly an ongoing sinkhole.

LD

Is still a nut. You may have heard that ACORN, the group which has received millions of taxpayer dollars, and has misused millions of taxpayer dollars, is restructuring:

The embattled liberal group ACORN is in the process of dissolving its national structure, with state and local-chapters splitting off from the underfunded, controversial national group, an official close to the group confirmed.

“ACORN has dissolved as a national structure of state organizations,” said a senior official close to the group, who declined to be identified by name because of the fierce conservative attacks on the group that began when a conservative filmmaker caught some staffers of its tax advisory arms on tape appearing to offer advice on incorporating a prostitution business.

Ah, yes – this is all the fault of that pesky James O’Keefe and those mean Republicans. It has absolutely ZIP to do with ACORN being under investigation in at least 14 states for voter registration fraud, and is under federal indictment in Nevada, or their participation in the mortgage lending crisis, or anything like that.

The article referenced above also has this Update:

A person familiar with the New York reorganization said the new group has a new board, including some relative outsiders, like an official at the union Workers United, Wilfredo Larancuent, as well as most of the old leadership.

But the impact appears to be minimal.

“It’s not like this is some kind of hostile thing,” said the New York source. “This is what Fox has produced. National Acorn and Bertha Lewis are continuing doing their thing, but the New York flagship has been forced into this new organization.”

“As far as the work in the communities and policy campaigns, no one will notice the difference,” the source said. “It’s people who still believe in their basic mission of fighting for poor people.”

ALSO: National ACORN says it continues to exist, despite the departure of state chapters, including also California’s, which departed under similar terms last month.

Yes, yes, it is clear – this has nothing to do with voter registration fraud, voter fraud, bad mortgages, or the fact that this is SUPPOSED to be a non-partisan organization that is working primarily to hep Democrats, including Obama, elected to office. Nope – it’s all because Fox News and James O’Keefe are mean to them. I got it.

Do they really think we are so stupid that we are not going to KNOW they are the same group as before? Hey, we’re not in Congress or anything – we aren’t THAT easily duped. I’m pretty sure we can keep up.

But guess who apparently cannot? Oh, yes indeedy – President Obama. Remember this little clip from his interview with George Stephanopoulos?

Wait until you get a load of THIS one:

Again, do these politicians really NOT know we have VIDEOTAPE??? Holy moley, Obama, you are way too young to be that forgetful. Oh, wait – that’s not forgetfulness, that’s flat out lying. No doubt, once ACORN has finished changing its name and banners, he’s going to claim he has NO idea who or what that organization is.

Hey, here’s a fun little contest we can have. “Liar, liar, pants on fire!” is a bit dated as an expression, and we so need a new one for Obama and the numerous whoppers he lets fly (not to mention most politicians). What pithy saying can you craft that about Obama and his numerous lies? This should be fun. Oh, and prize ideas, too, would be welcome. Have at it!

If you wonder why America is broke, look no further than the individual who wanted to roll the dice on sub-prime lending, that is the Democrat from The People’s Republic of Massachusetts, Barney Frank. In an interview on CNBC, Frank as much admits that maybe sub-prime lending should have been more regulated. Wow! What balls!

America doesn’t need legislators who operate by looking in the rear view mirror. With the sole exception of Frank’s remark in support of auditing the Fed, he offers platitudes that can only be compared to a social misfit. In fact, as I watched this clip, I constantly envisioned Barney collecting tickets and serving soda at a local theatre . . . said with all due respect to ticket takers and soda jerks.

For Barney Frank to effectively absolve himself of the massive and corrupt bankrupting of Freddie Mac and Fannie Mae is a sin. For America not to hold him accountable is a greater sin.

This clip runs 18 minutes. WARNING: Barf bags highly recommended!

LD

When lying is not properly addressed and punished, it will perpetuate.

We witness that dynamic in almost all corners of our economic and political landscape. In the world of finance, no market segment seems to have fostered more lying than the mortgage business. It continues. Let’s navigate.

A strong and vibrant mortgage market is vitally necessary in order for our country to regain its economic health. Regrettably, the mortgage business has a bad reputation given the preponderance of lying. Far too many people took out oversized mortgages based upon inflated incomes. Those ‘liar loans’ have defaulted at exceptionally high rates.

Let’s turn the page as many mortgages are attempting to be modified. What do we learn? People are once again lying about their incomes, this time understating income in an attempt to have their mortgages modified to a lower level.

Thanks to 12th Street Capital for sharing a release from Making Home Affordable: (more...)

