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Obama, the bailout and foreclosures: View from Cleveland
I live in Cleveland, Cuyahoga County, Ohio.
If history is any guide, Cuyahoga County will cast about 8% of Ohio's votes on November 4. A quarter of Ohio's new voter registrations this year have happened here. The Obama campaign is banking on getting a big turnout and a very big share of the votes in this county to help squeak out an Ohio win.
Since January 1, over 9,900 foreclosures have been filed in our county court. The monthly filings dipped below 1,000 in August, but seems to have bounced back to the 1,200 mark in September... which means 2009 will probably be this county's third straight 14,000-foreclosure year.
So far this year, over 5,000 of those foreclosures have resulted in actual sheriff's auctions. So by the end of the year, we'll almost certainly have added 7,000 vacant houses to the huge number we already had at the end of 2007.
About 4,600 of those foreclosures and 2,500 of those sheriff's sales to date have been in the battered city of Cleveland. The majority of the county's foreclosures now take place in the suburbs: Euclid, Cleveland Hights, Garfield Heights, Warrensville Heights, Bedford, Shaker, South Euclid.
The overwhelming majority of Cuyahoga County's forceclosures are filed by trustees for securitized investment vehicles -- notably Deutsche Bank, US Bank, Wells Fargo, HSBC and Citi. Deutsche Bank has never made a loan here, but they serve as trustee for dozens of securitization pools created by the defunct Argent Mortgage (bought out by Citi in 2007) and other national subprime peddlers who dominated the local mortgage market from 2003 through 2007.
The huge pile of local mortgages created by this predatory feeding frenzy is embedded in hundreds of SIVs whose bonds ("mortgage backed securities", or MBSes) are now the main target of the bank bailout bill -- the "toxic assets" that would be dumped on the Treasury in exchange for our $700 billion.
Viewed from Cuyahoga County, the failure of Democrats in Congress -- especially Senators Obama and Biden -- to insist on real foreclosure relief for Cuyahoga County (and Dayton, and Toledo, and Detroit, etc., etc.), as the price of their support for bailing out the banks and investment houses holding these toxic assets is utterly inexplicable.
Obama constantly invokes help for "homeowners and distressed communities" as a condition of his support for a bailout deal. But the "bipartisan bill" rejected yesterday by the House contained no guarantee of real foreclosure relief for people whose mortgages are embedded in MBSes bought by the Treasury, and no help at all for communities like Cleveland to deal with the deluge of foreclosed vacant properties owned by the same securitized mortgage pools.
Essentially the same bill is apparently heading for a vote tomorrow in the Senate, where Obama and Biden (and McCain) will be squarely in the spotlight. What will Obama's "conditions" mean to people in Cleveland if he votes for it, or dodges the vote?
Even more disturbing are new reports from the LA Times and Bloomberg that Obama personally intervened to get Chris Dodd and other Democrats to drop mortgage-bankruptcy reform from their negotiating agenda because it's a "deal-breaker".
I'm a Democrat, an Obama supporter and a militant pragmatist when it comes to national politics. But how the hell does the Obama campaign think this oblivious brand of "statemanship" is going to help win Ohio or Michigan?
It sure isn't going to do anything for the turnout in Cuyahoga County.
Comments (15)
Amending the bankruptcy laws and protecting people from foreclosure are not necessarily the same thing.
The bill did provide for restructuring loans in order to keep people in their homes. At least to the best of my knowledge, although I haven't read the bill itself.
Is the bill perfect? No. But inaction is disastrous.
If this was truly a deal breaker, it was best left to be addressed by a President Obama. When combined with a surge of Democrats in congressional representatives, we'd get a much better deal anyway.
September 30, 2008 1:56 PM | Reply | Permalink
Bill, I want more protection for mortgage holders too, but look at yesterday's market action. The market lost $1.2 trillion (though, it's up today almost half what it lost), and the bailout package was $.7 trillion. Had it passed, the market would almost certainly have gone up, at least temporarily.
