CPD IN THE NEWS

The controversial federal program that clouded the HUD secretary's VP prospects gets a timely overhaul.

Julian Castro’s Housing and Urban Development Department announced significant changes Thursday to a federal program that sold delinquent mortgages to private investors — a move that mollified progressive critics who threatened to undermine his vice presidential prospects.

With three weeks remaining until the Democratic convention and Hillary Clinton’s campaign narrowing down its list of potential ticket mates, the U.S. housing agency said it is changing a controversial program to give delinquent homeowners a new chance to reduce the principal they owe on their mortgage. The changes also prohibit financial firms from giving up on trying to sell or recuperate decrepit properties the businesses would rather walk away from.

As HUD secretary since 2014, Castro had been under attack from by at least 11 Latino and populist groups for his oversight of the department’s “distressed asset stabilization program,” which sold struggling homeowners’ mortgages to hedge funds. Castro, they alleged, failed to deliver on a HUD promise to sell more mortgages to non-profit community groups instead of financial firms.

Started in 2012, the program’s two stated objectives are to help struggling residents while also clearing billions of dollars of bad debt off the agency’s books. But liberals have argued the program undermines homeowner protections, especially for people in low-income neighborhoods, as HUD sold mortgages to the same financial firms that exploited borrowers in the lead-up to the 2008-2009 recession.

The changes came not long after Castro surfaced on Clinton's short list of vice presidential candidates — along with Sens. Tim Kaine and Elizabeth Warren — leading to immediate speculation about the HUD secretary’s political motivations.

Warren was among those calling for major reforms to the program.

 “Given that Secretary Castro has only spent a brief time on the national stage, the black mark caused by the distressed asset issue stands out prominently on his record,” said Isaac Boltansky, director of policy research for Compass Point Research & Trading in Washington. He covers housing policy.

“There is no question that the left’s attack of this program generally — and Secretary Castro specifically — lowered the odds of him being tapped,” he said.

As severely-delinquent mortgages accumulated after the recession, the Federal Housing Administration, a division of HUD, needed to reduce debt liabilities to the government.

Under the program, delinquent loans held by banks but insured by the FHA are sold to new buyers, including hedge funds, private-equity firms and non-profit community groups. Through May 2016, HUD sold more than 105,000 FHA-insured loans valued at $17 billion, according to a report by the National Consumer Law Center.

Castro has not said much publicly about the program, which in recent weeks erupted into a politically-charged issue for the Obama administration, said sources with familiar with the situation.

The program was supposed to give struggling homeowners another chance to avoid foreclosure. But researchers following the program said that financial companies have used it to circumvent homeowner safeguards.

“If you have an option of selling your loan through [the] DASP, then you don’t have to go through state foreclosure procedures that have the consumer protections in them and actually help enforce FHA rules,” said Geoff Walsh, author of NCLC’s report. He previously worked as an attorney with Vermont Legal Aid, Inc. and specialized in housing, consumer and bankruptcy areas. “A lot of damage has been done,” he said.

The liberal groups held Castro responsible for the program’s flaws, even though it started before his tenure at HUD. But the groups immediately applauded HUD’s new changes to the program that they had advocated for.

Their website attacking Castro was still live on Friday, though it will be updated to reflect HUD’s changes, said Matt Nelson, managing director of Presente.org, which claims to be the largest U.S. online Latino organizing group.

Housing experts acknowledged that pressure from advocacy groups — which used the issue to question Castro’s progressive credentials — played a role in the revisions.

“But for his potential to be vice president, these changes probably don’t get made,” said Edward Gorman, head of community development for the National Community Reinvestment Coalition, whose members include nonprofits that buy DASP loans.

“It was the specific targeting of the secretary on this issue and the gathering of liberal senators in support that caused the [Obama] administration and the secretary particularly to take another look at this issue,” he said. “This will be fodder for Republicans. This will become a political issue.”

For Castro, it had already metastasized into an issue that clouded his vice presidential prospects. Widely regarded as one of the Democratic Party’s rising Latino stars, the former San Antonio mayor was targeted by a coalition of activist groups that recognized the leverage afforded to them by a presidential primary fight colored by questions about Clinton’s ties to Wall Street and Bernie Sanders’ populist, anti-Wall Street rhetoric.

“HUD has continually enhanced the DASP program by making improvements before every sale since 2014,” an agency spokeswoman said in a statement. “As a result, tens of thousands of families have been able to remain in their home or avoid foreclosure through the program.”

Maurice Weeks, a housing staffer at the Center for Popular Democracy, one of the groups supporting the attack on Castro’s handling of the DASP, said he is grateful to see the changes HUD announced. But his group will want to make sure the changes actually result in better conditions for communities.

“It became a political problem for Castro since he’s the head of that department,” Weeks said. “We didn’t set out to determine if Castro was a good VP candidate or not. Our focus was on homeowners across the country.”

By PATRICK TEMPLE-WEST

Source

The Federal Reserve has kept its main interest rates, which banks use to lend to one another and determine the cost of credit throughout the rest of the economy, at or near zero since December 2008. The central bank has maintained the low rates so as not to disrupt the country's recovery from the largest financial crisis and recession in decades.

But several current and former senior economic officials told the Wall Street Journal earlier this month that the virtually unprecedented, prolonged period of near-zero rates risks depriving the Fed of the “ammunition” to address the next recession -- let alone another financial crisis. The Fed's primary method of economic stimulus, they note, has traditionally been cutting interest rates, something that is not possible if rates are already so low.

That could force the government to rely disproportionately on fiscal stimulus, these experts warn, holding a recovery hostage to a partisan ideological divide that has paralyzed Congress and shows no signs of abating. 

None of the officials who spoke to the Wall Street Journal explicitly called for an interest rate increase in order to keep the Fed’s options open for the next crisis. The main reason that Fed officials publicly provide for a rate hike is still that they believe price inflation is on track to hit the Fed’s 2 percent target. (William Dudley, president of the Federal Reserve Bank of New York, signaled on Wednesday that the the Fed was reconsidering a September interest rate hike after several days of volatility in the stock market.)

But Fed watchers believe that a desire to replenish the Fed’s proverbial firepower for the next recession is part of the motivation of Fed officials who want to “normalize” -- i.e., increase -- rates.

Narayana Kocherlakota, the outgoing president of the Federal Reserve Bank of Minneapolis,vehemently opposes an interest rate hike in the near future. Kocherlakota nonetheless believesthat his central bank colleagues’ perception that low interest rates have given the Fed less “monetary policy ‘space’” will prompt them to raise rates sooner and higher than is desirable.

Jack McIntyre, a portfolio manager and senior research analyst at Brandywine Global, a Philadelphia-based asset management firm, also said those concerns are part of the Fed’s calculus. “Yes, the [Fed would] like to remove emergency-level monetary stimulus to build up ammunition for the next slowdown in the U.S. economy,” McIntyre told The Huffington Post. “It would be a net positive to move us off of zero interest rates to build up some ammunition so they can cut them when it slows down.” 

Many economists insist, however, that these fears are misplaced. They instead argue that the best way for the Fed to prepare for the next recession is to prevent the economy from slowing down too soon in the near term.

“I would much rather have the Fed engage in slowdown and recession prevention by getting us to reach levels at which a rate hike would not be premature,” Josh Bivens, research and policy director at the left-leaning Economic Policy Institute, said earlier this week.

If the Fed raises rates in the coming months to give itself leeway for the next recession, Bivens warned, it risks “creating the crisis you are trying to have tools to fight against.”

Bivens is one of a number of liberal-leaning economists and activists who argue that the economy is still far from full employment. They want the Fed to wait for widespread wage growth to take hold before raising rates, and they were in Jackson Hole, Wyoming, on Thursday and Friday to make their case to Fed officials directly.

When the economy slows down more substantially, Bivens said, the Fed could still stimulate growth using quantitative easing, the massive asset purchasing program it initiated during the most recent recession after interest rates had already bottomed out. 

There are other even less conventional techniques available to the central bank, like instituting negative interest rates, which would effectively charge banks for depositing their money rather than lending. It is an idea that former Fed chair Ben Bernanke told The Wall Street Journal has merit.

Richard Parker, an economist at Harvard, agrees with Bivens and other economists that middle- and lower-income workers have yet to share in the gains of the current recovery, but is less worried about the damaging effect of a rate hike.

Instead, Parker believes that lawmakers and activists concerned about low wage growth should focus on changing the regulatory and fiscal policies that he believes would have a bigger impact. 

Parker supports a “retained earnings tax” that would penalize corporations for hoarding cash for stock buybacks and other actions “meant to bolster share prices (and hence bonuses)” that do little for the real economy.

And while Parker acknowledges that partisan gridlock makes the prospects of pro-growth fiscal policy dim at the federal level, he sees the success of efforts to raise the minimum wage at the state and local level as a model for incremental progress. 

“It is beginning to look like the early Progressive Era, when states were the laboratories for democracy,” he said. 

Source: Huffington Post

The New York Times - December 5, 2013, by Kirk Semple - For years, New York City correction officials routinely provided federal immigration authorities with information about foreign-born detainees in their custody. The city, in response to federal requests, would transfer many of those detainees into federal custody, often leading to their deportation.

But a series of laws passed by the City Council over the past two years sought to restrict this cooperative agreement.

