Saving the American Dream 800.826.1929

This article is quite long, but explains exactly what has happened
and is happening in the housing market today…the language is strong
but expresses the sentiment of many homeowners and knowledgeable
people within the real estate industry…and puts it right back into the
lap of Washington D.C. and bankers.

Freddie Mac Has a Message for Strategic Defaulters? Yeah,
Well I Have a Message for Freddie Mac.

Mandelman posting on ML-Implode.com Thursday 13th May

Yet another mortgage banking-type, this time by the name of Donald Bisenius,
Executive Vice President in charge of Freddie Mac’s Single Family Credit Guarante
Business, on May 3rd, apparently felt compelled to share his words of wisdom on
the topic of “strategic default,” the term used to describe homeowners deciding to
walk away from their mortgages even though, by some indications, they seem to be
able to afford the payments at the time, because… well, because they decide it’s the
right decision for them, that’s why.

The core message in his article, titled “A Perspective on Strategic Defaults,” as
described in the Wall Street Journal, is “Please Don’t Do It,” and after reading it on
Freddie Mac’s Website just this morning… Yowza! Now, I’m head over heels in love
with the idea of strategically defaulting! Thanks Donald!

Okay guys, if you haven’t already realized that this is going to be one of those
Mandelman smack-downs, I can absolutely assure you that it is, so if you don’t like
that sort of thing… well, it’s time to say “Check please,” and head for the door, ‘cause
I have lost the modicum of patience I normally have with clowns like Donald, and so
many others in the mortgage banking industry, and if I don’t say anything about good
old Donny-boy, I’ll probably wake up with some fatal disease that eats away at one’s
intestinal tract. Fair warning, right? Okay then.

Donald Bisenius, you are an unfeeling, officious, witless, wholly incompetent jackass.
And I tried my best to delete one of those terms and couldn’t even decide which one
applied to you less. How dare you, sir? There are but two possibilities here. Either you’re
actually that obtuse that you don’t see anything wrong with your little love note to
homeowners, or you know better and wrote it anyway, which makes you a bad guy.

Before I go on, here’s Mr. Bisenius’ bio, on Bloomberg.com:
He joined the firm in 1992 as a Director of Portfolio Quality in the mortgage credit policy
department. In this position, Dr. Bisenius and his group were responsible for analyzing
and reporting on portfolio and industry statistics, identifying credit risk exposures, and
recommending corrective actions.

And this guy is still employed? Honest to Pete? Which part of that job description did
he get right? Unfrigginbelievable. And “Dr.” Bisenius? What… a botanist, right?
Alliterative memo to the Obama Administration: Fire fool at Freddie and fast. What does
it say on Don’s last couple of employee reviews, I can’t help but wonder? Please tell me
there’s at least a “Needs improvement?” or maybe a “Lacks initiative?” But it doesn’t say
anything like that, does it?

No, because Donny-boy was recently PROMOTED from Senior Vice President to Executive VP.
And that’s just awe inspiringly incongruous. Like in a take-your-breath-away, One Flew
Over the Cuckoo’s Nest sort of way. Like, if Enron’s CEO, Ken Lay had not died of a heart
attack a few years back, and then been named Energy Secretary.

Here’s more from Bloomberg:
Since 1998, Dr. Bisenius served as a Senior Vice President of Risk Assessment and Model
Development, Mortgage Offerings, Risk and Capital Management, and most recently
Mortgage Credit Risk Management in the Single Family Capital Deployment Division. In
these roles, he managed the overall credit risk exposure of the single-family business,
including establishing the firm’s single-family credit policies.

Okay, fine. So, what’s he really been doing since 1998? Not working at that job, right?
You’re not asking me to believe that he’s been “managing Freddie’s overall credit risk
exposure of the single-family business,” or “establishing the firm’s single-family credit
policies,” are you? Come on… seriously?

