When the Obama Administration's plan to mitigate foreclosures came out, it was clear that it would be insufficient to deal with the particular challenges faced in California. Initially, the plan would only modify loans where the amount owed was 105% of the home's true value. Given that home prices have collapsed here, this would have helped almost nobody in California. State lawmakers, in particular the Democratic point person on mortgages and foreclosures Asm. Ted Lieu, went to Washington to lobby for changes. And today, faced with a sluggish mortgage rescue program attracting few lenders or homeowners, the Administration expanded the plan.
The Obama administration said Tuesday it is expanding its foreclosure prevention program to cover second mortgages and to direct more troubled borrowers to the Hope for Homeowners program.
Under the administration's new program, the interest rate on second mortgages will be reduced to 1% on loans where payments cover interest and principal and to 2% for interest-only loans. The government will subsidize the rate reduction, with the money going to the mortgage investor [...]
Also Tuesday, the administration said it is now requiring servicers to offer troubled borrowers access to Hope for Homeowners as a modification option if they qualify.
Expanding Hope for Homeowners would address one of the major holes in the original Obama foreclosure prevention plan. It helps homeowners whose homes are now worth far less than their mortgages.
Servicers had balked at participating in the Hope program because it required they reduce the mortgage principal balance to 90% of a home's current value.
Hope for Homeowners, which began in October, is being revamped in Congress. Servicers would have to reduce the principal to 93% of the home's value. The change would also reduce the program's high fees, which turned off many troubled borrowers.
Loan servicers get a fair bit of cash incentives for participating in the program, which I don't totally support, but if we have to bribe lenders in order to keep people in their homes, that makes more sense than spending the same amount of money on the fallout from a foreclosure. And lenders do take a haircut in the Hope for Homeowners program, the first loss to my knowledge that lenders have been forced to take.
Late last week, Democrats temporarily shelved a bill that would allow bankruptcy judges to modify the terms of mortgages on primary residences (also known as "cram-down"). Moderates who put the hold on this legislation, particularly former Wall Street investor Ellen Tauscher, crowed about it to the media.
This hardly amounts to a breakthrough win for party moderates - or a major concession by the speaker. But it was a consequential moment in the minds of moderate leaders who often find themselves marginalized in a caucus dominated by liberals.
"It shows we have bench strength, and it shows we can flex," said California Rep. Ellen O. Tauscher, who chairs the New Democrat Coalition and played a central role in negotiations over the bankruptcy bill [...]
Moderates worry Pelosi is routinely staking very liberal positions to push House versions of big bills as far to the left as possible to enhance their standing in negotiations with the historically centrist Senate. This might be a smart tactic, but it often hurts Democrats who rely on Republican votes to win reelection. Put bluntly, it makes them look too liberal [...]
That prompted lawmakers, like Tauscher, to limit the scope of the bankruptcy bill as much as possible, even though this measure is only loosely related to the president's broader proposal.
Tauscher's New Democrat Coalition teamed with their natural allies in the Blue Dog Coalition to impose 10 significant changes, including requirements that bankruptcy judges use federal guidelines to determine the fair market value of a home and that modified loans must be "unaffordable and not just underwater" to prevent wealthy homeowners from taking advantage of the process, according to a widely distributed e-mail from Adam Pase, executive director of the New Democrat Coalition.
This, of course, angered some liberals. "The New Dems' position is the banks' position," a senior Democratic aide involved in the bankruptcy negotiations complained on Friday. "New Democrats are shills for the banks."
It's confounding that any New Democrat thinks their constituents give a ring-a-ding about banking industry concerns, and are not in fact the very people struggling to keep their homes that this legislation would help.
More, including Tauscher staffers lying to bloggers, on the flip...
Chris Bowers advises that the House will be going ahead with housing legislation tomorrow that would allow bankruptcy judges to modify the terms of mortgages to reflect current home values and allow homeowners to avoid foreclosure (commonly known as "cram-down". As I discussed with Rep. John Conyers, the author of this bill, this would not encourage bankruptcy but help people avoid it, giving them a level playing field to get banks to follow through with loan modifications. While practically every other property someone owns can have the terms rewritten by a bankruptcy judge, primary residences are excluded. That is arbitrary and wrong, and changing it would reduce foreclosures and homelessness and bring some stability to the housing market. This legislation is supported by the President and included in his housing plan, but a change in the law like this should be passed by the Congress to make it a federal statute.
Bowers writes:
Tomorrow, the House will vote on Representative Conyer's bankruptcy cram down. The whip count is unclear right now, but some Blue Dogs and New Democrats, including Melissa Bean (D-IL), Dennis Moore (D-KS), and New Democratic chair Ellen Tauscher (D-CA), are working on behalf of the financial services industry to water down the legislation. Tauscher in particular is problematic, both because of her leadership role in one of the ideological caucuses, and also because rumors are that she has organized up to two dozen members thus far. It is about time that Tauscher, and the Representatives she is organizing, stop listening to industry lobbyists who do not have the public interest in mind.
So, let's make Representative Tauscher listen to someone else right now. Contact Ellen Tauscher, and urge her to stop organizing other Democrats to water down HR 200. She needs to listen to honewoners, not to the financial industry that got us into this economic disaster.
Here is the contact information:
Email form (California residents only)
D.C. office: 202.225.1880
Ellen Tauscher's New Democrat ways haven't surfaced much since the threatened primary challenge in 2007, but torpedoing this bill would bring that back all over again. She needs to know that people are watching her and want to be sure that she is protecting homeowners and not the big banks and lenders.
The unemployment statistics for October at the state level were released today, and as it turns out California lost the third-most jobs in the nation at 26,400. Only Washington and Florida lost more. This puts the unemployment rate in the state at 8.2%. This is a 2.5% increase from one year ago, the largest year-over-year increase since 1982, the last major recession. Worse, in regions of the Central Valley, that number is much higher. Unemployment in Fresno County is 11.2%. In San Joaquin County, 11.1%. In Merced County, 11.7%. In Tulare County, 11.8%. And in Stanislaus County, 11.8%. Those are desperate numbers.
The loss of income tax revenue along with the dip in property taxes thanks to cascading foreclosures is leading more cities to the brink of bankruptcy.
Now two more California cities - Rio Vista and Isleton - are considering bankruptcy protection as an option as they face large budget shortfalls and staggering debt.
While experts caution against ringing the alarm bells just yet, they do say tough economic times could push municipalities already on the brink over the edge.
"I think it's quite possible municipal bankruptcies could become somewhat more common but will still be very rare," said Jason Dickerson, budget and policy analyst at the state's Legislative Analyst's Office. "There are more municipalities that will look at what it means."
We need a massive fiscal stimulus as soon as humanly possible. And that needs to include aid to state and local governments, particularly here in California. We are right on the edge.
The letter insists that 4 kinds of reform be included in any bailout:
A 0.25% tax on all stock trades and "exotic transactions" such as derivatives trading as a kind of "progressive PAYGO" to ensure that the taxpayers won't be paying the costs of the bailout.
Equity shares in any companies that benefit from the bailout
"Major bankruptcy reform" including homeowner renegotiation of mortgages. Obama undercut progressives on this when he said bankruptcy reform didn't need to be part of the package, perhaps a telltale sign of how unprogressive an Obama administration might be. But it's still a necessary part of any financial solution.
A detailed list of new regulations to protect consumers and provide more stable, responsible regulation of the financial industry to prevent a recurrence of this crisis.
The progressives' move in Congress comes as more economic observers question the need for a bailout. It's possible that this represents the first move by the 74 members of the Progressive Caucus to block a bill that in particular lacks bankruptcy reform. Even so, an axis of Bush Dogs, House Republicans, and timid/weak/complicit House Democratic leadership may prove to be too much for the Progressive Caucus to overcome.
Still, this letter is a welcome move by California progressives like Barbara Lee and Lynn Woolsey. The bailout needs to be either made a fundamentally progressive policy move or stopped entirely. If a progressive coalition is to come together to stop it leadership from the Progressive Caucus is a necessary component. Even if it is too little too late, it potentially marks the beginning of a push for truly progressive solutions to our economic crisis - the kind that FDR and the Democratic Party stood for 75 years ago, but that current Democratic leaders from Obama on down have now eschewed.
UPDATE: A deal has been announced, although the details have been slow to materialize - a likely sign that the deal isn't exactly set in stone. More significantly Republicans are being pressured to deliver 70-100 votes which suggests that Congressional progressives, especially those from California, do have leverage to stop this train wreck. Universal health care, green infrastructure, a jobs-and-wages economic recovery - all those things are imperilled by this bailout. Better to deal with this after January 20.
After months of wrangling and negotiating the city of Vallejo has voted to declare bankruptcy. And to hear the local media tell it, like the San Francisco Chronicle, it is the fault of public workers, not poor political leadership:
After about four hours of discussion and public comment from the standing-room-only crowd, the council voted 7-0 to approve Tanner's recommendation to declare Chapter 9 bankruptcy protection as a means to reorganize its finances, which have been shattered by spiraling public employee salaries and the plummeting housing market....
The city and its public safety unions have been at the bargaining table for about two years. The city is asking for its police and firefighters to take salary, benefit and staff cuts, while the unions say any further cuts would endanger public safety as well as the safety of the police and firefighters.
