Too Big To Fail used to be a joke.

It became an insult hurled by Occupy Wall Street or the Tea Party at the big banks, but that’s all it was.

It was never an expression that had any legitimacy. It was just a nice little way for the media to classify the banking industry in a ready-made slogan.

Guess what? Too Big To Fail isn’t a joke anymore. It’s actual policy towards our nation’s biggest financial institutions.

The Federal Reserve of Dallas has now legitimized my scathing criticisms of the banks in their annual report and it has resonated with with everything I’ve been writing in this blog.

It was a nice early birthday present when I got home yesterday and read the report, written by the head of the Dallas Fed’s research department. Harvey Rosenblum.

When Greg Smith published his critique of Goldman Sachs, the aftershocks rang through the halls of every office on Wall Street.

After reading Rosenblum’s report, which was subtitled “Why We Must End Too Big To Fail — Now”, I can only imagine what will happen now.

It’s about time that someone on the government side validated the anger and anxiety shared by the Occupy and Tea Party movements. Right there in an official Fed paper!!

So what did I find so appealing about his critique? He spells it out, clear as day, what Too Big To Fail really is, and what’s it’s led to.

What It Is: In 1970 the top 5 banks possessed 17% of the nation’s banking assets. In 2010? 52 percent.

What It’s Led To: “An erosion of faith in American Capitalism”, as well as our faith in government, big banks and the Federal Reserve.

Capitalism has been warped into something that is anything but, where there are two sets of rules, one for you and I, and another for the TBTF banks.

As Rosenblum says, capitalism ‘requires the freedom succeed and the freedom to fail’.

By playing ball with the TBTF banks, the government went against everything capitalism is supposed to be!

The bailouts completely eroded the system that I once respected. Just as I said last year, it was “Privatizing gains, socializing losses, all in an effort to stimulate the economy”. And it got us absolutely nowhere. And now the Fed knows it. Too bad they didn’t listen to me back then!

The Emperor is walking down the street, and he has no clothes. He is stark naked. And everyone is looking at him.

There has been so much talk about the risk of ‘moral hazard’ if homeowners get assistance, but Rosenblum rightly points if you want to see the effects of moral hazard, look no further than the TBTF banks.

The 2008 bailouts didn’t revitalize the economy, all they did was take away the bank’s incentive to clean up their act. They got complacent, and no one, not the banks, not the government was willing to admit it.

No one asked tough questions, they just took their easy money and kept on going. Like the penguins in the Madagascar movie, all they did was smile and wave boys, smile and wave.

But Rosenblum realizes what I’ve been saying for years, that it is absolutely the role of government to break up businesses when they get too big and too powerful.

We did it with Ma Bell, we did it with oil companies and with big steel, now it’s time to do it to the banks

For the government to continue to support these TBTF banks would turn what was a tsunami into an all-time catastrophe.

Could Fannie Mae and Freddie Mac finally be willing to sign off on principal reduction as a way to keep homeowners out of foreclosure and in their homes?

Edward DeMarco, the acting head of the Federal Housing Finance Agency and de facto leader of the two GSEs has been steadfast in his opposition.

President Obama has made principal reduction priority one. It was one of the highlights of the mortgage settlement and many economists point to it as the way out of this housing mess.

But DeMarco still hasn’t budged, because he says principal reduction will cost the taxpayer money and isn’t good for Fannie and Freddie’s bottom line.

Except maybe it is.

According to NPR and ProPublica, executives at both Fannie Mae and Freddie Mac have concluded that principal reduction would prevent larger losses and in fact, save the two companies money.

Their report claims that in part because of new Obama incentives, which would reimburse lenders half of what they write off, that Fannie and Freddie would benefit from principal reduction

These presentations have yet to be made public, but Democrats are already clamoring to see them. And so am I.

Look I’m not saying that principal reduction comes without risk. Could everyone decide to stop paying their mortgages in order to get a write-down? Sure.

But just because you might get hit by a car doesn’t mean you don’t cross the street. The housing market will NEVER rebound if people keep getting kicked to the curb.

And I don’t care what Edward DeMarco has said, the bottom line shouldn’t be his bottom line. It shouldn’t be about what is cost effective, it should be about what keeps borrowers in their homes. Last time I checked, they are taxpayers too.

And now in the wake of NPR and ProPublica’s investigation, it seems DeMarco has few legs to stand on.

