Mel Watt?

Via Naked Capitalism:

Elizabeth Warren tore into FHFA director Mel Watt over his failure to develop a program for Fannie and Freddie to provide principal modifications to underwater borrowers at risk of foreclosure. She also got in a dig for his failure to stop the agencies from pursuing deficiency judgments. That means going after former homeowners when the sale of the house they lost didn’t recoup enough to cover the mortgage balance. In the stone ages, when banks kept the mortgage loans they made, they never pursued deficiency judgements. They knew there was no point in trying to get blood from a turnip. Not surprisingly, the sadistic Fannie/Freddie policy has also proven to be spectacularly unproductive in financial terms. An FHFA inspector general study found thatrecoveries were less than 1/4 of 1% of the amount sought. Moreover, since those mortgage balances were often inflated by junk fees and other dubious costs, and mortgage servicers have done a poor job of maintain properties (they are too often stripped of copper and appliances, or get mold), any deficiency might be significantly or entirely the servicer’s fault.

But what is telling here is that the reason that Ed DeMarco, the former head of the FHFA, was pilloried for years by Democrats before he was finally replaced was for the very issue that has put Mel Watt in Warren’s crosshairs: not offering principal modifications to borrowers. The very fact that Warren can cite CBO and Treasury studies on probable impact says there are already models out there for how to pick and choose among financially stressed homeowners; she referred to even more private studies. There’s no excuse for the FHFA not to have at least a pilot program underway, save it has no real intention of doing much.

This outcome should hardly be a surprise for the Obama Administration. We were against the Watt nomination and pointed out, as representative from Bank of America Charlotte, he was a notably bank-friendly Democrat, and had opposed Audit the Fed, been missing in action during the London Whale hearings, and hosted soirees well populated by bank lobbyists. DeMarco was a convenient scapegoat. As we wrote in 20…

Instead of owning up to disasters like HAMP and FHA-Short Refi, they whine about DeMarco, Republicans in Congress, reckless homeowners, and once in a while, for show, they’ll say a few bad words about the banks that they continue to coddle. Just look at the conflicting messages: the banks are in such bad shape that they can’t be asked to write off second liens in full in the Administration’s mortgage settlement, yet they are deemed to be healthy by the Fed and are allowed to pay dividends rather than rebuild their balance sheets.