Pelosi Says Chained CPI Would Strengthen Social Security

Nancy Pelosi

Republican craziness has stopped a deal from happening on the fiscal slope, and really nothing else. Because here’s Nancy Pelosi yesterday on chained CPI, a benefit cut to Social Security recipients that happens to be regressive and more painful as people age:

Q: Members of your Caucus are organizing against the chained CPI that the President has put on the table in negotiations, is that something you can support in any deal at this point? I mean…

Leader Pelosi. Well, whatever the final arrangement is, we’ll have to have balance. So, we’ll see where that figures. But I’ve said to the Members: “express yourselves.” You know, speak out against, because I’m not thrilled with the President’s proposal, I mean, it is what it is in order to save the day. But that doesn’t mean that we’ll all identify with every aspect of it. So, they go forth with my blessing.

Q: Do you consider that a benefit cut?

Leader Pelosi. No, I don’t. I consider it a strengthening of Social Security. But that’s neither here nor there. There’s no use even discussing that because we don’t even know if we have a plan.

She’s right that we don’t know if there’s a plan. But it’s well worth discussing. Chained CPI is a benefit cut. If it were a technical adjustment that had the effect of raising net Social Security benefits, nobody would support it. In fact, an accurate technical adjustment, which accounted for the cost of living of actual seniors who spend far more a percentage of their budgets on medical treatment, WOULD raise net Social Security benefits, because their cost of living is simply higher than the average person by virtue of being sicker in old age.

And Robert Greenstein can make all the arguments he wants about the “protection of the vulnerable” through some birthday bump-up at age 85 (because the loss of money compounded from 65-85 doesn’t make life more difficult for seniors in the interim), but he and virtually nobody else points out the 50 other programs that rely on an inflation index for a cost of living adjustment or income-based eligibility. These include things like food stamps, Medicaid, the Earned Income Tax Credit, veteran’s benefits Supplemental Security Income, the Child Tax Credit and child nutrition programs. Nobody has come out and said that chained CPI will or will not apply to all of those programs (and they’ve been incredibly vague on whether it would apply to tax brackets, creating a regressive tax increase). But the reason to incorporate chained CPI into government planning is to reduce the federal government’s spending burden in the out years, and so I would imagine they’ll apply it to as many areas as possible. And the federal government doesn’t spend too much on non-tax expenditure social programs on the rich. Virtually all that money flows to the vulnerable; that’s why they qualify. And chained CPI would give them less across all those programs.

Then there’s this consequence:

Finally, the official statistical poverty measure Census uses to calculate the number of people living below the poverty line is adjusted each year for the change in the CPI-U. Shifting to the Chained CPI to update the federal poverty line will only exacerbate the extent to which the FPL has officially defined deprivation down since being adopted in the 1960s. Because the FPL has never been adjusted for the increase in real median incomes since the 1960s, it has fallen from about 50 percent of median income in the 1960s to about 30 percent today. This has distorted our picture of economic hardship, and made it easier, as I noted in a recent paper, for conservatives to argue that child poverty is mostly due to a “decline in marriage” and individual’s failure to get enough education.

Just to move this back to Social Security to conclude, Evan Soltas asks some interesting questions, including this one, where he thinks he’s caught both parties in a bit of hypocrisy: “And yet, the most potent double standard may be how parties define the purpose of the program itself. Is it a publicly run, universal, national retirement-savings program? Or is it a safety net for the elderly and disabled who need it?”

Soltas goes on to say that supporting raising the payroll tax cap and increasing progressivity in payroll taxes suggests that it’s a welfare program, while resisting means-testing suggests that it’s a universal retirement-savings program. Of course, means-testing would have to reach so low to acquire any real savings that it would hit people making $40,000 a year. So I don’t think there’s an inconsistency there. The truth is that you have to see Social Security as a safety net, in a time when the three-legged stool of retirement has completely collapsed. Far too many people rely on Social Security as their only visible means of support. And if that’s the case, you have to protect it from cuts that would have a real impact.

POSTSCRIPT: This food for thought.

Senate Republicans Nickel and Diming Sandy Relief

While the nonsense continues on the fiscal slope, which increasingly looks like something the nation will have to weather, the Senate has been working on an appropriation for states suffering from the disaster caused by Hurricane Sandy. The parallel has to be understood: in one part of Washington, they’re trying to put in a deficit deal to replace politically driven forced austerity, and in another part, they’re trying to respond to a national emergency the way the federal government must in these cases, by spending money. Look at these two things together and you’ll understand a lot about Washington – the compartmentalization, the forced blindness, the lack of knowledge about the economy, everything.

