Home Foreclosure

Obama's Wrong Note on Foreclosures

Alan Jenkins — Tue, 07 Feb 2012 22:23:40 -0500

As Election Day nears, President Obama is regaining his populist mojo. His State of the Union speech was mostly pitch perfect, evoking core American themes of opportunity and optimism, and calling for “an economy where everyone gets a fair shot, and everyone does their fair share, and everyone plays by the same set of rules.”

But the President has repeatedly hit a wrong note in talking about the foreclosure crisis. Not only is his story inaccurate, but he is promoting a harmful narrative that will make it harder to fix the problem.

The President said in his State of the Union address that “we’ve all paid the price for lenders who sold mortgages to people who couldn’t afford them and buyers who knew they couldn’t afford them.” He repeated that theme a week later at a speech in Falls Church, VA, contending that people who did the “right and the responsible thing” were hurt by “lenders who sold loans to people who they knew couldn’t afford the mortgages; and buyers who bought homes they knew they couldn’t afford; and banks that packaged those mortgages up and traded them to reap phantom profits, knowing that they were building a house of cards.”

According to the President’s narrative, then, large numbers of Americans who are struggling beneath unsustainable mortgages willfully chose that fate and deserve roughly equal blame as do the lending and financial giants who cooked up the subprime scheme, targeted vulnerable communities, engaged in deceptive and discriminatory practices, chopped up and distributed faulty loans, and forced fraudulent foreclosures. A different class of “innocent, hard-working” people are the only ones paying the price in this narrative.

Let’s be clear. The foreclosure crisis was caused by reckless misconduct by the lending and financial industries, inadequate rules and enforcement, and staggering long-term unemployment. America’s long history of overwhelmingly successful homeownership went to pot because regulators looked the other way and unscrupulous corporations took advantage, not because working Americans suddenly became wildly irresponsible. Indeed, conscientious lenders like Self-Help Credit Union in North Carolina successfully made loans to the same group of working Americans over the same period with negligible default rates.

Am I saying that no American homeowner ever applied for a mortgage without a realistic plan to repay it? Of course not. A key purpose of proper underwriting standards and regulations is to help lenders and buyers determine what’s mutually sustainable. But to divide American homeowners into “responsible” ones who’ve managed to stay current on their payments and supposedly “irresponsible” ones who’ve fallen behind is inaccurate and harmful.

After confessing that he and the First Lady—two Harvard-trained lawyers—had trouble deciphering their own first mortgage, the President has nonetheless failed to convey how many Americans were victimized by deceptive and predatory practices; how many families sacrificed all to pay the mortgage after one or both parents lost a job; and how many people facing foreclosure today would be successful homeowners if fair rules and vigilant regulators had been in place. He also leaves out how much each of us benefits when we help our neighbors avoid foreclosure, even if we’ve personally managed to stay current on our own mortgages.

The President’s flawed story erodes the public will to aid struggling homeowners and bolsters those who say that the foreclosure crisis should be allowed to “run its course”—why rally to help people you’ve told us are irresponsible? Yet, without a more ambitious policy agenda than we have now, we’ll see millions more Americans lose their economic security, families uprooted from schools and communities, senior citizens thrown into uncertainty or destitution, and the economy in continued chaos.

The President’s current story is also deepening the feelings of shame that keep too many Americans from seeking the advice that could help them save their homes or, at least, make a successful transition. Housing counselors say the stigma attached to foreclosure keeps many people in the shadows instead of accessing the services that exist. It doesn’t help when the Commander in Chief labels them irresponsible.

It’s time for a new, accurate story about homeownership, opportunity, and the American Dream. It’s a story that places blame where it belongs while recognizing that we each have economic and moral responsibilities. It’s a story about the solutions to the crisis that exist, including many that the Administration can take without any action from Congress. And it’s a story about why, in this crisis as in so many others, we are all in it together. As communicator-in-chief, the President should take the lead in telling that story.

Solutions to the Foreclosure Crisis without Legislation

Susan Ozawa — Wed, 20 Oct 2010 15:41:40 -0400

Congress out of session with a crisis on our hands? What can we do without passing legislation to address rampant fraud in processing foreclosures?

Dean Baker makes a good point; respecting the veracity of documents and the legally requisite paperwork on all outstanding debts and securities is a matter of obeying the law not amending it. Circumvention of the law for expedience to generate short-term returns led to standard practices that are illegal. This provides no basis for an argument to change the law to make the problematic and haphazard practices legal. The question is enforcement. Unfortunately, it’s not that simple. Who needs to be demanding veracity? At what stage in the titling, securitization, investment or recovery phase of the life of the mortgage? From whom, servicers alone? And how do we get these entities to make these demands?

Conyers, Grayson, et al. had the right idea pursuing government agencies with a role in this fraud, e.g. GMAC, Fannie and Freddie. Releasing the offending robo signers and frauds pursuing foreclosure from these agencies’ payrolls is a great start. But this is the tip of the iceberg; fraud and problematic practices in the foreclosure process reflects rampant problems with the titling process and we should be pushing for an internal audit of all troubled loans we are holding in our government portfolio in one form or another. Brown, et al. have pushed for the White House to support a foreclosure moratorium and is the right thing to do but it has been unsuccessful.

Why: The government owns or is on the hook for quite a large share of the loans and securities attached to the US securitized mortgages outstanding. This is part of the problem and part of the solution. This is why Shaun Donovan and Tim Geithner are taking positions inconsistent with the goals of their own program, HAMP, on the implications of slowing the rate of foreclosures. See Baker on this here. The US government has too much stake as investors in this market to really want to shake it down in the short-term but in the long-term we have the most to lose by propping up an inflated set of assets and paying dearly to do so into perpetuity by way of a financial sector burdened by NPLs and a subsequent stagnant economy.

As far as a strategy goes, pressuring agencies that have a role as investors, issuers or guarantors of any and all distressed mortgage products, agencies which have the authority already to require legal documentation on these products, is, perhaps, the best multipronged non-legislative strategy out there for the longer-term. Some make better targets than others. The Fed invests in MBS (they’re unwinding their position in bailout investments but MBSs still comprised over $1078 billion of the Fed’s portfolio at the end of September), and by association, they also have a stake in AIG which is loaded with CDSs dependent on the market's view of banks balance sheets with these assets on them. The Fed and Treasury are not going to take a hit to market value of their holdings lightly, and they certainly won’t provoke that happening themselves. Treasury is funding HAMP alongside HUD, which has more of a political stake in solving the foreclosure crisis than a financial one, and of course, then there’s Fannie and Freddie. We could push for these agencies to pursue self-imposed internal audits of all the distressed properties they have in their various portfolios. This would run up against the Fed’s portfolio strategy and the holdings Treasury is trying to unwind from TARP—AIG needs to be behind us completely for that, also the Fed is still holding commercial paper from firms presumably holding structured assets. The Fed is also still holding commercial real estate backed securities. These all need to be unwound first before expecting the heads of these agencies and the White House to be on-board for serious writedowns caused by writeoffs on unrecoverable assets. (Treasury's sell-off of AIG shares is not expected to start until 2011.)

What we are left with, without a legislative impetus, by way of strategy is supporting and championing lawsuits by individuals (ideally a highly publicized class action) against a lender that is foreclosing on them without proper documentation to do so. The ACLU is going after the courts themselves but since the courts are doing their best and have no financial or political support from the federal government to do much more than muddle through, I think ACLU’s strategy could backfire on them. Their target has no money and nothing to gain materially from what they are processing, although the org can be commended for being pragmatic and working all the angles available to them.

Once AIG is sold off in its entirety and the Fed’s portfolio unwound we should pounce on Fannie and Freddie to audit their holdings. The problem is that Treasury and the Fed won’t sell off until the market value of their holdings increases, and that won’t happen until this foreclosure fraud settles down, which it won’t on its own fruition. Thus, the paradox of the bailout operations continues. The US government has too many conflicts of interest and cannot expect to really make money off our bailout without deceiving markets about the value of those holdings. Expect the market cheerleading to continue.

In the meantime, what can you do? Look out for word of a class action lawsuit you or someone going through foreclosure you know can join and demand your bank show you your mortgage using this site.

Medical Bills, Lack of Healthcare, Responsible for Many Home Foreclosures

Alexander Sewell — Wed, 01 Oct 2008 00:00:00 -0400

Two studies found that about half of families facing foreclosure reported that their financial difficulties were caused by health care issues such as unmanageable medical bills or missing work due to a medical problem.

Working Harder for Less Mocks the American Dream

Tula Connell — Tue, 16 Sep 2008 16:25:55 -0400

Worsening unemployment. Millions of home foreclosures. Two-income households unable to support families. America's workers are facing economic disasters so severe, even the national media is paying attention.

But the current crisis has long roots. America's working families have been suffering through what is now a generation-long stagnation of wages and rising economic insecurity.

Steps must be taken immediately to shore up our flagging economy and provide much-needed assistance to working families. The AFL-CIO union movement supports an immediate moratorium on home foreclosures and the passage of a second fiscal stimulus package, including extension of unemployment insurance and federal aid to states and cities to prevent further cutbacks of vital public services.