“The Donald” begins his quaint little front page article by explaining what “strategic
defaults” are, thus demonstrating right off the bat that he has no idea what’s going
on in real life in this country. From there he proceeds to shovel insult upon insult until
he slams his creation into injury with the force of a high-speed bullet train hitting a kid
on a tricycle. Here’s how he describes strategic defaults:

“…a new and growing concern has emerged: strategic defaults. In other words, borrowers
who have the financial means to make monthly mortgage payments, but choose not to do
so and, instead, purposely default on their loans.”

Yep, that’s exactly what’s happening in this country today. In fact, the entire foreclosure
crisis is nothing more than a bunch of aging boomers deciding that it’s so much hipper to rent.
I’ve personally spoken with several thousand homeowners from all over the country, hundreds
that have considered walking away from their mortgages, or are now in the process of doing
so, and let me assure you, Don-O, your description bears no resemblance to anything that’s
actually happening. And a strategic default isn’t a new, growing investment strategy, DB, it’s
still someone losing their home.

Not one of the homeowners that I’ve heard from describes their situation in such happy-Sunday
-in-the-suburbs type terms. The homeowners I know are undergoing the worst turmoil of their
lives, and having exhausted every other avenue (supposedly) available to them, have come
to the inescapable conclusion that walking away is their best… no, their only option. Don-Don
makes it sound like they reached the decision over highballs at the 19th hole after wrapping
up an afternoon on the links. Did I already call him a jackass? Rats.

Ding-Don’s on-line editorial manages to offend right from the start and right up to its end,
such as:

“Knowing the costs and factoring in the time horizon, some borrowers have made the
calculation that it is better to purposely default on the mortgage. While I understand
how that might well be a good decision for certain borrowers, that doesn’t make it good
social policy. That’s because strategic defaults affect many other families and communities.
And these costs – or as they are known in economic jargon, externalities – are not
factored into the individual borrower’s calculations.”

What in the Sam Hill did he just say? Something about my walking away from a toxic,
spring loaded, snapping turtle of a mortgage not being “good social policy”? I’m in charge
of social policy all of a sudden? I’m should be factoring “externalities” into my decisions.
No one mentioned that before… I was only concentrating on my family’s life circling the drain.
Listen up, Donald Duck… I’m not the least bit concerned with what you think of as being
good or bad social policy, and neither should any other homeowner who is fighting to keep
his or her head above water, because it’s you, and people like you that allowed the financial
sector to steer our nation’s economy off a cliff. Here’s a social policy I think you should
consider:

How about you start by telling the truth about what happened here. Perhaps you
could then acknowledge how unregulated markets and inconceivably unsupervised
and greedy sociopaths misused their positions, lied to investors around the world,
and bankrupted our financial institutions, while lining their own pockets. Maybe wrap
it up by telling folks about how your lobbyists pumped hundreds of millions, or perhaps
billions into lobbying efforts in an effort to cover up your crimes and ineptitude so as
to go forward without any accountability, as you lay the blame for the crisis on
homeowners who you say, borrowed too much.

That would be good social policy, at least as far as the people of this country are concerned.
You come clean on any of that, and then we’ll talk about what you think the rest of us
should do, okay? Because you’ve got a lot of nerve to write something that has the very
definite potential to take someone who already feels ashamed, and make them feel that much
worse.

Morgan Stanley strategically defaulted a couple of months back, and that was a loan for
many hundreds of millions of dollars, or was it billions? The Mortgage Bankers Association
did some walking away from mortgaged real estate this year too, right? Did you write letters
to either of them, or any of other the big corporations that are ditching whatever they’ve
decided makes no sense for them to pay for, even though they signed the mortgage? Were
you concerned about how Morgan was executing social policy, or criticize them for failing to
consider externalities?

Don’t ask me why, but the man goes on:

“Let’s start with the neighbors. When strategic defaults occur, homes go into foreclosure
and sit vacant for some period of time. We know from experience that foreclosures and
vacancies drive down the property values of everyone else in the neighborhood. Thus,
strategic defaulters, in effect, deplete the personal wealth of their neighbors. Get a critical
mass of strategic defaults, and broader communities and regions become affected. Indeed,
Economy.com, the analytic firm recently said that more strategic defaults could tip a fragile
housing market back into one of further price declines. Even more families harmed.”

You know what… this really isn’t funny anymore. Mr. Bisenius, are you seriously blaming this
on the homeowners who are losing homes to foreclosure? Do you also blame the businesses
that file for bankruptcy? And the brokers, right? Regulators? Why not? It’s everyone’s fault
but the bankers, is that about right? The strategic defaulters deplete the personal wealth of
their neighbors? No they do not. What is wrong with you?

Are you’re actually trying to make the case that strategic defaulters are, again as the WSJ
article phrased it, “undermining their own neighborhoods?” I wouldn’t care if that were even
a little bit true, because the more salient question to ask is how could anyone possibly
undermine a neighborhood beyond what you and your brethren have already done?

If you and your bankster buddies were so damn concerned about driving down property values,
much less depleting the wealth of homeowners, quite a few things come to mind that you
might have done to-date. You could push lenders and servicers, for example, to modify a few
more loans, and by modify I mean the kind where the payments actually go down more then 3.5%,
or maybe you could have led the charge for a principal reduction or two, like it says you’re
supposed to do in the HAMP guidelines. Just thinking out loud over here… but you haven’t done
too much along any of those lines, now have you?

In fact, truth be told, you’ve done almost nothing in terms of contributing to solutions to the
financial crisis, isn’t that right? All you’ve done is contribute to the creation of the problem,
while continuing to lose breathtaking sums of money. Here’s a little snippet from the news,
just a week back:

Reuters:
Freddie Mac said it would need $10.6 billion in government funds after losing $8 billion in the
first quarter (of 2010).

And in case everyone doesn’t remember just what’s going on with the GSEs, Fannie and
Freddie, this from the Washington Post:

Under the terms of the government’s 2008 emergency takeover of Fannie and Freddie, the
Treasury must pump money into either firm whenever its worth, as measured by assets
minus liabilities, goes into the red. Late last year, the Obama administration pledged
unlimited backing.

Yes, Donald… you guys over at Freddie are clearly doing crackerjack work. I can absolutely
understand why you’d want to take time out of your busy day to write something telling
distressed homeowners that they aren’t helping the situation by helping themselves. Thanks
for that. You’re a real peach, you know that, Don?

Then, three quarters of the way into his piece-of-trash’s treatise, his true colors begin to show:

Should strategic defaults become more common, mortgage guarantors and investors, including
Freddie Mac, would need to factor this risk more prominently into their credit policies and prices.
The likely impact on future homebuyers: the cost of a mortgage will go up and credit terms will
be less flexible. Thus, the impact of strategic defaulters on still more families might be more
expensive mortgages and loans that are more difficult to obtain.

Ahhh, there it is! The banking lobby’s favorite scary bedtime story. Are you threatening us,
Mr. Bisenius? Or, are you trying to divide people against each other? Trying to make it so I get
mad at someone who strategically defaults for causing my costs to go up in the future. Is that
your game, you insolent prick?

Hey Don… I don’t suppose that you’d care to quantify what “factor this risk more prominently
into credit policies and prices” converts to in American money?

Let me ask you a question. If I get foreclosed on, you guys get the house back and then
you sell it at whatever the market price brings, right? And so, if I strategically default what
happens? Same thing, or do you sell it for less than market because it was strategically
defaulted on? And what about if you ever granted a reduction in the principal amount owed?
Wouldn’t you, worst case, write down the amount of the loan to the market price too?
Hmmm… market price, market price, or market price?

But wait… you say. That’s not right because the house might sell for a few dollars difference,
or might have a slightly different cost, one way or the other? Yeah, so what? It’s both
insignificant and beside the point. The point is that people that strategically default do so
because they either already are, are about to be, or don’t want to be in trouble financially.
A strategic default is really just a homeowner granting his or her own principal reduction.
Look at it this way, Don, every strategic default saves one family from throwing their
money away needlessly on lost equity, which means they can still pay for their kid’s college
education, buy that new car, or… perish the thought… buy one of the millions of homes that
some bank has foreclosed on, but has yet to put on the market… you know… the “shadow
inventory”.