Despite overwhelming efforts on the part of Uncle Sam, the simple fact of the matter is the program to successfully and permanently modify mortgages has not gained truly meaningful traction. Public pressure on mortgage servicers specifically and the mortgage modification program at large have generated a slight, but hardly significant, increase in permanent modifications over the last month. Let’s review the statistics provided by Uncle Sam’s Making Home Affordable Program:

Home Affordable Modification Program (HAMP) Snapshot through November 2009

HAMP Trial Plans Offered to Borrowers

Making Home Affordable Program Servicer Performance Report Through November 2009

Number of Requests for Financial Information Sent to Borrowers (Cumulative): 3,137,548

Number of Trial Period Plan Offers Extended to Borrowers (Cumulative): 1,032,837

All HAMP Trials Started Since Program Inception: 759,058

All Active Modifications (Trial and Permanent): 728,408

Number of Active Trial Modifications: 697,026

Number of Permanent Modifications: 31,382

What does that 31,382 figure under the permanent modifications represent? 4% of all active modifications and 1% of those who have been solicited. At this rate, we will be waiting a LONG time for this program to have a meaningful impact on our housing market.

Where is this leading? Mortgage cram-downs. Reps. John Conyers and Barney Frank are starting to wave the cram-down flag once again. For those unfamiliar with a mortgage cram-down, it is the practice of reducing principal on the mortgage. In the process, the homeowner will be less underwater or not underwater at all and thus choose to stay in his home. Given the fact that there is no free lunch, taxpayers pick up the tab along with investors who have purchased mortgage securities backed by these mortgages.

Expect a massive fight over the implementation of mortgage cram-downs in 2010.

Thanks to our friends at 12th Street Capital for sharing the link to the Making Home Affordable Program.

LD

Related Sense on Cents Commentary:
   What is a Mortgage Cram Down? (January 1, 2009)

The fact that the Obama administration is reticent to release data pertaining to completed mortgage modifications speaks volumes as to the lack of success of this initiative. With almost a third of American homeowners now ‘underwater’ on their mortgages, Obama and team are sticking to their game plan to modify mortgages. Details of Obama’s revised game plan can be accessed at MakingHomeAffordable.gov:

The U.S. Department of the Treasury and Department of Housing and Urban Development (HUD) today kick off a nationwide campaign to help borrowers who are currently in the trial phase of their modified mortgages under the Obama Administration’s Home Affordable Modification Program (HAMP) convert to permanent modifications. The modification program, which has helped over 650,000 borrowers, is part of the Administration’s broader commitment to stabilize housing markets and to provide relief to struggling homeowners and is a primary focus of financial stability efforts moving forward. Roughly 375,000 of the borrowers who have begun trial modifications since the start of the program are scheduled to convert to permanent modifications by the end of the year.

375,000? I will take the under on that. Why? As I highlighted on October 29th in my commentary “Mortgage Modifications: Statistically Insignificant”, up to that point a whopping 1,080 mortgages had been successfully and permanently modified. Policy makers believe 374,000 mortgages will be successfully and permanently modified in the last ten weeks of the year. Who’s zooming who? Would they like to place a wager on that? I’ll give odds.

Through the efforts being announced today, Treasury and HUD will implement new outreach tools and borrower resources to help convert as many trial modifications as possible to permanent ones.

Without spending excessive time detailing the administration’s efforts, the fact is very little has changed with their basic approach. They will attempt to facilitate the modification process by compelling mortgage servicers to perform.

Servicer Accountability. As part of the Administration’s ongoing efforts to hold servicers accountable for their commitment to the program and responsibility to borrowers, the following measures will be added:

– Top servicers will be required to submit a schedule demonstrating their plans to reach a decision on each loan for which they have documentation and to communicate either a modification agreement or denial letter to those borrowers. Treasury/Fannie Mae “account liaisons” are being assigned to these servicers and will follow up daily as necessary to monitor progress against the servicer’s plan. Daily progress will be aggregated by the end of each business day and reported to the Administration.

– Servicers failing to meet performance obligations under the Servicer Participation Agreement will be subject to consequences which could include monetary penalties and sanctions.

If in fact they do not perform or are delinquent in the process, the administration has agreed to publicly highlight their ineptitude. I read this as shaming them into performing. Does the adminstration truly think that approach will work? How do you shame the shameless? The banks that originate and service these mortgages are so far beyond being shamed that the mere thought of the administration considering this approach is comical.

Shaming banks at this juncture is the equivalent of stating, “the beatings will continue until morale improves.” The problem is the banks are not receiving the beatings but au contraire, the banks are dispensing the beatings on both Washington and America.

Make no mistake, Wall Street still owns Washington. Socialized housing is akin to pissing into the wind. Where is this headed? Do not be surprised to see the Obama administration look to reignite efforts for mortgage cramdowns in which mortgage principal is reduced.

LD