We’ve seen what happens when foreclosure infects a neighborhood. Boarded up homes. More crime. Lower home values. Can you really tell me that the risk of moral contagion is so powerful that you would rather see empty neighborhoods instead?

I remember one Congressman in early 2009 who said “I don’t give a —- about moral contagion. I just care about keeping folks in their homes!”

Nice Thought!

Whether you like it or not principal reduction is finally on the horizon. It is an viable option. It does keep people in their homes. And as I’ve said all along, that’s the end game.

More and more banks will do. Yes they had their hand forced. And so far the sky hasn’t fallen.

And while less Fannie and Freddie loans are seriously delinquent, we can’t have two sets of rules. So if it’s good for the goose (big banks) then it’s good for the gander (Fannie Mae and Freddie Mac)

Now Edward DeMarco told NPR that he is reviewing these proposals to accept principal reduction. He’s come off as the grumpy old troll before, refusing to budge despite what I think is overwhelming evidence in favor of principal reduction.

Maybe, just maybe, he will finally come around. If not, he’ll likely be set packing!

Glenn Greenwald of Salon.com called Barofsky “easily one of the most impressive and courageous political officials in Washington” for his willingness to stand up to some of the most powerful people, institutions, and special interest lobbies in Washington and Wall Street.

On March 29, before his departure from office, he wrote a piece for the New York Times titled “Where the Bailout Went Wrong.” The piece, so vicious in its criticisms of the TARP program and politicians in Washington, prompted the Wall Street Journal to run excerpts from it along with their own commentary on the TARP fiasco.

Of the failed bailout Barofsky wrote:
“Two and a half years ago, Congress passed the legislation that bailed out the country’s banks. The government has declared its mission accomplished, calling the program remarkably effective ‘by any objective measure.’ On my last day as the special inspector general of the bailout program, I regret to say that I strongly disagree . . . Almost immediately [after passage], as permitted by the broad language of the act, Treasury’s plan for TARP shifted from the purchase of mortgages [that would have helped everyday homeowners] to the infusion of hundreds of billions of dollars into the nation’s largest financial institutions, a shift that came with the express promise that it would restore lending.”

Free money to banks, “free for all” (except homeowners)
The Treasury, however, provided the money to banks with no effective policy or effort to compel the extension of credit. There were no strings attached: no requirement or even incentive to increase lending to home buyers, and against our strong recommendation, not even a request that banks report how they used TARP funds.

Barofsky concluded with the following:
“[The] Treasury’s mismanagement of TARP and its disregard for TARP’s Main Street goals – whether born of incompetence, timidity in the face of a crisis or a mindset too closely aligned with the banks it was supposed to rein in – may have so damaged the credibility of the government as a whole that future policy makers may be politically unable to take the necessary steps to save the system the next time a crisis arises. This avoidable political reality might just be TARP’s most lasting, and unfortunate, legacy.”

Crash, burn, what next?
These failings of the Treasury have also resulted in larger banks that control a larger portion of our economy. This asks the question, why should the banks do anything different the next time around? In exchange for almost crashing the entire world economy, they come out larger, richer, and virtually guaranteed of future bailouts if governments want to avoid economic depression. Indeed, according to Barofsky, credit rating agencies are now taking into account the likelihood of future bailouts when determining the financial health of a company.

We salute Neil Barofsky and wish a great public servant the very best.

From The Trenches
Roy Oppenheim

PS: I’m flattered to be nominated in three categories for the South Florida Sun-Sentinel’s Best of Blog Awards this year! If you like the South Florida Law blog or our Twitter feed @OpLaw, please take a minute and vote! You can vote for each category once per day. Thanks!

Small wonder that HAMP has turned into an embarrassing failure for the Obama administration.

This past weekend, I was in our Nation’s capital. It is always interesting to see things from the inside looking out, as opposed to from the outside looking in. It is like being in a house of mirrors.

One thing is apparent: the Beltway economy is not suffering like places such as Florida, Nevada, and Detroit. As a result, our elected representatives and the administration may not truly understand the depth of the housing crisis. I think they still blame the greed of “over ambitious” homeowners and speculators as opposed to the real driving force: Wall Street, the over-sized “too big to fail” banks and themselves. The buzz, of course, was the fact that Fannie Mae may have been playing its own political three card “monty” with homeowners over the past year. Simply put: whistleblower Caroline Herron, a former Fannie Mae executive and consultant, is suggesting the administration pushed for temporary modifications knowing full well that many of the loan modifications would fail prior to becoming permanent. In fact, Congress is now pushing for hearings.

