Money in the Morning

Feds go with middle route on foreclosure fix — Even with a steady drip of stories on how lenders have made a mess of mortgage foreclosures, a key federal agency is resisting public pressure for a foreclosure freeze.

The Federal Housing Finance Agency decided Wednesday to press lenders to fix their faulty mortgage documents instead of moving toward a foreclosure moratorium, out of fear that the bolder move would hurt the broader economy.

WaPo: "Some consumer advocates and lawmakers said the policy was soft on banks and industry insiders and may have little effect, because many lenders are already taking such steps. ... The FHFA's policy statement, which officials said was developed in consultation with other federal agencies, underscores the Obama administration's opposition to a national freeze on the grounds that it could damage the economy. ... 'Delays in foreclosures add cost and other burdens for communities, investors and taxpayers,' the agency said. ... The policy statement tells lenders to make sure that documents used as part of the foreclosure were properly reviewed and signed. If they weren't, lenders must work with local lawyers on a fix. This could include filing new paperwork."

More stories on Thursday suggest that the latest housing problem could hurt banks and the economy, freeze or no freeze.

WaPo again: "Lack of proper mortgage paper trail could leave big banks reeling again "

"For more than a decade, big lenders sold millions of mortgages around the globe at lightning speed without properly transferring the physical documents that prove who legally owned the loans. ... Now, some of the pension systems, hedge funds and other investors that took big losses on the loans are seeking to use this flaw to force banks to compensate them or even invalidate the mortgage trades themselves. ... Their collective actions, if successful, could blow a hole through the balance sheets of big banks and raise fundamental questions about the financial system, financial analysts and a lawmaker said."

So who's to blame?

The case against banks: The lenders ignored the trouble for years, NYT finds: "Banks spent billions of dollars in the good times to build vast mortgage machines that made new loans, bundled them into securities and sold those investments worldwide. Lowly servicing became an afterthought. Even after the housing bubble began to burst, many of these operations languished with inadequate staffing and outmoded technology, despite warnings from regulators. ... When borrowers began to default in droves, banks found themselves in a never-ending game of catch-up, ... 'We waited and waited and waited for wide-scale loan modifications,' said Sheila C. Bair, the chairwoman of the Federal Deposit Insurance Corporation, ... 'They never owned up to all the problems leading to the mortgage crisis. They have always downplayed it.' "

The case against the borrowers: CNBC's John Carney says not to lionize the "foreclosure deadbeats," those living in homes they can't afford. "... [T]here is little evidence that banks are engaged in any systemic practice of throwing people who do not have mortgages or are current on their mortgages out of their homes. ... The typical person who is fighting foreclosure on 'show me the note' grounds is someone who has stopped making payments on their mortgage but refuses to surrender their house to the bank. Some of them may not even be suffering from financial hardship — other than having taken on debt that they cannot afford."

The case against mortgage law firms (and Frannie, who used them): Freddie Mac and Fannie Mae turned to law firms to manage their huge mortgage load, and those firms may have been unable to handle it, reports the WSJ. The "use of so-called foreclosure mills, law firms that specialize in quickly processing thousands of foreclosures on behalf of lenders, is dragging the companies into the latest crisis. ... Last Friday, Freddie told mortgage servicers to stop sending cases to the Law Offices of David J. Stern, of Plantation, Fla. Fannie followed suit on Monday. ... In the deposition, the [firm's] employee alleged the firm routinely forged notarized documents amid closed-door screaming matches that broke out because files weren't moved fast enough."

BAILOUT REPORT — Overseers of TARP said that much of the financial bailout work was contracted out and shielded from public view. WaPo:

The panel's report criticized the contracts with Frannie to manage bailouts. Reuters:

THURSDAY TREAT: MLB commish Bud Selig says that former President George W. Bush wanted to be commissioner back in the 1990s, before entering politics. (via NYT)

Democrats see the upcoming lame-duck Bush-era tax-cuts fight as a chance to narrow the income gap. WaPo's Lori Montgomery: "When Congress returns to Washington next month, a solid core of Democratic lawmakers says it will urge party leaders to seize a rare opportunity to reverse three decades of rising income inequality by resisting any effort to extend the cuts for the richest 2 percent of households."

WHERE THE CHILEAN MINERS AND U.S. MIDTERMS INTERSECT. WSJ's Daniel Henninger comes up with the metaphor of the campaign — U.S. voters are the Chilean miners in need of rescue. (So is the struggling economy the mine?)

"The U.S. has a government led by a mindset obsessed with 250K-a-year 'millionaires' and given to mocking "our blind faith in the market." In a fast-moving world filled with nations intent on catching up with or passing us, this policy path is a waste of time. ... The miners' rescue is a thrilling moment for Chile, an imprimatur on its rising status. But I'm thinking of that 74-person outfit in Berlin, Pa., whose high-tech drill bit opened the earth to free them. You know there are tens of thousands of stories like this in the U.S., as big as Google and small as Center Rock. I'm glad one of them helped save the Chileans. What's needed now is a new American economic model that lets our innovators rescue the rest of us."

ESTATE TAX AS CAMPAIGN ISSUE: WSJ sees GOP candidates taking a new hard-line stance that will affect future negotiations. "More than 250 current congressional candidates, mostly Republicans, have signed a pledge this year to support elimination of the tax. ... The estate tax has become a particularly hot issue in the West, including in Washington state's Senate contest, and some rural House districts where Democratic incumbents appear vulnerable. The tax tends to be a hotter issue in rural areas because it raises particular concerns among farmers and landowners."

BUBBLE ALERT — Mr. T follows in the footsteps of Beck and O'Reilly to tout gold as an investment. (Watch the YouTube clip to find out about the first time Mr. T bought gold, why he doesn't wear more than 45 lbs. in gold and a birth of Jesus reference.) Business Insider:

Ex-Obama car czar Steven Rattner will accept a multi-year securities trading ban and $5 million+ fine for his role in New York pension kickbacks. NYT:

Report finds no political motivation in SEC's Goldman suit. NYT: