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After the Fall: Have Government Programs Helped Ailing Housing Market?

pbs.orgApr 25, 2012

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JUDY WOODRUFF: The signs of strain were evident again today in the U.S. housing market. The latest numbers highlighted how tough it's been to fix a vital economic sector.

Tonight, we look at the housing news as we begin a series, "After the Fall," on how Wall Street, the economy, and financial regulation have changed since the crisis of 2008.

Builders have been cutting back on housing construction, but, in March, there were still more new homes for sale than people wanted to buy. The National Association of Realtors reports sales last month fell over 7 percent, the most in more than a year. Overall, some 328,000 homes sold, less than half the rate in a healthy market.

And a closely watched index found home prices fell 1 percent as well. They have been falling for six months in a row. Overall, the data underscored just how much the housing market continues to struggle four years after the mortgage meltdown.

The Bush and Obama administrations both created programs to stem foreclosures, but they have come up short. One program designed to help four million homeowners refinance has led to just about 900,000 permanent loan modifications so far.

President Obama acknowledged the shortcomings in February.

PRESIDENT BARACK OBAMA: I will be honest. The programs that we put forward haven't worked at the scale that we hoped. Too many families haven't been able to take advantage of the low rates, because falling prices lock them out of the market. They were underwater, made it more difficult for them to refinance.

JUDY WOODRUFF: The Republican presidential nominee-apparent, Mitt Romney, has dismissed the idea of a separate plan to fix housing.

MITT ROMNEY (R): There's an effort on the part of people in Washington to think somehow they know better than markets how to rebalance America's economy. The right course is to let markets work. And in order to get markets to work and to help people, the best we can do is to get the economy going.

JUDY WOODRUFF: Meanwhile, a new wave of foreclosures is building. In February, about half of the 50 states reported sharp increases in foreclosure activity.

With more than four million homes foreclosed on since 2007, and the housing market struggling, we assess efforts by the government and lenders to deal with the problem.

Andrew Jakabovics is head of research at Enterprise Community Partners, an affordable housing nonprofit. He was, until recently, an adviser at the Department of Housing and Urban Development. And Mark Calabria is a director of financial regulation studies at the Cato Institute and a former Republican staff member for the Senate Committee on Banking, Housing, and Urban Affairs.

And, gentlemen, it's good to have you both with us.

MARK CALABRIA, Cato Institute: Great to be here.

ANDREW JAKABOVICS, director of Housing and Economics, Center for American Progress: Thank you.


Mark Calabria, let me start with you.

Did the programs that were instituted by the government under both President Bush and President Obama, did they address the problem, how much, how little?

MARK CALABRIA: Well, I think both -- and I think would say this is nonpartisan, because I do think that the Obama administration largely continued the same thing of the Bush administration, which to my extent was to put off the problem, to kick the can down the road in a lot of ways.

I look at the fundamental issue of our housing market as a combination of weak demand and excess supply. And so some of these things were of course aimed at keeping foreclosures off the market, which would lower supply, but ultimately they drove out the problem.

You know, I'm of the opinion that if we had taken the 30 percent decline in six months, rather than four years, we'd be in a much healthier spot today. So I think ultimately market fundamentals asserted themselves, whether you wanted them to or not. It was really a matter of the speed of adjustment.

JUDY WOODRUFF: And you're saying the measures that were taken by the government made the problem worse?

MARK CALABRIA: In many cases, I do think that they did.

For instance, I do think you encouraged people to stay in place. I like to use my stylized example of if you're a carpenter in Tampa, you're not going to find a job in Tampa as a carpenter any time soon. That market is way overbuilt. But if you have a situation where you can be in that house for potentially two years or more without paying rent and you're getting unemployment insurance, you really have very little incentive to maybe move to Austin or Atlanta or Dallas or somewhere that is creating jobs.

So I think to some extent, these programs have put our labor market in limbo and I think that that's been detrimental. I also think to some extent you've kicked the can down the road. Almost half of foreclosures today are people who were previously in foreclosure at some point in the past. So again I think you need to separate out the homebuyers we can help from those who we can't help and try to speed that process along.

JUDY WOODRUFF: Andrew Jakabovics, how do you see government measures that have been taken?

ANDREW JAKABOVICS: So, I actually think that Mark's analysis of sort of what the problem is in terms of oversupply and weak demand is right.

But I think that the efforts that have been made to date certainly have fallen short of what I think have been needed to really restore the market to its normal health. But, by and large, we're better off today with those programs available than had we let the market fall.

I think the risk of overcorrection and the spillover effects -- a foreclosure doesn't just impact an individual. It impacts their neighbors; it impacts their communities. And understanding what that does to the prices more globally of a single foreclosure and then obviously concentrated foreclosures, those impacts are significant.

JUDY WOODRUFF: So what are just a couple of examples of where you think it's worked?

ANDREW JAKABOVICS: I think fact -- we haven't really talked about it as a policy much. We talk a lot about the modification programs. We talk about the refinancing opportunities.

JUDY WOODRUFF: Making it easier for people to. . .

ANDREW JAKABOVICS: To make their mortgage payments.


ANDREW JAKABOVICS: Reducing -- HAMP, which is the Home Affordable Modification Program, borrowers who apply for assistance, they have to demonstrate hardship, but they also have to demonstrate an ability to make payments at least at 31 percent of their income.

So it's not sort of a freebie by any stretch of the imagination. And unfortunately the way it's been executed I think leaves a lot to be desired in terms of it's very hard for a lot of folks to actually get the assistance they might qualify for.

JUDY WOODRUFF: But, on balance, you think it's better having had these programs than not?

ANDREW JAKABOVICS: Without a doubt.

MARK CALABRIA: Judy, if I could make two points really quick.


MARK CALABRIA: One, there is a simple empirical question of, did we stop more foreclosures than we would have had otherwise?

And this is not a difference between whether, do we have this foreclosure two years ago or today? I would say we simply don't know the answer to that. My suspicious is that the vast majority of these were foreclosures that were going to happen otherwise.

But what really concerns me, to go back to my supply question is, what builders look at -- and in the typical market, when a home is 30 percent, 40 percent -- and so I remember these stories where -- is like, I'm going to build underneath the foreclosure point.

And so my point is, if you put efforts to keep prices up, you encourage more construction by builders, which actually in the long run adds to the glut, so you end up with more supply than you would have otherwise if prices had fallen faster. You really want prices to get below construction costs, so you can encourage builders.

And I say that in recognition that constructions have been at historic lows, but they have still been quite positive.

JUDY WOODRUFF: What more do you think -- do you want to respond to that?

ANDREW JAKABOVICS: Well, I just think that -- right, I think we are at historic lows.

And it's a question of where that construction is taking place. Not all markets have been hit equally. And certainly the places that have fallen the furthest, there's basically no new construction because the excess supply both of unsold newly constructed homes, as well as just the available properties that have been through foreclosure, or individuals who want to just simply put their home up for sale to take advantage of low interest rates or move someplace else I think are really important as well.

JUDY WOODRUFF: What have you seen, Andrew Jakabovics, in the behavior of banks and of lenders? What's changed in the last few years?

ANDREW JAKABOVICS: Well, I certainly think that when the crisis hit, the way they approached borrowers who were delinquent was one of just debt collection. Our borrowers are deadbeats.

I think the language has significantly changed. It used to be about loss mitigation. How do we kind of squeeze every last drop out of a borrower? And I think the mind-set is now about loan modification. How do we work with a borrower to be able to keep them in their home?

And I think that the consistent theme, at least the way the administration has rolled out its programs, has always been with a sensitivity to what the value of the property is at the end of the day, the value to the investor. So it's less -- I would love to have seen greater assistance to homeowners, but it's within recognition of the fact that at the end of the day there are existing contracts and we need to respect the investors who these. . .

JUDY WOODRUFF: For example, writing down the principle. That wasn't something that wasn't done -- wasn't talked about until much more recently.