What to do? No one wants to pony up in a "cash for trash" bill, nor does anyone want to just see where the freefall ends. So, Obama could have insisted on a bill with even less GOP support, which would also have failed. Or the Dems could put together their dream package and pass it without the GOP. Bush could veto it or not, but the GOP could then campaign on the same "tax and spend" bull they always do, by blaming Dems for the mess (as they already are).
September 30, 2008 2:04 PM | Reply | Permalink
The bill was Bush's bill. Let it fail.
The bailout is for Wall St., not Main St. Let it fail.
There is a significant number of economists who say a bailout ISN'T NECESSARY. That being the fact, what's the rush as substitute for finding out what they are about?
September 30, 2008 2:23 PM | Reply | Permalink
Links.
October 1, 2008 10:03 AM | Reply | Permalink
Bill, Being from your neck of the woods I agree wtih you. Not inserting something more positive for homeowners now is a mistake. My problem is that time is passing before us and as the numbers indicate a great amount of people are being put out of their housing. Where do these people go?.....They have become the "invisibles" in this turmoil. While we heft up a trillion to wall street we turn our nose to the people that this thing has hurt most.
However, I am not up to throwing pies at Obama for this. We run Congress. The leadership could at any time be putting this together and going with it. Instead they do cosmetic changes to Bush's Boondoggle and then try to pass it.
September 30, 2008 2:57 PM | Reply | Permalink
The government now owns a huge share of the mortgage market (the F7F part) and could restructure the loans at their pleasure, no? Same with any currently souring loans it buys in the future.
Is there any reason you want this to work through the bankrupcy system rather than the banking system? (is this about houses already foreclosed?)
If a particuar provison is a non-starter for one of the parties, at what point do you decide to get rid of it in order to forge a deal?
Insisting on getting your way may be the right thing to do, but it may also simply lead to total impasse. How do we decide when the perfect becomes the enemy of the good. Or if the good becomes enemy of the acceptable?
I don't mean that rhetorically. As body politic we have to decide. Opinions welcome.
September 30, 2008 4:54 PM | Reply | Permalink
But the "bipartisan bill" rejected yesterday by the House contained no guarantee of real foreclosure relief for people whose mortgages are embedded in MBSes bought by the Treasury . . . . Bill Callahan
While there may not be an explicit guarantee, Congressman Frank, Tsar of Distressed Mortgagors, has been pretty clear that these embedded mortgagors will be modified, surreptitiously and as far outside the public view as possible.
If this travesty of a raid-on-the-Treasury passes, I wouldn't worry a whole lot about defaulting mortgagors. They should make out like bandits.
September 30, 2008 5:20 PM | Reply | Permalink
Cleveland -- like New Orleans and Detroit -- is an overbuilt city (definition: homes valued at less than their replacement cost).
It's too far north to count on a hurricane for relief. So ---
Bulldozers!
September 30, 2008 5:27 PM | Reply | Permalink
Economides,
Yes, the Feds can restructure "any currently souring loans it buys in the future". But not "any currently souring loans that have been combined into securitized investment vehicles that then issued securities that the goverment buys in the future". In the second case, the authority to restructure will remain with the SIVs' master servicers (who are often the original lenders). Simply owning the bonds will give the Feds no more authority to cause restructuring than they have right now, i.e. zero.
Banks aren't in crisis because they have bad mortgages in their portfolios. The problem is nonperforming mortgage backed securities. That's what they're going to be dumping off to the Treasury Department.
One way for the Feds to get the authority to restructure the securities' underlying loans is to demand it as a condition of taking over the securities. This would have the big added advantage of giving the government the ability to preserve the taxpayers' investment by improving the servicers' horrible management of our securities' underlying assets. I'm 100% for that. But it isn't in the bill.