Fannie Mae executives bungled their responsibilities of the federal government’s massive foreclosure-prevention campaign, creating a bureaucratic muddle characterized by “mismanagement and gross waste of public funds,” according to the suit Herron filed. The suit alleges that the homeowner-relief effort was marred by delays, missteps and executives’ preoccupation with their institution’s short-term financial interests. “It appeared that Fannie Mae officers were focused on maximizing incentive payments available to Fannie Mae under various federal programs – even if this meant wasting taxpayer money and delaying the implementation of high-priority Treasury programs,” Herron claims in the lawsuit.

The problem started with a skewed financial incentive at the heart of HAMP. The government paid Fannie bonuses for trial modifications that lasted three months, but apparently provided no incentive to move those homeowners into permanent modifications. Under pressure to show that they could turn a profit after the massive bailouts of 2008 and continuing bailouts in 2009, Fannie Mae executives apparently focused on earning those bonus payments.

The result: very few permanent modifications.

Herron charges that Fannie Mae continued in headlong pursuit of “trial mods” knowing many had little chance of becoming permanent. As late as September 2009, barely one percent of trial modifications had converted to permanent modifications by the end of their three-month trial, a Congressional oversight panel found. Nevertheless, Fannie Mae preferred doing trials, Herron alleges, because it was eligible to receive incentive payments from the Treasury Department for trial modifications booked before the end of 2009.

As of February 2010, 83 percent of the one million active modifications being handled by HAMP were trials rather than permanent arrangements. The allegations suggest that the modifications resemble the sub-prime loan market prior to 2008. Government incentives pushed Fannie not only to prioritize trial mods over permanent settlements, but also to pull borrowers with no hope of rescue into the program in order to profit off of them.

Herron’s lawsuit accuses Fannie executives of “actively working against” the borrower. In fact, she alleges that Fannie was reluctant to move quickly in processing the modifications.
Small wonder that HAMP has turned into an embarrassing failure for the Obama administration. Although the President promised 3 million modifications, only now approximately 300,000 have been successful.

Roy Oppenheim
From the Trenches

The Court acknowledged the system is not working. Foreclosure filings are expected to reach 456,000 cases in Florida by the end of 2010, a 50% increase from those in 2009. Thus, the Court felt compelled to do something.

My free foreclosure and real estate workshop on Thursday, January 7, at 6 p.m. is designed to review the “Year That Was” and preview the “Year That Will Be” based on the New Rules for 2010.

These new rules mean banks will be taken to task by the legal system. If conducted properly, a homeowner can demand proof of the Note and ownership of the loan prior to mediation. If the bank does not show up at the mediation or does not have a person with “true” authority to settle the case, the Court can issues sanctions against the bank and even hit the bank with attorney’s fees in some instances.

Until now approximately 75% of cases in mediation settled. That number should now shrink since the system will soon be overloaded with mediations. The real question is how to take control of this new strategic tool. Of course, one has to be mindful of the old saying, “Be careful what you ask for.” That will certainly be the situation here.

You need to know your objective and have a plan or strategy. Is your desire to walk away without the bank coming after you, or is it to stay and renegotiate the loan to its new underwater value? Or is it to rent the house and just be able to stay?

Lots of creative options will arise that are good for the homeowner and even the bank. The key is knowing what is best for you and using this new opportunity as a way to fashion your own bailout.

I hope to see you all Thursday night, January 7th, at our free Florida foreclosure defense and real estate workshop as Oppenheim Law helps you achieve a New Bailout in the New Year. Again, I wish you all the best in 2010!

Unlike the flippers of the past, these folks are true professionals as this IS their business. They are not cops, firemen or teachers by day and flippers by night.

In fact, OppenheimLaw and Weston Title represent a number of these types of professional groups. They are all well funded and clearly taking advantage of the fact that the Banks are drowning in too much stuff and thus many times are clueless to the true value of an asset.

Further, as we have explained before, the Banks would rather get back cold cash now than continue trying to make old loans work through loan modifications, when they know the likelihood of re-default remains high. That is why we at OppenheimLaw and our sister title company, Weston Title, are calling 2010 the “Year of the Short Sale.” Banks actually still do about 20% better according to a recent Federal Reserve study when they allow a short sale to proceed as opposed to the Bank proceeding all the way through the foreclosure process. Of course with millions of homes that have already been foreclosed upon by the Banks, the Banks have to somehow get rid of their unwanted inventory.