And according to new city statistics, the laws appear to be achieving their goal, prompting celebration — albeit guarded — among immigrants’ advocates.

From July, when the most recent of the restrictive laws went into effect, to September, city officials responded to 904 federal hold requests, known as detainers, according to the statistics. Of those detainers, the city declined to honor 331, or 37 percent.

In contrast, until the laws were passed, the city customarily honored every detainer, according to city officials.

“We feel good about the impact that this legislation has had because it has stopped the deportation of a lot of New Yorkers,” Javier H. Valdes, co-executive director of Make the Road New York, an advocacy group, said on Thursday.

“Our hope,” he said, “is that with the new administration we can increase the number of New Yorkers who will not be turned over to immigration.”

Even with the new city laws, New York’s restrictions are still not as tight as those of other major cities, like Chicago and Washington, advocates said.

Cooperation between local governments and federal immigration authorities has been a deeply contentious issue around the United States.

Some jurisdictions, convinced that the federal government has not done enough to enforce immigration laws, have increased their role in immigration enforcement. But others, concerned about the impact of deportations on their communities, have tried to put distance between themselves and the immigration machinery of the federal government.

Much of the recent debate has surrounded the federal Secure Communities program. The initiative allows Homeland Security officials to more easily compare the fingerprints of every suspect booked at a local jail with those in its files. If they find that a suspect is a noncitizen who is in the country illegally or has a criminal record, they may issue a detainer.

The Secure Communities program, a cornerstone of the Obama administration’s immigration enforcement strategy, has been vehemently opposed by some elected officials around the country, who have sought to limit their jurisdictions’ participation.

In November 2011, the City Council passed a law that narrowed the range of detainers the city would honor. Among other terms, the law prevented correction officers from transferring immigrants to federal custody if the inmates had no convictions or outstanding warrants, had not previously been deported, were not suspected gang members or did not appear on a terrorist watch list.

The effect on the detainer system was immediate: Correction officials went from routinely honoring all detainers to, according to the recently released statistics, about 75 percent of them.

In February, the Council imposed additional restrictions, including blocking detainers for immigrants facing all but the most serious misdemeanor charges, like sexual abuse, assault and gun possession.

Under these new guidelines, the percentage of detainers the city rebuffed rose to about 37 percent from about 25 percent. The rates may have even been higher had the federal government not concurrently altered its own detainer policy, limiting the range of immigrants it would seek custody of.

Still, immigrant advocates said they would press for more restrictions and have reoriented their lobby toward Mayor-elect Bill de Blasio, who has vowed to end the city’s cooperation with federal immigration detainers except for detainees convicted of “violent or serious felonies.”

Newark, San Francisco and Santa Clara, Calif., are also among the cities that have more restrictive detainer policies than New York, according to Emily Tucker, staff attorney at the Center for Popular Democracy, an advocacy group in New York.

“New York City can do much better than these numbers show we are doing at the moment,” she said.

Source

There’s no question that race and gender matter in determining people’s economic fortunes. African Americans’ unemployment rate is typically twice as high as that of whites. The racial wealth gap has widened since the financial crisis, when African Americans and Hispanics—who had a disproportionate share of their wealth tied up in their homes—disproportionately suffered from subprime loans and foreclosures. The Federal Reserve’s Survey of Consumer Finances finds that the median wealth of a white family in 2013, the last year studied, was $134,008. For Hispanics, it was just $13,900. For African-Americans, $11,184. And as everyone knows, or should, women still make 79 cents for every dollar men make.

These deficiencies are more likely to be ignored when our most important economic policymakers don’t reflect the faces of all Americans. Yesterday, 127 Democratic members of Congress wrote to Federal Reserve chair Janet Yellen about the lack of diversity at the central bank. “The leadership across the Federal Reserve System remains overwhelmingly and disproportionately white and male,” the letter notes. Led by Senators Bernie Sanders and Elizabeth Warren, this high-level challenge also castigates the Fed for being dominated by former and current executives of financial institutions and large corporations, rather than people with backgrounds in academia, labor, or consumer organizations.

The voices of those left behind most egregiously in the economic recovery are simply not present in Fed deliberations.

Momentum to fix the Fed’s diversity problem grew on Thursday when Hillary Clinton endorsed the viewpoints expressed in the letter. Her spokesperson Jesse Ferguson told The Washington Post, “Secretary Clinton believes that the Fed needs to be more representative of America as a whole and that commonsense reforms—like getting bankers off the boards of regional Federal Reserve banks—are long overdue.”