See, strategic defaulters are actually helping to pull this country out of the recession
that you… yes Don, you… helped push us into! You should be cheering their decision not to
go down with the ship! Thank you strategic defaulters… go pick up a vacation condo in Miami
or Las Vegas for $25k. Without you, those places would likely still be sitting empty 25 years
from now.

But Don wants us to know that we all have options, and wait till you get a load of this
pant-load’s idea of what those options include. Make sure you’re sitting down for this:

Do borrowers considering strategic defaults have other options? They do. For those
who have not suffered any disruption in income and have a longer time horizon, simply
continuing to pay the bills might be best. Over time, recovering house prices and declining
mortgage balances likely will close some, if not all, of the equity gap. According to the
Federal Reserve, while the housing bust wiped out $8 trillion in home equity, $1 trillion
came back in 2009. The point here: time might be your best ally.

This guy may just win my Dick-of-the-Year Award hands down. Did he just say: “simply
continuing to pay the bills might be best?” I can’t be sure because there’s no way that
my heart could stand reading that paragraph again. Best for whom, Donald? You are
such a… I cannot believe what a… wait, no. I’m not going to do it; my health has to
come first.

And yes Don, over time the housing market will come back… as will the market for dot-com
IPOs. Everything comes back… eventually… that’s why I’m still holding onto my skinny ties.
I even imagine that perhaps one day… Freddie Mac will be profitable again? But when,
Don… when? I’m 48 years old and in pretty good health… will I live to see that day?

Historically, as in over the last 100 years, housing prices rose about 4% a year on average.
So, if I’m down by 50% now, how much does my home have to go up for me to be back to
breakeven? Not 50%, right Don? Closer to 100%, isn’t that right? So, if the next 100 years
looks anything like the last hundred, in terms of price appreciation, how long will I have to
wait for that 100% jump to put me at breakeven again?

I’m not that good with numbers Don… what do you figure… about 25 years sound right?
In the ballpark? I guess that’s not that bad… to breakeven. Better than I’ve done in the
stock market over the last quarter century, all things considered, I suppose.

Don offered other choices too:

“Another alternative: if Freddie Mac owns the loan, a family might be able to refinance
up to 125 percent of the current property value. In other words, if a family’s home equity
has been completely wiped out and the mortgage balance is as much as 25 percent more
than the home is worth…”

That’s nice of you, Don. So, if I owe $600,000, but my house is now worth $300,000… you
might let me refinance it for $375,000? Cool. That means all I have to come up with is
$225,000? Awesome, let me get my checkbook, I’ll just write you a check from my asshole
account.

Let me get this straight, the bankers of this country destroyed the financial markets for
their own personal gain resulting in the most severe economic meltdown since the last time
the bankers of this country destroyed the financial markets for their own personal gain, about
70 years back. This is not a market correction, Don. Homeowners at risk of foreclosure
today are not where they are because they made irresponsible decisions. And banks aren’t
lending today because people aren’t making their payments.

Banks aren’t lending today because the people that worked, and except for those who
retired mega-rich, still work within them, bankrupted them through a mind-boggling number
of the most irresponsible, unconscionable, uncaring, and obviously unregulated behaviors
the world has ever seen. They abused and took advantage of everything that wasn’t under
lock and key, demonstrating beyond any doubt that they are of an ilk that cannot be trusted.

Dr. Bisenius, you speak of how a homeowner, acting in his or her own best financial interests,
is actually harming our society when walking away from a mortgage. You accuse those that
decide to walk away, of harming others in their neighborhoods by their thoughtless and selfish
acts. You want them to give more consideration to how their behaviors impact the lives of
those around them, and society as a whole.