Vallejo spends 74 percent of its $80 million general fund budget on public safety salaries, significantly higher than the state average. The generous contracts are the result of deals struck in the 1970s, following a police strike that left the city in turmoil.
What is not said here, or anywhere in the article, is the reason for that public safety spending. Vallejo's police and fire services are understaffed - as are many agencies in California, in a little-known but extremely important and widespread phenomenon. City leaders have been loath to hire new workers, but they have also needed the public safety services - so the workers that are on the payroll have been working overtime. And overtime pay is usually always higher than regular pay.
Vallejo, like many California cities, wanted to maintain a high services and low tax environment, and has found this is not possible, especially when an artificially-created bubble bursts. Instead of accepting responsibility and seeking new revenues to balance the city's books without endangering the public, city leaders chose to blame the public workers for the problems and declare bankruptcy instead of avoiding the underlying issues.
To be fair, Vallejo is not in complete control of its own destiny. Decades of state and federal budget cuts, made to pay for tax cuts for the wealthy, have had a trickle-down effect of eviscerating services and leaving cities more and more financially exposed as state and federal aid has begun to dry up. It's not exactly as if Bush and Arnold have directly told Vallejo to drop dead but through their inaction in the face of widening government financial crisis, they have achieved the same result.
Vallejo IS the tip of the iceberg, as many cities face similar problems. Some have done the right thing and sought new revenues, like Salinas, and avoided destructive service cuts. Others are following Vallejo down the path of blaming public workers. Without state and federal solutions, this scene may well replay itself again and again across the state in the coming years.
The city of Vallejo has been flirting with bankruptcy for for a few months now, but it looks like it will probably happen soon. While the Mayor and other leaders continue to point the finger at public safety workers, the city looks set to pass its own deadline this week for some other resolution. The Chronicle:
Vallejo will inch closer to financial ruin Tuesday when the City Council lets pass its do-or-die date to avert bankruptcy.
City staff members have been unable to come up with a detailed, long-term financial plan because negotiations with the police and fire unions are still ongoing. The city is asking for steep concessions from the unions, whose members are among the highest paid in the Bay Area and whose salaries comprise about 74 percent of the city's budget.
"We had hoped to have an agreement by April 22 to give to the council," said Mayor Osby Davis, who has sat in on the negotiations. "But I'm optimistic. There's always room for a resolution if people are willing to give and take."
Davis, if you'll remember, is the Mayor who lost the election, and then won the election on a recount. In the end, I'm not sure there's a winner at all here. The unions allege that there's some accounting tricks being used, while the City contends that the salaries are just killing them. The salaries are quite high due to mandatory overtime required by the city's low staffing.
The Mayor and others want a "long-term solution", but one will be increasingly difficult to find for Vallejo and cities across California as the budget continues to bleed. There is no solution - none at all - until California's leaders and the Yacht Party obstructionists choose to look at the budget sheets from towns and cities across the state. Small, large, whatever. They are all feeling the pain of the last 30 years. Prop 13, the VLF cuts, everything is costing the cities money at a time when more and more is expected of them.
We can dally no longer. The governor needs to step up and admit that he was wrong on the VLF. Vallejo is just the first large city to tumble towards bankruptcy. It will certainly not be the last.
Much attention has been focused on the lovely town (I'm serious!) of Vallejo as it faces bankruptcy. In a harbinger of things to come for many California cities and counties, Vallejo's general fund has been hit hard by the housing crash, leaving the city strapped for cash.
The city of San Diego has become the poster child for the effects of Republican municipal leadership. Once hailed as "America's Finest City," San Diego is now being called "America's Cheapest City" or "Enron by the Sea."
Simply put, San Diego is the victim of the Republican approach to civic governance that is the outcome of two decades of drinking the Ronald Reagan/Grover Norquist cool-aide. Averse to pay as you go government and incapable of taxing anyone but tourists through hotel and car rental fees, the city of San Diego managed to drive itself to technical bankruptcy in ten years thanks to the Republican dominance of its public administration.
The city's finances began to unravel in 1996, when the City Council voted to increase pension benefits while underfunding the retirement plan. A vote in 2002 continued the practice. The benefit increases, along with the underfunding, stock-market losses and settlements with retirees, have contributed to a pension system shortfall of $1.4 billion.
[...]
The fiscal meltdown that resulted sparked investigations by the U.S. Justice Department and the SEC in early 2004. Five former city and pension fund officials were charged with federal fraud and conspiracy in January.
How the 1996 GOP national convention helped put San Diego on the road to financial ruin and more follows.