Another way to promote restructuring is to let bankruptcy judges do it. But that isn't in the bill either -- because when Chris Dodd put it in the Dems' bargaining draft a week and a half ago, other Democrats (including the one who's the effective head of the party and who keeps saying he's committed to protecting taxpayers and helping homeowners in trouble) isn't willing to fight for it.
BP,
By the time Obama gets elected with more Dems in Congress and gets around to passing bankruptcy reform over the dead bodies of the bankers, another year or more will be gone and another six or seven or ten thousand houses in Cuyahoga County will be empty. The crisis is here now and so is the opportunity... not just to get it done, but to get huge political credit for it in a couple of battleground states. It's 3 am and the phone is ringing. Why is no one picking up?
September 30, 2008 5:39 PM | Reply | Permalink
The typical PSA (pooling and servicing agreement) provides that the owner(s) of two thirds of the pool can modify the agreement. In this case the modification would be the right to direct the "servicer" to modify the underlying mortgages.
The government will just have to buy 2/3 of any pool the embedded mortgages in which it intends to modify: "But how can we do that? We only have $700 billion!"
On the other hand, a short unremarked rider added to some Congressional appropriations bill would put paid to those servicers' "rights" when they come up against something the government wants to do.
September 30, 2008 6:21 PM | Reply | Permalink
Trying that link, again.
September 30, 2008 6:22 PM | Reply | Permalink
I hear what you're saying. The need is now, which is true.
But as much as it would help so many people to take advantage of this opportunity, there are many who oppose it. Some, who are ordinary citizens, so called "fiscal conservatives" who genuinely believe in their ideas.
Others oppose it as well, many who are powerful, and/or wealthy who still have a lot of pull(lobbyists).
If it really came down to a battle, the 527's would attack. Unfortunately, they'll represent these people as irresponsible borrowers who are waiting to be bailed out, just like Wall Street.
September 30, 2008 6:52 PM | Reply | Permalink
Obama has nothing -- NOTHING-- to lose by being more progressive on this. If McCain is going to use this bill to align Obama and the Bush Administration in something not understood and thereby hated by the public, Obama could very well lose this election.
This is a history-making opportunity. Hey, if it had passed yesterday, we'd be having a different political discussion today about how the system problems will get fixed. But it didn't. He's made the case for the urgency (if not the details of why) of the rescue plan, and left himself open to demand a bill that would show people what an Obama Administration would look like. He would effectively be starting his presidency now. The Republicans would become either irrelevant or the villains. McCain definitely becomes irrelevant. Either way we win. Obama wins.
I defended Obama on FISA. I didn't like it but I understood the need for pragmatism. And it wasn't 5 weeks before the election. This election is more acute, the effects will be personally felt by everyone. If the Democrats and Obama cave for the dozen Republicans, instead of using some vision and aligning with the progressives who likewise didn't vote for the bill, there will little reason for the public to respect them.
These are the historic moments that decide whether or not you're great. Barack, be what I know you can be.
September 30, 2008 5:59 PM | Reply | Permalink
Are voters in Ohio fired up as much about gay marriage, meddling in women's decisions on abortions or 'winning' in Iraq as much as in the past - or is losing their primary residence now more of a concern than 'values' issues?
September 30, 2008 7:17 PM | Reply | Permalink
Ellen, thanks for posting the Levitin link. He also has a column summarizing his analysis at The Washington Independent.
I don't know what your "short unremarked rider" would say, but if I actually thought such a strategy was on the mind of Barney Frank I'd be somewhat comforted. You obviously think more of his commitment to mortgage payers than I do.
In the real world, the barriers to the "two-thirds strategy" that Professor Levitin discusses in his paper are pretty formidable. He concludes that this is not a workable way for the Feds to promote restructuring and that only bankruptcy reform will work. I think that the banks and investment houses would figure out how to overcome those barriers themselves, if they had to in order to dump their toxic paper on the government. But we agree that the deal now on the table isn't going to do what some of its liberal supporters are suggesting.
September 30, 2008 7:48 PM | Reply | Permalink
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