The private sector lenders to the residential housing market are taking matters into their own hands now, after watching the administration accomplish little for nearly four years. The White House has mainly attacked the lenders and servicers and through forced settlements, caused the entire banking sector to transfer tens of billions to the government and states, and to homeowners who have gamed the system with the help of the politicians and the media. While it is surely the case that many mortgage brokers did very bad things, and many servicers and banks were sloppy with their paperwork, the truth is that almost nobody lost their house improperly. I have direct knowledge of people who just stopped paying their mortgage and taxes and just waited it out for three years, knowing that the politicians and government would protect him from foreclosure in the short run. Meantime he has all that extra cash to go on vacations and otherwise enjoy life. At the same time the lenders and servicers are paying $25 billion in fines and offsets, and then there are new ridiculous attacks by the New York AG on MERS. Politicians in New York have proven time and again that becoming attorney general and filing several high profile but unfounded lawsuits is a sure way to become governor. Obama believes that bashing banks and bankers is a good away to get reelected.

 

In the meantime little has been accomplished to clean up the mess and home prices continue to decline at sizable rates this year in many markets as the stalled foreclosures still overhang the market and will now become principal write downs. The politicians have now ingrained the same too big to fail mentality into the individual homeowner mindset as happened in the banks in 2008. It is just that nobody in Washington or state AG’s or the media will touch that point. Now millions of homeowners know that in tough times the government will ride to their rescue for irresponsible borrowing, (did you say Lehman), and they will get rewarded with a $2000 payment for having been foreclosed. Moral hazard is now part of American culture.

 

The financial services industry has decided it has had enough of this outrageous nonsense, and are beginning to formulate a series of strategies and actions to try to finally get the mess cleaned up and over so the country and the economy can move on.  No specific plans are yet being set forth, but a lot of effort is going into formulating specific steps. It is clear that the White House has no intention of letting the banks off the hook, and Congress can’t agree on anything other than another tax deduction that is not paid for, and which will do little to help the economy in the short run, while sounding good on the campaign trail.

 

Fannie and Freddie and HFA are pretty much lacking inertia to put forward any real plans other than how to market securitizations. That solves nothing of the real issue of foreclosures and REO. The management of Freddie is in flux, the politicians in their wisdom are telling any well qualified manager don’t apply to the GSE’s as your pay will be politicized, and there is no real direction from the White House. Result is, there will be a lot of blabber form all sides in the political world, but nothing useful will be done about cleaning it up and restarting a vibrant private mortgage market. Add to this the Cordray appointment and the attacks on lenders and servicers which will morph into class action suits later this year, billions in added costs due to legal costs and compliance, and the hope that any real progress will be made and that the mortgage market will be put on a road to recovery is nil this year.

 

Now that Cordray has decided to also go after payday lenders, credit reporting companies and anyone he can attack to further his eventual run for governor of Ohio, the battles will be legal instead of to get problems resolved and the counter suits from the payday lenders industry and servicers and others will just eat money and time of management that would be vastly better spent solving the mess. Just try to get that across to the average American who is paying no taxes and who now believe all bankers and servicers are crooks and greedy monsters.

 

I applaud the industry for trying to independently solve these problems, but in an election year with a White House who thinks attacking the financial services industry is good for votes, I am pretty certain nothing much will change for the better.