Yet short-term measures will not be enough.

We must restore the balance between workers and their employers to ensure that workers can bargain fairly for an equitable share of our nation's prosperity. Working families have been left behind over the past three decades, as virtually all income gains have gone to the wealthiest Americans.

Between the mid-1940s and mid-1970s, inflation-adjusted wages doubled for most U.S. workers, but between 1979 and 2007, they grew only 7 percent. Since 1979, productivity, or output per hour, has grown 70 percent—10 times as fast as real wages.

As a result, income and wealth are more unequally distributed in the United States than in any other developed country and are more unequal today than at any time since the 1920s. Even more alarming, American intergenerational economic mobility is falling and is already lower than in many European countries.

In a House subcommittee hearing on the economy last week, Rep. Jim McDermott (D-Wash.) summed it up this way:

In short, many Americans are working harder for less. Less income, less job security, less health and pension coverage, less time at home, and less opportunity. Left unchecked, this trend will strike at the very core of the American dream.

Economic Policy Institute (EPI) economist Jared Bernstein describes it this way:

The difficulties facing American workers predated the recession. There may be no more telling statistic…than the fact that the real wage for the median male was lower in 2007 than in 1973.

For the last few decades, [workers] have been losing employer-provided health coverage, or paying more out-of-pocket for premiums, health services, or medications. Their pensions are less secure, and have flipped from majority guaranteed benefit to guaranteed contribution, shifting the risk of an adequate retirement benefit from their employer to themselves and their family.

Correcting this long-term imbalance will require multiple strategies. We need policies that ensure a just global economy. We need a government that provides quality services, adequate public investment and fair taxes. And we need to ensure that when workers seek to join together to improve their wages and access to health care and retirement security, they can do so without employer harassment and intimidation.

In 2007, full-time union workers were paid $863 in median weekly income, compared with $663 for their nonunion counterparts. In March 2007, 78 percent of union workers in the private sector had jobs with employer-provided health insurance, compared with only 49 percent of nonunion workers. Union workers also are more likely to have retirement and short-term disability benefits.

America's workers know union membership helped build the nation's middle class. Some 60 million workers say they would join a union if they could. But the nation's labor laws are broken, letting greedy employers harass and intimidate employees who seek to form a union. In the post-World War II years, our nation's middle class mushroomed because workers from the factory lines to the office steno pool could join together and form unions, enabling them to negotiate for better wages, affordable health care and retirement security. Their purchasing power helped strengthen communities, and their solidarity pushed through such vital policies as job safety standards and Medicare that benefited all working Americans.

But some 92 percent of private-sector employers, when faced with employees who want to join together in a union, force employees to attend closed-door meetings to hear anti-union propaganda, and 75 percent hire outside consultants to run anti-union campaigns. When America's workers are unable to win a voice at work, the American Dream becomes harder and harder to reach.

That's why passage of the Employee Free Choice Act is a top priority for the union movement. The Employee Free Choice Act is a crucial step in moving our nation toward a just economy. It would level the workplace playing field by enabling employees to sign up for a union through a majority verification (card-check) process or labor board election, whichever they choose. It also would provide for mediation and arbitration if management and the union can't work out a contract in 90 days. Because even after workers successfully form a union, in one-third of the instances, employers refuse to negotiate a contract.

Chris Williams, who teaches introductory physics at Pace University in the New York City area, has experienced this firsthand. As an "adjunct faculty" member, Williams couldn't survive on his wages from Pace, where the average pay for teaching a 15-week, three-credit course is just $2,500. So while a tenured professor might earn $100,000 annually, an adjunct in the next classroom with the same qualifications would earn only $15,000 for the equivalent of a full-time workload.

Williams and other adjuncts joined the New York State United Teachers/AFT (NYSUT/AFT) in December 2003. But, once at the bargaining table, Pace dragged its heels, and today, the adjuncts still have no contract. Williams, a strong supporter of the Employee Free Choice Act, puts it this way:

Anything that can speed that process has to be good for workers. It's clear that people need someone to represent them collectively. At the moment, the balance of power is almost completely with the employers. It's long overdue that workers shift the power a little bit in our favor.

The health of the U.S. economy will turn on whether we let corporations get away with paying poverty wages to those responsible for teaching those who, ultimately, will lead our country. And so will the future of our nation.

(Show your support for the Employee Free Choice Act by signing a petition for its passage here. We plan to present 1 million signatures supporting the Employee Free Choice Act to the next Congress and president.)