The Fed’s lack of diversity might actually violate the law. Under the Federal Reserve Reform Act of 1977, regional Federal Reserve bank directors are required to “represent the public, without discrimination on the basis of race, creed, color, sex, or national origin, and with due but not exclusive consideration to the interests of agriculture, commerce, industry, services, labor, and consumers.” The original Federal Reserve Act only mandated representation from agriculture, commerce, and industry.

It’s unclear what enforcement of that 1977 requirement would look like. But clearly the Fed isn’t living up to it. The members of Congress rely on a February report from the Center for Popular Democracy, organizers of the “Fed Up” coalition, which has pressured the central bank to adopt pro-worker policies. According to their figures, 83 percent of Federal Reserve board members are white, and 72 percent are male. Among the twelve regional Fed bank presidents, only Neel Kashkari of the Minneapolis Fed is non-white, and only Esther George (Kansas City) and Loretta Mester (Cleveland) are female. And among voting members of the Federal Open Market Committee (FOMC), which makes monetary policy decisions, it’s even worse: All ten currently serving members are white.

The lack of occupational diversity is also pretty stark. The Center for Popular Democracy studied the regional feds’ boards of directors, finding that 39 percent represent financial institutions. The Fed’s role as a key supervisor of major banks makes this highly suspect—especially considering there is no mandate for financial interests to be represented on the Fed board.

Another 29 percent of the Fed regional directors represent commerce and industry. Only 11 percent come from community, labor, consumer, or academic organizations. Even representation from the service sector, which has an overly non-white workforce and has expanded in recent years, has shrunk as a percentage of Fed bank-board members relative to 2010, the last time the boards’ makeup was studied.

It’s unusual for members of Congress to take such a public stand on the Federal Reserve, given their mindfulness of central bank independence. But they are recognizing that the lack of diversity has an important effect on economic policy. A more diverse Fed might pay more attention to how far communities of color are from full employment when deciding whether or not to raise interest rates, which they are now deliberating. A more diverse Fed might not be as consumed with the concerns of finance and industry, and their desire to keep inflation and wages low. It might consider how banks have traditionally preyed on communities of color, and target its supervision activities to reflect that.

The voices of those left behind most egregiously in the recovery are simply not present in Fed deliberations. The members of Congress cited a recent blog post by former Minneapolis Fed president Narayana Kocherlakota, who said that “there is one key source of economic difference in American life that is likely underemphasized in FOMC deliberations: race.” Kocherlakota searched transcripts of FOMC meetings from 2010 (the most recent ones released). That entire year, African American unemployment stood at 15.5 percent or above. But, writes Kocherlakota, “Based on that search, my conclusion is that there was no reference in the meetings to labor market conditions among African Americans.”

Traditionally, public pressure on the central bank has come from the right, from the likes of Ron Paul’s “End the Fed” movement. Progressives were largely absent from the conversation, despite the Fed’s central economic role. No more: Thursday’s letter to Yellen is the biggest success yet for the Fed Up campaign, launched two years ago to amplify the voices of communities that didn’t benefit from the recovery. The campaign has brought together labor and community groups to demand that the Fed take its mandate to maximize employment seriously—taking into account all communities, not just affluent ones. And now Fed Up’s views have become dominant in the Democratic Party.

In addition to the hefty names of Sanders and Warren, co-signers include 116 House Democrats, more than half of the caucus, as well as the ranking members of the Financial Services Committee (Maxine Waters) and the Monetary Policy Subcommittee (Gwen Moore), the committees with oversight of the Fed. And Clinton’s endorsement of Fed Up’s sentiment puts most of the ideological spectrum of the party on the side of reform.

But what does reform look like? The Center for Popular Democracy’s February report recommends that each regional board contain at least one member from a labor group, a community organization, academia, and a community bank or credit union. A separate reform proposal from former Yellen advisor Andrew Levin includes a number of ideas, including banning anyone affiliated with a financial institution from serving as a Fed director.

These ideas can be congressionally mandated. That will take time, of course, but the movement has begun to get Democrats off the sidelines to pressure the Fed. When Yellen testified before the House and Senate in February, giving her semi-annual Monetary Policy Report, she received questions about the lack of diversity from 15 different members of Congress. Yellen expressed concern that, among other things, no African American has ever led a regional Federal Reserve bank in U.S. history.

The fact that political pressure can make a difference was again signified by the quick response of a Fed spokesman to Thursday’s letter. The Fed statement said the central bank has “focused considerable attention in recent years on recruiting directors with diverse backgrounds and experience.” Those aspirations have not yet translated into results, however, even after the Fed established an internal diversity office in 2011.

It’s hard for the traditionally cloistered Fed to ignore concerns when they come from high-level Democrats. And just having ordinary workers in the public debate already diversifies the Fed, in a sense. No longer can they simply be responsive to Wall Street without further discussion.

BY DAVID DAYEN

Source