I suppose the irony is lost on you, but those are the very same traits that the citizens of this
country wanted… and certainly expected… from our nation’s bankers. And tragically, those are
the same type of behaviors that our bankers failed to deliver to the detriment of all. It is
specifically the complete absence of those traits and behaviors that caused our economic
downfall, one that will continue to cause acute pain for many millions of Americans, to say
nothing of people around the world, certainly for years, and perhaps decades to come.
Your own mega-mortgage bank, Freddie Mac, now a GOE, Government OWNED Enterprise,
only exists today because of the taxpayers in this country, and that will likely be the case
throughout my lifetime.

You and people like you broke it, Mr. Bisenius, and you own it. How dare you, of all people,
even have a personal opinion on optimal social policy, let alone feel you have the right, in
your official capacity, to share such a view publicly.

Moreover, Mr. Bisenius, how dare you insult every homeowner in this country including me,
by asking from us what you and your peers have never been willing to give to this country?
You want people to not be selfish, to not act in their own financial interests? You want
them to put the good of our society above their own financial gain?

Well, perhaps you should try talking into the mirror, sir. Every single day now we see more
of who you and others in the banking industry really are, and what you have done… you are
naked before us. And, God damn you if your article caused even one person to feel even the
slightest pangs of guilt for deciding to do what’s in their own best interest.

If you wanted to speak out publicly for the good of our society, as the person in charge of
mortgage credit risk management at the world’s second largest mortgage company, you had
years to stand up and say that what was happening was wrong. Your silence on that particular
subject was then, and is now deafening.

Here’s what you said back in June of 2004, however, when you testified in the U.S. House of
Representatives, before the Subcommittee on Capital Markets, Insurance and Government
Sponsored Enterprises:

“We recognize our special responsibility to homebuyers, the public, the Congress and investors.
Freddie Mac is a leader in developing and promoting responsible lending practices and we are a
leader in combating mortgage fraud. We have instituted the secondary mortgage market’s most
comprehensive set of measures designed to protect consumers from predatory lending practices.
And, we have a comprehensive quality control program that helps Freddie Mac and lenders
combat fraud associated with mortgage lending.”

“Fraudulent mortgage originations have an adverse impact on America’s families and the communities
in which they live. Our policies, procedures and programs are designed to help Freddie Mac and
others in the mortgage finance system better detect fraudulent and suspicious activities. We are
committed to working with participants in the mortgage finance system to help prevent fraudulent
activities and to help more families realize the full benefits of long-term homeownership.”

“Our quality control program helps us identify loans with suspicious or fraudulent characteristics and
helps lenders establish quality control practices that safeguard against fraud.”
“Freddie Mac is also firmly committed to helping participants in the mortgage finance industry
establish comprehensive quality control practices that safeguard against fraud and improper
business practices.”

“Freddie Mac has instituted the secondary mortgage market’s most comprehensive set of
measures designed to protect consumers from predatory lending practices.”

“We regularly introduce innovative loan products aimed at giving borrowers with impaired
credit greater mortgage choices and initiatives that help borrowers avoid the pitfalls of
predatory lending.”

“Freddie Mac has also taken a leadership role in the development of innovative outreach
initiatives designed to provide consumers with information on the use of credit, to make
them aware of their financial options and to help them avoid borrowing pitfalls. Our public
education campaigns help potential borrowers better understand the mortgage lending
process.”

Dr. Bisenius, I read your entire testimony in front of Congress back in 2004, and I am
unable to discern with any certainty which of your statements were lies and which
subsequently became lies as a result of incompetence. You owe homeowners in this
country an apology, sir. And an explanation… why would we listen to you now?
One last sentence from your posting on strategic defaults…

“While a personal financial strategy might argue for a strategic default, entire
communities and future homebuyers can be harmed as a result. And that is why our
broader social and policy interests will be best served by discouraging strategic defaults.”

Go to hell, Dr. Bisenius. Go directly to hell.

Dave Brigle, Managing Member
Foreclosure Prevention Institute, LLC
271 Viking Dr
Battle Creek, MI 49017
Hot Line 1.800.826.1929