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Ex-CBO Staffer’s Warnings About Foreclosures Ignored

Dr. Lan Pham, a former senior staffer financial economist for the Congressional Budget Office, was fired from the organization for her attempts to quantify the economic implications of foreclosures and foreclosure fraud. The CBO rejected her analysis and even dismissed the notion that foreclosures cause a negative hit to the economy. The letter, from February 2011, was just released publicly today.

Pham made the allegations in a letter to Charles Grassley, the ranking member of the Senate Judiciary Committee. She said that her time at CBO, which barely lasted 3 months, made her doubt the accepted view that the body gives non-partisan, dispassionate analysis of economic and budgetary issues. Alternative viewpoints are “suppressed” and “questioned,” often by CBO Director Doug Elmendorf, according to Pham.

Specifically, Pham wrote repeatedly about banking and mortgage issues in October 2010, when issues of foreclosure fraud and robo-signing were first coming to light in the mainstream. “I was repeatedly pressured by the CBO Assistant Director, Deborah Lucas, in charge of the Financial Analysis Division not to write nor discuss issues in the banking sector and mortgage markets that might suggest weakness in these sectors and their consequences on the economy and households,” Pham alleges. Lucas sought to keep Pham’s writing out of the assessments of economic growth that CBO makes, and to suppress any public writing about the impact of mass foreclosures and the housing collapse.

Incredibly, Pham says that:

Statements could not be made attributing the decline in property revenues to foreclosures and the decline in home prices, which runs counter to common sense and the findings by the US Senate Joint Economic Committee of the US Congress.

Foreclosures had no impact on home prices (negative externalities, spillover effects). This runs counter to common sense, and a prominent national home price index by CoreLogic in the CBO’s key database subscription showing clearly the distressed homes component of the index worsens home price declines.

The decline in home prices had no impact on household wealth, which runs counter to common sense and the fact that the home is a significant asset or source of “wealth” for most households. According to the Federal Reserve, about $7 trillion in home equity evaporated in the housing collapse.

The emerging foreclosure fraud problems in September 2010 were due to media “sensationalism,” “the kind of event of the moment where we should be adding skepticism, not just repeating the hype in the press,” and discussing it “lacks judgment about what is important.”

Wow. Keep in mind that Pham is talking about the Congressional Budget Office, not some bank trade group or other entity that makes its money off disputing reality. The opinions and analyses of the CBO are taken as gospel in Washington and used to make public policy in Congress. And they simply had their heads in the sand when it came to the economic consequences of foreclosures and also the very real document fraud issues.

Pham goes on to explain how the foreclosure fraud issues were later proven true. Even at the time, October 2010, large banks were shutting down all their foreclosure operations because of robo-signing. So clearly, this was a problem with legitimate economic impact, not “media hype.” Pham has a facility with these issues, with the problem of MERS, with the potential for mass repurchases of mortgages in mortgage-backed security pools, with specific court rulings, with the role of the GSEs. “A discussion of these and other issues were not acceptable to CBO leadership,” Pham writes, “but unrealistic assumptions are encouraged and significant facts inconsistent with their predetermined views are overlooked.” She closes with the evidence available at the time, where she said that interest rates on mortgages would rise in late 2010, despite the Fed’s quantitative easing program. CBO disagreed, but rates did indeed go up (they’ve since dropped).

Structured finance lawyer Janet Takavoli responds:

Part of our financial system is the “support” network that surrounds it. The Congressional Budget Office (CBO) is one of the links in that network. Today’s top story involves the CBO and one of its former employees, Lan T. Pham, Ph.D., fired after writing about growing foreclosure problems due to robo-signing and the fact that the ownership of mortgage loans isn’t clear due to the shortcuts taken to serve the “securitization” process. This poses fatal flaws for securitization, since ownership of the loans is in doubt. Moreover, this has implications for systemic risk in the financial system.

This knowledge isn’t unique or new. What is new is that Dr. Pham brought this forward to the CBO and apparently this information is being suppressed and denied by the CBO and in congressional reports.

The release of this information should cause grave concern as to the legitimacy of CBO reports, and highlight the conspiracy of silence about foreclosure fraud issues, which official Washington simply does not want to deal with.

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David Dayen

David Dayen