LOCAL SPIN: Default Position
Salinas council slows plan for underwater homeowners.
Thursday, December 13, 2012
I’m told that buried in the footnotes of a recent report from Fannie Mae and Freddie Mac is this little factoid: Sixty percent of all mortgages backed by private-label securities are going to default.
There are a few things to note there. One, Fannie and Freddie are the government-sponsored home-loan funders now under the conservatorship of the Federal Housing Financing Authority. Two, private-label securities are not quite subprime loans, but close, as they targeted people with less than ideal credit histories. Most important: The “all” in that sentence. It’s not just those private-label-backed mortgages currently underwater that will end up in default, but 60 percent of all of them.
That means around 8 million homeowners nationwide are heading over their own fiscal cliffs. About 1,800 of them live in Salinas.
In September 2011, Fannie and Freddie sued 17 financial institutions. At the heart of those suits is the allegation that those institutions – Citigroup, Goldman Sachs, and HSBC among them – lied so long and so well in marketing PLS loans that Fannie and Freddie just couldn’t help getting sucked in.
If Fannie and Freddie didn’t stand a chance, why does the Monterey County Association of Realtors think homeowners do?
That was the takeaway I got from the Dec. 11 Salinas City Council meeting, where one item on the consent agenda was consideration of a no-cost contract with a group called Mortgage Resolution Partners. The parameters of the contract had San Francisco-based MRP providing foreclosure information to the city, engaging the community on housing issues and seeking possible solutions.
“THE NOTION THAT FORECLOSURES ARE SUBSIDING IS ABSURD.”
Note the “no cost” in that sentence, because it’s important too. The city of Salinas would not ever pay MRP a penny. Down the road, part of MRP’s admittedly controversial plan would involve cities, counties or joint powers authorities using eminent domain to take underwater PLS mortgages from lenders. The lender would be paid off a percentage of what they’re owed, and the homeowner would get a new loan that actually reflects the home’s current value at a better interest rate. No default, plus the homeowner has more money in her pocket. MRP gets paid a flat fee of $4,500 from the profit between the old loan and the new.
But speaking at the Dec. 11 meeting, Kevin Stone, MCAR’s community and government affairs director, told the council his foreclosure intel shows a dramatic drop in notices of default. He also said that if they hadn’t heard of MRP, “Google them… It’s frightening the impact it would have on our already struggling economy. I hope there’s a thorough vetting of this process.”
Frightening for whom? The underwater homeowners who can’t get banks to return their phone calls? And if the country’s two largest loan originators say more than half of all PLS mortgages will end up in default in the next five years, what do Stone and MCAR know that they don’t?
“The notion that foreclosures are subsiding is patently absurd,” MRP chairman Steven Gluckstern told the council after Stone spoke. “There are thousands of houses underwater in this community, and they will be foreclosed upon as sure as I am standing here.”
The Salinas Council doesn’t need to Google MRP. They’ve dealt with MRP’s proposal four times: with an initial presentation, a study session, a housing subcommittee session and a formal request for proposals. Every piece of paperwork that MRP submitted is at City Hall and is a matter of public record. Despite that, Councilwoman Kimbley Craig, seconded by Jyl Lutes, moved to table a decision on MRP until the new council is seated. Their motion passed. Only Mayor Dennis Donohue and Councilman Sergio Sanchez opposed tabling it.
“I thought it was a pretty good plan, but nobody had seen the presentation, so Jyl and I asked it to be postponed because it’s so controversial,” Craig says.
The reason nobody had seen it? Only three councilmembers were at the MRP presentation, and only one of them will remain on the council after next week’s swearing-in. (I have no idea where the rest of them were. Maybe the new decorum policy that Craig hustled through Dec. 11 should include a proviso that if you miss a meeting, you get to post why on the city’s website.)
Sanchez, whose term ends next week, said from the dais he’d spent the day trying to help two families who had been evicted from their homes.
“We need to remember what’s really at stake here. It’s not the profit real estate brokers make and the banks,” he said. Waiting, he said, “doesn’t make it better for people losing their homes.”
Ah, hell. It’s only 1,800 Salinas residents who have a problem.
MARY DUAN is the Weekly’s editor. Reach her at firstname.lastname@example.org.