And both sides of the Senate are taking up their predictable positions in the matter. Specifically, Senate Republicans want to nickel and dime disaster relief victims.

Republicans in the Senate, seeking to substantially trim a Hurricane Sandy aid package being sought by Democrats, are planning to unveil a $23.8 billion emergency spending plan to finance the recovery efforts of states devastated by the storm.

The move by Republicans comes as the Senate has opened debate on a $60.4 billion aid bill brought by Democratic leaders. Democrats largely based their proposal on one that President Obama sent to Congress nearly two weeks ago.

The alternative aid package is being introduced by Senator Dan Coats, Republican of Indiana. Democrats say it is a token proposal intended to give cover to Republicans who will not vote for the larger bill.

That’s about the size of it.

Fortunately for Senate Republicans, none of them hail from states most particularly affected by Hurricane Sandy. So this becomes a no-brainer to them, since they never feel anything resembling compassion unless trouble befalls them or a member of their family.

The sad fact is that it’s overwhelmingly likely that Congress ends up appropriating $0.00 to New York, New Jersey and the other states suffering in the aftermath of Sandy. It’s not anywhere close to the radar screen in the House, and the Senate has this $40 billion divide. So everyone’s working hard to figure out how best to cut spending and raise taxes, to avoid a program of spending cuts and tax increases, which people favoring a fiscal slope deal don’t even seem to understand. But we’ve completely severed the relationship between government and its responsibilities, and so several states that were drowned won’t see anything in the way of restitution.

One of the more disgusting things the President said in a long time was at yesterday’s press conference, when he appealed to lawmakers to pass a deficit deal because the country has been through so much. So, cut Social Security benefits because everyone’s sad about hurricanes and school shootings. The quote was, “When you think about what we’ve gone through over the last couple months — a devastating hurricane, and now one of the worst tragedies in our memory — the country deserves us to be willing to compromise on behalf of the greater good.” Um, Congress can’t even pass legislation RESPONDING to those events! Which, by the way, would involve doing the OPPOSITE of what the President things would serve the greater good; namely, spending money, rather than “smartly” cutting it, to address human needs. (more…)

Boehner’s Plan B Also Cuts Taxes on Rich, Raises Them on Poor

John Boehner may not even have the votes for today’s “Plan B,” a bill that effectively raises taxes on people making over $1 million a year. He was seen gladhanding on the House floor last night, whipping votes for his side. He can only lose 24 votes to reach 217 (there are a couple vacancies right now), on the expectation that he’ll get no help at all from the other side. It’s probably a heavy lift; even with Grover Norquist’s blessing, Boehner wants his GOP colleagues to walk the plank on a tax increase bill without any hope of it becoming law, just so they can go back and pass another bill that does the same thing.

A look at the bill’s particulars, however, actually inverts expectations. Plan B actually raises taxes, if on anyone, on the poor and middle class, who lose out on 3 stimulus-era tax breaks that expire. Meanwhile, changes to tax laws that benefit the wealthy get lowered from current policy in Plan B, meaning that wealthy earners would probably see a net tax cut. The focus on tax rates has distorted this, but this is a reverse Robin Hood kind of bill that robs from the poor and gives to the rich, as is the custom in Washington.

The Tax Policy Center ran the numbers. The 3 tax credits that expire under the bill include the expansions of the Child Tax Credit and Earned Income Tax Credit, as well as the tuition tax credit. These have been included in all of the Administration offers to date. The payroll tax cut, jettisoned by both sides at this point, would also expire under this bill. So taxes would go up, if this were the only thing to pass, for everyone making up to $200,000 a year.

Plan B doesn’t have to stand in for all tax policy. But here’s what else it does. It permanently extends the current estate and gift taxes, which right now have a $5 million individual estate exemption and a 35% marginal tax rate above that. This would cost tens of billions of dollars, a gift for the wealthiest half a percent of all estates in the country. It also eliminates the phase-out of the personal exemption for high earners, and the “Pease” limit on high earners’ itemized deductions, are completely eliminated. These are actual caps and limits on deductions that were cloaked by the Bush tax cuts, putting the lie to the Republican conceit that the goal of tax reform is to limit deductions on high income earners. It also extends dividend and capital gains tax rates to 20%, at a lower level than that sought by the White House (they want dividends back up to 35%).

Despite all this, and probably because of the salience of tax rates in this debate, Boehner is having problems finding the votes, to the extent that he’s adding some spending cuts at the last minute to entice wayward conservatives. More important, he may call off the expected companion vote on what amounts to the Senate bill, an extension of tax rates on the first $250,000 of income, presumably out of fear that it might succeed. Conservatives have already voiced their displeasure out of having to vote for something that increases tax rates simply to give the Speaker perceived negotiating leverage. Luminaries like the Wall Street Journal editorial page distrust the ploy. If it actually loses today, it would be one of the biggest failures in Boehner’s short tenure. But this vote, and more broadly the failure to accept what would be an excellent deal for them, shows Boehner more desperate to keep his leadership job than anything else.

…about those spending cuts: the bill would shift the military cuts in the sequester for 2013 over to the discretionary side, cutting the same amount of money but sparing the defense industry.

Photo from Speaker Boehner under Creative Commons license.

Boehner’s Plan B Also Cuts Taxes on Rich, Raises Them on Poor

John Boehner may not even have the votes for today’s “Plan B,” a bill that effectively raises taxes on people making over $1 million a year. He was seen gladhanding on the House floor last night, whipping votes for his side. He can only lose 24 votes to reach 217 (there are a couple vacancies right now), on the expectation that he’ll get no help at all from the other side. It’s probably a heavy lift; even with Grover Norquist’s blessing, Boehner wants his GOP colleagues to walk the plank on a tax increase bill without any hope of it becoming law, just so they can go back and pass another bill that does the same thing.

A look at the bill’s particulars, however, actually inverts expectations. Plan B actually raises taxes, if on anyone, on the poor and middle class, who lose out on 3 stimulus-era tax breaks that expire. Meanwhile, changes to tax laws that benefit the wealthy get lowered from current policy in Plan B, meaning that wealthy earners would probably see a net tax cut. The focus on tax rates has distorted this, but this is a reverse Robin Hood kind of bill that robs from the poor and gives to the rich, as is the custom in Washington.

The Tax Policy Center ran the numbers. The 3 tax credits that expire under the bill include the expansions of the Child Tax Credit and Earned Income Tax Credit, as well as the tuition tax credit. These have been included in all of the Administration offers to date. The payroll tax cut, jettisoned by both sides at this point, would also expire under this bill. So taxes would go up, if this were the only thing to pass, for everyone making up to $200,000 a year.

Plan B doesn’t have to stand in for all tax policy. But here’s what else it does. It permanently extends the current estate and gift taxes, which right now have a $5 million individual estate exemption and a 35% marginal tax rate above that. This would cost tens of billions of dollars, a gift for the wealthiest half a percent of all estates in the country. It also eliminates the phase-out of the personal exemption for high earners, and the “Pease” limit on high earners’ itemized deductions, are completely eliminated. These are actual caps and limits on deductions that were cloaked by the Bush tax cuts, putting the lie to the Republican conceit that the goal of tax reform is to limit deductions on high income earners. It also extends dividend and capital gains tax rates to 20%, at a lower level than that sought by the White House (they want dividends back up to 35%).

Despite all this, and probably because of the salience of tax rates in this debate, Boehner is having problems finding the votes, to the extent that he’s adding some spending cuts at the last minute to entice wayward conservatives. More important, he may call off the expected companion vote on what amounts to the Senate bill, an extension of tax rates on the first $250,000 of income, presumably out of fear that it might succeed. Conservatives have already voiced their displeasure out of having to vote for something that increases tax rates simply to give the Speaker perceived negotiating leverage. Luminaries like the Wall Street Journal editorial page distrust the ploy. If it actually loses today, it would be one of the biggest failures in Boehner’s short tenure. But this vote, and more broadly the failure to accept what would be an excellent deal for them, shows Boehner more desperate to keep his leadership job than anything else.

…about those spending cuts: the bill would shift the military cuts in the sequester for 2013 over to the discretionary side, cutting the same amount of money but sparing the defense industry. (more…)

Fatster’s Roundup

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Time for your news. Here ’tis:

International Developments

? Doing what UN Ambassador Susan Rice did not do, President Obama has “called on Rwandan President Paul Kagame to end all support for rebels in the conflict-wracked Democratic Republic of Congo”. In addition, sanctions have been imposed on M23 top leaders because of their use of child soldiers and targeting of children.

? An independent panel investigating the Benghazi attack has reported its results, which “sharply criticized the State Department for a lack of seasoned security personnel and for relying on untested local militias to safeguard the compound”. Secretary of State Hillary Clinton accepted all 29 recommendations and has asked for certain funds transfers to ensure security at diplomatic sites and installations abroad. Update: Three upper-level people in the State Department have resigned, including “Charlene Lamb, the deputy assistant secretary responsible for embassy security” who assured House members recently that consulate security was just fine.

? The Obama Administration “slammed Israel” yesterday for new settlement plans on territory Palestinians claim.

International Finance

? Greek public workers have launched a 24-hour strike, protesting new austerity measures.

Politics, USA

? Charles P. Pierce: “The Grand Sellout Emerges” (accompanied by a great illustration). “The Democrats . . . are prepared to concede on an issue that has absolutely nothing to do with the deficit.”

? MI Republican Gov. Rick Snyder has “appointed six people . . . to conduct a 60-day review of Detroit’s municipal finances and decide if the state should put an emergency manager in charge of the city’s checkbook”.

? The Center to Protect Patients Rights, the NV group that funneled $11 million into CA during the last election is headed by one Sean Noble who used to be a congressional aide, and who’s head of DC London. From there you can follow some of the major fund dispersals to various campaigns in 2012, and note addresses in common with DC London. [cont’d.] (more…)

Boehner Delivers Plan B Ultimatum

John Boehner: It's Plan B or Nothing
John Boehner just gave a “press conference” that clocked in at under a minute, where he took no questions and basically said that Democrats could either pass his “Plan B” proposal, which extends Bush-era tax rates on the first $1 million of income and does basically nothing else, or “be responsible for the largest tax increase in American history.”

In saying this, Boehner is trying to talk Americans out of the opinion they’ve already formulated, that the GOP would be responsible if the nation started down the fiscal slope. Instead, he’ll leave on the table what is a very favorable deficit offer, and do this millionaire’s bracket gambit, which the Senate has already said cannot pass, and which the White House has already said they’ll veto. The President very explicitly laid out his offer, and all the public gets from Boehner is a tax cut bill. I don’t see how that flies among the public.

I have to assume that Boehner is pretty confident he can pass the millionaire’s bracket through the House. Grover Norquist gave his blessing to the legislation as not a violation of the no-tax pledge. So presumably he’ll only lose a few at the margins. There’s also going to be a vote on extending the Bush-era rates on the first $250,000 of income, which is expected to fail, though I’ll be interested to see the final results on that. I would imagine Boehner’s troops will whip hard against that.

Then the Senate will refuse to pass the House bill and demand that the House passes the Senate bill, with its $250,000 threshold. And at that point, we’ll be at an impasse, with both sides focused only on the tax side of the fiscal slope – and really only tax RATES, not all of the other expiring tax measures – and nobody talking about the spending side. The “threat” of falling over the slope is what Boehner’s counting on.

And after a couple days of this, we’ll figure out if that’s a real threat or not.

SEC Report on Credit Ratings Highlights Conflict of Interest Inherent in Issuer-Pays Model

SECThe Securities and Exchange Commission released a report on the method for how credit rating agencies get their business, something mandated by the Dodd-Frank financial reform law. And just as expected, it showed a serious conflict of interest in the current business model, where rating agencies are paid by the issuer of securities, and have to compete for their business, adding all sorts of distortions into the kinds of ratings they give. A better model, envisioned by Dodd-Frank at first but then put into this study, would allow an oversight board to dole out to qualified ratings agencies the securities that would get rated, removing the conflict of interest entirely.

Sen. Al Franken championed this issue during the financial reform debate, and he seemed pleased with the results of the study. This is from an emailed statement:

“People all over the country, including thousands of Minnesotans, lost their homes or their life savings because of the greedy practices of Wall Street, and the credit rating agencies were a big part of the problem,” said Sen. Franken. “I’m pleased that the SEC confirmed what I’ve always believed – that dangerous conflicts of interest continue to put investors at risk – and I’m going to work with the SEC to implement a solution to this problem.”

First of all, we have a oligopoly in the ratings agency business. 91% of all structured finance products in 2011 were rated by three agencies: Moody’s, Fitch, and Standard and Poor’s. Believe it or not, the system has seen INCREASED competition in recent years; this is down fro 97% in 2007. But regardless, this oligopoly increases the potential for corruption, while limiting the competition that could place a premium on quality ratings.

The SEC report highlights the potential for conflict of interest at work:

For example, an arranger may have multiple NRSROs (Nationally Recognized Statistical Rating Organizations) analyze a proposed structured finance product and select the one or two NRSROs that provide the desired credit ratings (i.e., engage in “rating shopping”) […] This creates an incentive for the NRSRO or NRSROs to provide preliminary estimations desired by the arranger in order to be hired to produce a final credit rating for the transaction.

In addition to the “rating shopping” dynamic, the issuer-pay conflict may be more acute for structured finance products (as compared to other types of debt instruments) because certain arrangers of these products bring substantial ratings business to the NRSROs. As sources of repeat business, arrangers of structured finance products may exert greater undue influence on an NRSRO than personnel involved in obtaining credit ratings for other types of issuers. Furthermore, in the case of certain structured finance products, there are only a few major investment banks that assemble and sell these products. Losing the business of one of these banks could have a substantial impact on an NRSRO’s revenues. Conversely, an arranger potentially could bring repeat rating business to a credit rating agency because the arranger’s own credit rating was determined by the credit rating agency and, therefore, wants to curry favor with that credit rating agency.

This is all just common sense. If you have a small number of security issuers, and the rating agencies have to compete for their business, you’re going to get rating agencies who are incredibly compliant as far as their product goes.

The SEC offers a couple comments as to the potential for conflict of interest in a “subscriber-pay” model, if the subscriber has an interest in particular ratings. The solution is to get an independent agency to assign the ratings and then increase or decrease the amount that rating agencies get based on the QUALITY of the rating. If Fitch does a good job assessing risk over time, they get more business. If Moody’s does not, they lose business.

That this is completely simple probably means that it will never get enacted, but Franken has been pretty dogged on this front, and hopefully he will continue his efforts.

101 Park Avenue by Adam_T4 under Creative Commons license

Obama Proud of His Fiscal Slope Offer, For Some Reason

For some reason, liberals are agonized by the fact that a Presidential press conference about gun safety legislation devolved into questions about the fiscal slope. As if this has never happened before, or that reporters are Constitutionally obligated to stay on topic. Or that the fisal policy of the world’s largest economy shouldn’t stay in the foreground! To be honest, this mentality, this “tuning out” of fiscal policy in favor of something with more perceived emotional weight (because the ability of a senior citizen to have a dignified retirement isn’t emotional at all, or something), represents at least part of why liberals have lost on economic policy for three decades. It just doesn’t “get them right there”, I guess.

Anyway, the President had to defend his latest offer, with its spending cuts commensurate in level with the sequester, benefit cuts to Social Security, concession on marginal tax rate increases by moving the dividing line to $400,000 a year and allowing open the opportunity for debt limit hostage taking down the road. And he basically bragged about the wise centrism of his offer. He called it the “largest piece of deficit reduction we’ve seen in the last 20 years” and said it would resolve out deficit and debt issues for the next 10 years. Because that’s how things work, right? Deficit scolds just go into hibernation once some mythical level of stabilization gets reached.

Obama basically ignored the implications of the benefit cut in Social Security, and ignored the regressive tax increase for everyone associated with the move to chained CPI. He mainly expressed puzzlement that Republicans haven’t taken his deal, since he’s gone “more than halfway” in their direction. Um, that answers his own question. If by doing next to nothing, they can watch the President give up on things he long demanded – he said he would veto anything that extended the Bush-era tax rates above $250,000, and that he would not “play the game” anymore on the debt limit – then why wouldn’t they just keep sitting still and letting the President come to them? As Paul Krugman points out:

But sure enough, it looks as if Republicans have taken the offer as a sign of weakness, as a starting point from which they can bargain Obama down. Oh, and they’re not giving up at all on the idea of using the debt ceiling for further blackmail.

In other words, all of a sudden it’s feeling a lot like 2011 again, with the president negotiating with himself while the other side enjoys the process.

Krugman actually mentions one further concession that hadn’t been reported initially – a concession on dividend taxes, only moving them to 20% rather than 35%. This looks more like a problem of Senate Democrats not willing to go up to 35%, but it just adds to the mix.

The President apparently feels guilty over weaponizing the debt limit in 2011, but if he were truly guilty, he would draw the line in the sand today rather than two years from now. The debt limit is virtually the only piece of leverage Republicans have in an agreement. On all other parts of this, they have either caved before or will cave later. The President says he won’t negotiate on the debt limit. By offering up this debt deal now, he’s actually in the process of doing that. And he’s basically setting up a debt default in 2014, or a major conflagration anyway, by not shutting this down immediately.

So I think this all counts as news regardless of what press conference it emerged from.

Threat of Medicare Eligibility Age Increase Recedes – For Now

Amid all the fiscal slope machinations comes one bit of good news, at least in the near term. House Speaker John Boehner has pulled back on raising the Medicare eligibility age in this deal, although he holds it out as a possibility for the conclusion of the deal next year. This suggests that the White House came around to seeing it as a non-starter in the current political environment. But this is very careful language being used by the Speaker:

Congress doesn’t need to raise the Medicare eligibility age this year, House Speaker John Boehner (R-Ohio) said Tuesday.

Raising the eligibility age from 65 to 67 was on the table in earlier debt talks, and has been floated again as Boehner and President Obama look for a way to avoid the looming fiscal cliff […]

“There are a lot of issues on the table. That issue has been on the table, off the table, back on the table,” Boehner said. “It’s an issue for discussion, but I don’t believe it’s an issue that has to be dealt with between now and the end of the year. It is an issue, I think, if Congress were to do entitlement reform next year and tax reform, as we envision if there’s an agreement, that issue will certainly be open to debate in that context.”

This is worth paying attention to. In the President’s most recent offer, in addition to the shift to chained CPI to calculate cost of living adjustments in Social Security and other programs, he included $400 billion (over 10 years) in “health program savings” that were not made explicit at all. The idea is that there would be a separate process next year to identify those $400 billion in savings, along with other cuts totaling an additional $400 billion, to defense, discretionary spending and mandatory spending. What Boehner is saying here is that raising the eligibility age could come up as part of that process next year. Presumably there would be some kind of trigger, similar to the sequester, to try and force an agreement on these issues. Incidentally, the level of 10-year spending cuts called for in the Obama offer, $922 billion, is virtually identical to the level of cuts in the sequester, $984 billion.

In other words, it’s completely plausible that the deal will conclude with chained CPI AND raising the Medicare age, in addition to hundreds of billions in other spending cuts heaped onto a spending cap baseline that already mandates the lowest level of public investment since the Eisenhower Administration. This isn’t really being discussed in the context of the deal, but it’s a very real possibility.

That said, I would imagine we would have the Medicare age increase inside this current deal, effective immediately, were it not for the strong pushback on the idea. I tend to subscribe to the idea that the Medicare age was a shiny object that a lot of people chased while things like chained CPI slipped into the conversation. But that doesn’t mean that the particular cruelty of the Medicare age increase didn’t require a forceful response. This is a temporary victory, but it is a victory, led from the outside.

The Mortgage Scam Against Widows, and Why No Mortgage Lender Should Ever Get Legal Immunity

Dealbook had an item yesterday about the qualified mortgage rule and the bid by mortgage lenders to acquire a “safe harbor,” essentially a shield against consumer lawsuits, in the process. I’ve already gone over this topic and continue to oppose giving banks a safe harbor of any kind on the merits. But just to shift gears away from the precise details for a moment, consider why you would want to give any entity that does something like this protection from legal exposure:

Geraldine Bates lost her husband to kidney failure last year. Now, she has fallen behind on her mortgage payments and is terrified that she will lose her home in Jacksonville, Fla.

Ms. Bates, 70, is caught in a foreclosure trap that is ensnaring widows across America: she cannot get help lowering her payments until her name is added to the mortgage note, but the lender says she must be current on payments before that can happen […]

Just as the housing market is recovering, a growing group of homeowners — widows over the age of 50 whose husbands alone were holders of the mortgage — are losing their homes to foreclosure because of a paperwork flaw that keeps them from obtaining loan modifications.

In the latest chapter of the foreclosure crisis, homeowners over 50 are falling into foreclosure at the fastest pace of any age group, according to nationwide data, in part because women are outliving their spouses and are unable to cope with cuts in their pensions, ballooning medical costs — and the fine print on their mortgages.

There’s nothing necessarily against the law here; the problem is the law itself. But this is the mentality of mortgage lenders and servicers, who will evict someone from their home on a technicality without any problem. These people deserve special treatment under the law somehow? In what way have they shown the upstanding moral character in their business dealings that would make such a situation palatable?

The idea that the government has to provide incentives to banks to make good loans is warped. Banks should want to make good loans so they can recoup their investment and turn a profit. Getting a shield from homeowner lawsuits should not be any kind of sweetener to that exchange.

The Consumer Financial Protection Bureau didn’t have much of a choice on the safe harbor: it was mostly written into Dodd-Frank. But they can choose how to interpret the rule, either narrowly (just on the matter of ability to repay) or more broadly. And they should take into account the mass of documented fraud and shady dealing that this industry has engaged in over the past several years before deciding whether to grant them immunity. (more…)