ANDREW JAKABOVICS: Right. I would have liked to actually have seen that far earlier on in the policy conversation.

I think it's a very powerful tool that can right-size the mortgage market, sort of squeeze out the excess pricing, and really to the extent that it encourages people to stay in their homes and make their payments I think can be a powerful tool.

MARK CALABRIA: And I want to emphasize something that I fully agree here with Andrew, that our system prior to crisis was really set up to be a foreclosure system.

It wasn't a loss mitigation system. It was, originate a loan, sell it into a mortgage-backed security. The trustee demands you foreclose it. So it really was not set up in that way. If you go back to, say, pre-the S&L crisis, when we had a deposit-based system, you went to your local lender and you got a loan, you went to him when you got in trouble.

You talked to them. They weighed your situation, and sometimes you got a modification. So I think one of the things we need to keep in mind going forward when we look at what our mortgage finance system should be is that the advantages of a deposit system give you more flexibility to do modifications than the securitization system we have embraced.

So I do think we need to question whether we want to have a mortgage system so reliant on securitization in the future.

JUDY WOODRUFF: Well, let -- and let me ask you both, just to conclude, by looking ahead.

Where do you see the housing market headed right now?

Mark Calabria, do you see people want who want to buy a home having the option of buying a home?

MARK CALABRIA: To caveat that, if you have good credit and you can put a down payment -- otherwise, FHA is really the only other option for low down payment. And even they have increased their standards.

So certainly at this point in time, I think that there's a lack of creditability for marginal borrowers. And certainly some of the credit that. . .

JUDY WOODRUFF: But do you see that changing?

MARK CALABRIA: Not a lot, honestly.

I think credit availability is going to be a problem. I think it's going to moderate a little bit. I also think we're getting close to hitting bottom in prices. We have another like maybe 2 or 3 percentage points over the year, but I actually think we're getting near bottom. And I would not have said that six months ago.

JUDY WOODRUFF: Andrew Jakabovics, how do you see the future near term?

ANDREW JAKABOVICS: Near term, I agreement with Mark. I think we're probably sort of bouncing along the bottom.

But I think certainly think that the issue of credit availability, particularly for places that have been hard-hit by foreclosures, there's not a whole lot of ability for someone who wants to buy in these places to come in simply because of the tight credit.

Folks who can get the credit will certainly choose places where the prices have fallen significantly and can now get into some really fancy houses at much lower costs than they could have a couple years ago. So the places that have been really hard-hit are the ones that are continuing to struggle.

JUDY WOODRUFF: Well, I have a feeling that people are going to be hanging on every good syllable, positive syllable out of your mouths.

MARK CALABRIA: They should keep in mind that despite some of the comments of the Federal Reserve, interest rates -- mortgage rates are as low as they're going to get. And they're not going to stay this low forever.

JUDY WOODRUFF: And that's something to keep in mind as well.


JUDY WOODRUFF: Mark Calabria, Andrew Jakabovics, we thank you both.



GWEN IFILL: Our series "After the Fall" accompanies a four-hour "Frontline" investigation into the financial crisis called "Money, Power and Wall Street.

The report examines, among other factors, how bad decisions about mortgage-backed investments helped trigger the crisis -- a case in point, the sudden collapse of the investment bank Bear Stearns just three years ago and the government's decision to try to help save it.

Here's an excerpt.

WOMAN: . . . with the exception of Bear Stearns.

NARRATOR: The rumors swirling around Bear were about its massive investments in subprime mortgages, what would become known as "toxic assets."

DAVID FABER, CNBC Anchor: They were big in mortgages. They were big in packaging them and creating securities out of them, buying them.

NARRATOR: The road to riches for Bear was simple. Buy hundreds of thousands of subprime mortgages, then bundle them into securities and sell them to investors. But now the party was over and Bear was spiraling out of control.

BILL BAMBER, senior managing director, Bear Stearns: It was nothing short of surreal. You are watching on CNBC, et cetera, I mean, they are talking about where you work.

WOMAN: Well, the only bank in the red right now, basically, Bear Stearns, although it is dragging the rest of the financial markets down as well.

NARRATOR: The stock was in freefall and the cash reserves were shrinking.

JEFFREY LANE, CEO, Bear Stearns Asset Management: The stock started to go down. More and more people called up and said, "I want my money out or I won't trade with Bear Stearns." And it just completely unwound.

NARRATOR: Nearly bankrupt, the top brass at Bear called Wall Street super-lawyer Rodgin Cohen.

H. RODGIN COHEN, attorney: It became clear that they were having serious funding difficulties. And it had very been clear to me that an investment bank has a very short lifespan after it loses its liquidity.

NARRATOR: Cohen made an emergency call to Timothy Geithner, the president of the New York Federal Reserve.

H. RODGIN COHEN: Geithner understood that it was a vulnerable situation. He said something like, believe me, I will be on it. And that was really the phone call.

NARRATOR: Geithner's was Bear's last chance.

DAVID WESSEL, economics editor, The Wall Street Journal: Tim Geithner is at the Federal Reserve Bank of New York. It's the epicenter of the financial system. He is supposed to be the Fed's front-line general, field marshal in the financial markets.

MARK LANDLER, The New York Times: He's 47 years old. He looks like he's about 32.

PAUL KRUGMAN, columnist, The New York Times: Extremely smart, extremely aware of this stuff, very discrete, controlled.

NARRATOR: Geithner realized he needed to know how bad Bear's books looked. He dispatched a SWAT team of investigators from the Federal Reserve to Bear's headquarters.

BETHANY MCLEAN, "All the Devils Are Here": Tim Geithner is frantically involved in trying to figure out what's going to happen if Bear melts down and how you need to prevent it from going into freefall and dragging down the rest of the financial sector with it.

BRYAN BURROUGH, Vanity Fair: By midnight, by 1:00, 2:00 in the morning, everybody and their mother has teams at Bear, Morgan, the Fed, the SEC, and they find out Bear is stuffed to the gills with toxic waste.

NARRATOR: Bear was party to complicated financial deals.

BETHANY MCLEAN: Nobody understood how subprime mortgages had proliferated through these things called credit default swaps, and nobody understood how they'd kind of gotten into the blood of the financial system.

NARRATOR: Geithner learned that Bear had made credit default swap deals worth trillions of dollars all over Wall Street and around the world.

REP. BARNEY FRANK, D-Mass.: Because Bear Stearns was so indebted to so many other people, their failure to repay their debt or pay their debt would cause a cascade of other failures.

NARRATOR: Geithner saw what central bankers fear most: systemic risk. Bear was frighteningly interconnected with other banks up and down Wall Street.

H. RODGIN COHEN: No one knew what would be the ramifications, which other institutes were exposed, which other institutions would suffer runs.

NARRATOR: Bear Stearns, Geithner concluded, was too big to fail. A bankruptcy could undermine confidence in every major Wall Street firm.

JUDY WOODRUFF: "Frontline" airs tonight on most PBS stations.

Back to April 2012 Archive

CFLA was founded by the Nation's Leading Foreclosure Defense Attorneys back in 2007 to serve the Foreclosure Defense Industry and fight pervasive Bank Fraud. Since opening our virtual doors, CFLA has rapidly expanded to become the premier online legal destination for small businesses and consumers. But as the company continues to grow, we're careful to hold true to our original vision. For us, putting the law within reach of millions of people is more than just a novel idea—it's the founding principle, just ask Andrew P. Lehman, J.D.. With convenient locations in Houston and Los Angeles, you can contact Our National Account Specialist and General Manager / Member Damion W. Emholtz at 888-758-2352 for a free Mortgage Fraud Analysis or to obtain samples of work product, including cutting edge Bloomberg Securitization Audits, Litigation Support, Quiet Title Packages, and for more information about our Nationally Accredited and U.S. Department of Education Approved "Mortgage Securitization Analyst Training Certification" Classes (3 days) 24 hours for approved CLE & MCLE Credit (Now Available Online).

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