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FHFA, Freddie and Fannie Deaf to Reason on Foreclosures

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An ongoing drama is unfolding: a David versus Goliath tale of sorts that pits a Riverside, Calif., family fighting to stay in their home against the weight of that elephant, otherwise known as "Freddie."

Arturo de los Santos, his wife and four children have already been evicted from their home once, but now, with the support of Alliance of Californians for Community Empowerment, Occupy Los Angeles and Occupy Riverside, they've re-occupied the vacant house. Their supporters have placed boots on the ground and inside the house to serve as witnesses and shields if sheriffs should come knocking once again.

It's a rage-against-the machine story, but with a puzzling subtext: Santos is working and willing to make a deal, but Freddie has turned a deaf ear. Now, his plight has become the focus for on-going media attention, namely MSNBC and Huffington Post.

A native of Corpus Christi, Santos joined the Marines in 1991 and after finishing a stint on an aircraft carrier found his way to Santa Ana, Calif., where he found a job in the aviation industry. He rose to a position as supervisor, and he's still there. Together with his wife, Magdalena, they purchased a home in nearby Riverside that's provided a roof over the heads of four children.

When the global economy caved in 2008, his hours at the aviation plant were cut back and he asked his servicer, JPMorgan Chase, for a loan mod. According to Santos and his supporters, events then unfolded in true Kafkaesque fashion. He was denied a loan mod, re-applied, then given a temporary mod, on which he made timely payments, then denied, again, for a permanent modification.

Before he received his final denial, he learned that his house was going on the auction block. After questioning Chase about what was going on, the response, as he tells it, was "there's a modification department and a foreclosure department, and the foreclosure department decided to sell your home."

So the great foreclosure machine began to grind away, and because California is a non-judicial state, meaning foreclosures there don't need to go through the court system, the gears were greased to make eviction a whole lot easier.

In January, 2011, Cal-Western Reconveyance Corp. — a title company with a disturbingly sinister moniker — engineered a transfer of ownership to Chase, then to Freddie Mac. Santos protested that he made enough to enable him to continue to pay a modified mortgage. Freddie refused.

With foreclosure a done deal, the Santos family left the house.

Then a magic slingshot appeared, giving this David a tool to fight back. He signed up with Alliance of Californians for Community Empowerment to be one of those homeowners to participate in a re-occupy-your-foreclosure campaign and, with family in tow, took back his home last December.

Accusations have gone back and forth between Santos's supporters and Freddie spokespeople as an acrimonious backdrop to what has now become a court battle.

Last week, a California judge presiding over the case told Freddie to go back to the drawing board and come up with some legally palatable reasons why the family should be evicted for a second time.

Arturo de los Santos is one of those emerging soldiers in this war against homelessness, a committed fighter who refuses to submit to a foreclosure firing squad.

With Freddie and Fannie Mae together holding or guaranteeing roughly half the nation's mortgages, that's a lot of potential executions. Is there any sort of reprieve in the works for Santos or the legions of others caught up in similar straits, perhaps along the lines of the recent robo-signing settlement that offered the possibility of principal reduction?

No, says the Fannie/Freddie overseer and majordomo, the Federal Housing Finance Agency. Fannie and Freddie never signed on to the Shaun Donovan-brokered agreement. Executives at the "three F's" are now hunkered down in the trenches, hands clamped over ears, waiting for the shelling to stop and the criticism to abate. No matter that HUD's Shaun Donovan or California Attorney General Kamala Harris support principal reduction. The D.C. heavies simply won't countenance any reconsideration.

In fact, it's quite the opposite. FHFA's acting director, Edward DeMarco, continues to summon up that old "moral hazard" saw when discussing why he won't lop off some struggling family's principal. But never mind that notion when it’s time for the GSEs to belly up to the taxpayer's bar for more cash to cover continued losses. No moral hazard there (think "bailout"). It’s an on-going beltway version of Alice in Wonderland.

There are others around the country whose tales are only beginning to surface: like Giovanni and Linda DeCaro, who tried, unsuccessfully, to negotiate a settlement with Freddie to save their Springfield, Mass., home through a short sale strategy, brokered by Boston Community Capital's Stabilizing Urban Neighborhoods program, that would have allowed the couple to buy back their property at a reduced price and then make monthly payments on a fixed rate 30-year mortgage. Restrictions would prevent them from selling the house for more than they paid without sharing the profits with Boston Community Capital.

Sensible, even a tad innovative? Yes. Too much so for Freddie, which sees the DeCaro home as simply an investment property to be sold for top dollar. Greed again rears its ugly head.

DeMarco has remained brittle and unbendable in his refusal to consider the emotional damage done to millions of homeowners through the GSEs' efforts to keep the foreclosure machine running at full speed. As a relic of the Bush administration, DeMarco seemingly panders to a Republican agenda that follows lock step behind Mitt Romney's call to "let the foreclosures proceed." Unfortunately, it's an attitude that continues to fuel the Darwinian fires that have decimated communities around the country.

Joel Sucher, a filmmaker with Pacific Street Films in Hastings-on-Hudson, N.Y., is working on "Foreclosure Diaries," a documentary about the financial crisis.

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Comments (2)
Joel, you really have no idea what kind of damage following a model like yours would really cause. Why would any investor want to back any mortgage when they could not take back control of the collateral when the proper payment that was agreed upon contractually was not being made? What gives you or our government the right to lower a debt that is do and payable and hurt the investor that made the loan possible in the first place. You methodology will destroy the lending business entirely. Thousands of jobs would be lost. More foreclosures not less would happen. What gives you the right to just transfer assets from one person to another becaise emotionally and morally it looks like the right thing to do? If credit decisions were all made on emotion, no one would loan one dollar to anyone. Every transaction would have to be in cash. Dom you realize what that would do to the economy and the job market? Joel, get real!
Posted by robrose | Thursday, March 08 2012 at 3:14PM ET
Robrose,
Your analysis is consistent with Edward DeMarco's position that principal reduction is not a workable strategy. However, now both FNMA and FHLMC (or Fannie and Freddie as we know them), have run the numbers and concluded that principal reductions do work. Further, there is no evidence that people flock to default on underwater loans. That's economic suicide for most folks. Instead, most people start stripping their other assets (including selling cars, other real property, gutting 401k's) to avoid getting behind on their mortgages. Right now, the housing market is so damaged that writing down values to current market would help put a floor on the slide. This was the outcome of FDIC writedowns in New England in the 1990's. Also, if banks foreclose on an underwater property, they are only going to get current market (or, more likely, distressed market value because comparables are affected by the foreclosures and short sales in an area). A lesser amount of principal reduction would probably get most homeowners back on track and save the banks the considerable expenses associated with going the foreclosure/short sale route.
Posted by Rachael Dorr | Sunday, April 22 2012 at 2:40PM ET
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