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The Dems, the White House and the foreclosure divide

The calls by Democratic House and Senate leaders for a national foreclosure moratorium could lose a little bit of fire now that Bank of America has thawed its foreclosure freeze. The bank said Monday it would resume 102,000 foreclosures in 23 states after it started a nationwide suspension Oct. 1, following claims of fraudulent paperwork and processing.

Still, the foreclosure debacle is far from over. With attorneys general in 50 states investigating the mortgage servicing industry, shareholders fretting over the depth of the morass, and a housing market that could fall further as this new crisis holds up sales, the political debate over whether the industry should halt foreclosures until the mess is cleared up is sure to continue for some time.

What isn't so certain is how the Obama administration, which has said it doesn't support a freeze, and Democratic leaders like Senate Majority Leader Harry Reid and New York Rep. Edolphus Towns, who've said they do, will reconcile their differences. While debates between the executive and legislative branches are part of the political system, even within the same party, their opposition at such a critical political moment is an interesting view into the risks of not presenting a united front.

Of course, that critical political moment is a big part of why Obama and his party's congressional leaders don't have the same opinion. Reid and many of his peers are up for reelection during the midterms; President Obama is not. Pushing the federal government to take more aggressive action at a time of deep anti-incumbent, anti-big business sentiment should play well with many voters.

But it sets up a deeper divide between the president and the leaders within his own party. At a time when the Democrats are on the ropes--Obama's approval ratings are way down, and the party is expected to lose control of the House--they don't need further fissures when they're already playing defense. Some of that disagreement is inevitable in our political system--as president, Obama does not have control over congressional leaders within his own party in the same way other chief executives do.

Creating a united front when a traditional management hierarchy isn't in place to build consensus usually takes more than just a leader. It takes a catalyst--a pivotal event that people with differing views can come together to get behind. Perhaps Bank of America's foreclosure resumptions will be the spark that brings a consensus after all. A better bet is the end of the election.

By Jena McGregor

 |  October 18, 2010; 9:37 PM ET |  Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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DNJAKE - Late Breaking News!

The Federal Government DOES have an interest in the foreclosure crisis and has started an investigation (for what that's worth) to determine if federal laws were broken. As reported in today's Washington Post:

"The Federal Housing Administration and Ginnie Mae, in addition to federally backed mortgage companies Fannie Mae and Freddie Mac, insure home loans. When lenders suffer losses on these loans as homes fall into foreclosure, the government reimburses them.
But if lenders or other mortgage companies have been reimbursed based on false or inaccurate paperwork, the government could seek both civil and criminal penalties, people familiar with the matter said."


Posted by: shadowmagician | October 19, 2010 3:34 PM

No sympathy for any bank. These "too big to fail banks" need to be broken up. The amount of fraud and illegal activities has reached a level even the govt can't monitor any more. Time to reduce the size and scope of banking overall again. We need the Glass Steagall Act reinstated and the GLB Act repealed. Time to reign in the abuse and make banks small enough to be accountable. Taxpayers should not be help accountable for fraud and abuse by the banking industry. I hope the legal community takes the banking industry for everything but the kitchen sink. Banks obviously didn't learn a lesson from 2008 so let's give them one they will remember.

Posted by: Desertdiva1 | October 19, 2010 3:33 PM

Agree with shadowmagician--"Why should (they) NOT insist that the rule of law and due process be followed?" I believe it was Elizabeth Warren, and perhaps some Congresswoman from Ohio, that I first heard cautioning homeowners facing eviction to insist upon seeing the documents that actually verify ownership of their mortgage. Often the people pushing the foreclosure were unable to document their claim.

Posted by: sailorashore | October 19, 2010 2:29 PM

The foreclosure debate is just noise. The President has no authority over foreclosure law. Even if the federal government had authority, the Democrats probably would have little chance passing legislation even with the current Congress and much less chance once any lame duck session is over. How big a problem the foreclosure process actually is remains to be seen. But it appears that much of the housing boom was financed with techniques that were legally shaky as well as financially unsound. All those who encouraged the boom and the use of designer financial instruments share the blame. That certainly includes the banks and the Bush administration. But it also includes the Clinton administration and the Federal Reserve. At this point, there is no real choice but letting the legal system operate according to the established state laws. Should that process generate a disaster big enough to again threaten a collapse of our national economy perhaps there would be a chance for political consensus on some extraordinary national legislation to take over authority for resolving the problems. But it is really hard to see that kind of process happening. The more likely intervention that seems to be in prospect is yet another Federal Reserve attempt to stimulate animal spirits and financial speculation without worrying about the consequences.

Posted by: dnjake | October 19, 2010 12:47 PM

How Fannie and Freddie can Fix the Economy -- Quickly

The issue: Housing is killing the Economy

The Insight: Short Sales are Artificially Increasing Supply (lowers prices) with no offsetting increase in demand (further lowering prices)

Why? Most short sellers DO NOT want to sell their home they want to stay (if the payments were affordable) thus they are not looking for a new home absent being forced to sell short. Under Fannie and Freddie rules when they do sell short they are FORBIDDEN from BUYING for 2-5 years. Thus in Florida alone perhaps 500,000 to 1 million homes are artificially on the market and that same 500,000 to 1 million buyers are NOT in the market

The solution: Fannie and Freddie fund the transaction costs of converting short sales into debt-for-equity swaps (please see http://fixhousing.blogspot.com which explains how).

What happens: The existing loan is converted to three pieces: a loan for 80% of current value (which will be current since the homeowner will pay) on the same terms as the original loan, a zero-interest loan for 20% of current value (essentially the current equity above the 80% loan), a PARTICIPATION interest in future appreciation

Liquidity: the participations can be pooled and sold as securities, the zero interest loans can be pooled and sold as securities, once the 80% loans have been current for 12 months they too can be pooled and sold as securities

Immediate benefits: perhaps 2,000,000 homes exit the marketplace, and on those homes the mortgages will become liquid and performing in 13 months which helps the banks which wrote the loans

This is a BUSINESS solution to a business problem which has been corrupted by politics.

Posted by: lissack | October 19, 2010 11:50 AM

That the Bank of America (with other banks) thought perjury and fraud were acceptable business practices for those who trusted them say much about them and their management.

Just because they want to "restart" foreclosures hardly equates to following the law. What will they do about the altered or forged documents? What will they do about the lost or shredded notes? What will they do about the unrecorded documents? What will they do about the deed filed in the county court house that has a lender of record different from their computer records?

And finally, why should each and every borrower NOT insist that the rule of law and due process be followed? Why is this a “Republican” or “Democratic” or “White House” issue?

Posted by: shadowmagician | October 19, 2010 11:42 AM

There is no divide. The Wash Post and Republican controlled media work overtime on these insane issues that don't exxist.

Posted by: pkbishop1 | October 19, 2010 11:26 AM

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