One word of caution: if you are thinking of becoming a “professional flipper” do your homework; and do not think for a moment that there is a title company out there that will allow you to use the funds from the final buyer as your source of funds to purchase the property at the courthouse’s steps or in a short sale. That practice is now dead.

Thus, if you are in a position to look at flipping as your way to help bail yourself out from being underwater to treading water with your head up high… call me!

Roy Oppenheim

From the Trenches

Fannie Mae is introducing the Deed-for-Lease Program (D4L), a program designed to minimize family displacement, deterioration of neighborhoods caused by vandalism and theft to vacant homes, and the effect these have on families, communities and home price stabilization.

Here are some of the details regarding the Deed for Lease Program:

• Must be a Fannie Mae loan.
• Cannot be eligible for a loan modification.
• Rent cannot exceed 31% of the household income.
• Provides up to a one year lease- which could possibly become a month to month lease.
• Properties that are eligible for a DIL can possibly qualify for this program. Contingent upon successful DIL.
• Both Primary Residences and Investment properties will qualify for the program.
• Subleasing is prohibited under program.

Other Requirements for Deed for Lease

• The mortgage loan is a first lien mortgage loan secured by a one- to four-unit property. All property types are eligible. Second lien mortgage loans are not eligible.
• The mortgage loan is not guaranteed or insured by a federal agency (FHA, HUD, VA, or Rural Development).
• The borrower resides in the property as a primary residence or has leased the property to a tenant who uses the property as a primary residence. Second homes or vacation homes are not eligible.
• At least three payments have been made since origination or since the last modification.
• At the time of the referral to Fannie Mae for the D4L, the borrower is not 12 or more payments past due on the mortgage loan.
• The borrower is not involved in an active bankruptcy proceeding and is not a party to litigation involving the subject property or the mortgage loan.
• Marketable title is able to be conveyed (a title insurance policy is required).
• If there are subordinate liens secured against the subject, lien releases can be obtained.
• The occupant of the property (i.e., the borrower or the borrower’s tenant) has verifiable income. Occupants with no source of income are not eligible.
• There are no zoning or homeowner’s association (HOA) rental limitations that would prohibit a D4L.

Fort Lauderdale, FL – November 11, 2009 – With South Florida on pace for nearly 100,000 foreclosure filings this year, it’s time homeowners start fashioning their own foreclosure bailouts, according to Florida foreclosure defense attorney and legal blogger Roy Oppenheim. The first step to protecting yourself and your home is understanding your legal rights.

Oppenheim Law’s monthly workshops are designed to assist both homeowners and real estate professionals. During December’s workshop, Roy Oppenheim will not only show homeowners how to fashion their own Florida foreclosure defense bailouts, but will also emphasize the decreasing social stigma attached to the foreclosure process, and provide insight and valuable tips on buying and selling South Florida real estate.

“You have to have your own lifeboat, and you have to do what’s best for your family,” Oppenheim said on the Randi Rhodes Show. “You can’t wait for the Ark to come and pick you up. You’re going to have to build your own Ark and fashion your own bailout.”

What: Fashion Your Own Bailout: Free Real Estate Workshop
When: Thursday, December 3, 2009 – 6:00 to 7:00 PM
Who: Real estate professionals and homeowners facing foreclosure, buyers, and sellers
Where: 2500 Weston Rd Ste 404, Weston, FL 33331
Cost: Free with advanced registration
RSVP: To register email roy@oplaw.net or call 954.384.6114

December’s Foreclosure Bailout Workshop will highlight the following foreclosure defense strategies and real estate tips:

• Learn the process of foreclosure and how to fashion your own bailout
• Learn tips on applying for a mortgage modification and the best time to apply during foreclosure
• Insider information about counterclaims against the banks and deficiency judgments
• How to locate and purchase foreclosed properties substantially below market value
• Tips on finding, buying and selling short sales
• Insight on current Florida home prices and the right times to buy and sell
• Oppenheim will also discuss: deed in lieu, second mortgages, and Chapter 13 bankruptcy

Address: 2500 Weston Rd, Ste 404 in Weston, FL 33331.
Phone: 954.384.6114

Learn: http://www.oppenheimlaw.com
Fan: http://www.facebook.com/oppenheimlaw
Close: http://www.westontitle.com
Follow: http://twitter.com/oplaw
Subscribe: http://southfloridalawblog.com
Watch: http://www.youtube.com/user/oppenheimroy