Bill Knight column for Thurs., Fri., or Sat., Sept. 13, 14 or 15
When banks don’t work, people’s governments should, and some actions by local governments and grassroots are starting to confront the nation’s foreclosure catastrophe.
The 99% should fight for relief for neighbors burdened by unfair debt. This means promptly investigating mortgage fraud by lenders responsible for the crisis, but also large-scale principal reduction to reset loans to fair market value.
Despite an August report from the Standard & Poor’s/Case Shiller index (covering about half of U.S. homes) showing a slight decline in foreclosures, 15.7 million Americans remain under water – meaning banks are still charging more for mortgages than homes are worth.
America’s economy is recovering, but too slowly, some of that because of difficulties in bouncing back from the housing bubble that burst in 2008. Years ago, when Wall Street was churning trillions of dollars of cheap home loans so that they could later be subdivided, re-packaged and sold to unsuspecting investors as bonds, millions of regular people bought big houses for big money. People who bought homes for $300,000 then might have property worth $200,000 now, and people $100,000 in debt can’t be the consumers the economy needs.
Meanwhile, average mortgage rates hit record lows this summer – a 30-year, fixed-rate mortgage is down to 3.53 percent, and a 15-year, fixed-rate mortgage fell to 2.83 percent.
Such rates are helping sales of new and existing homes, but few existing mortgages are being re-financed, which could help millions stay in their homes. Many lenders refuse to refinance. (Meanwhile, banks continue to rake in billions of dollars from homeowners.)
A modest improvement in U.S. home prices, reported by S&P/Case Shiller, should help homeowners, but potential buyers are having trouble qualifying for loans or they can’t afford big down payments now required. (A Federal Reserve report this summer showed that many banks have tightened their credit standards.)
On Capitol Hill, three proposals in the U.S. Senate – from Sens. Dianne Feinstein (D-Calif.), Robert Menendez (D-N.J.) and Jeff Merkley (D-Ore.) – could make it easier for under-water homeowners to refinance, but “the biggest banks have used their political power in Washington to defeat any effort that would effectively reduce foreclosures,” said U.S. Rep. Brad Miller (D-N.C.).
Elsewhere, groups from 17 states came together in May to launch the Home Defenders League (HDL). Already representing 50,000 homeowners, the League aims to organize millions of under-water homeowners and make mortgage relief an issue in the elections.
The HDL sees itself as a national movement fighting Wall Street to get back what the Big Banks stole, focusing on resetting mortgages to current market value.
“It would be the kind of economic stimulus our country needs,” said Rose Gudiel, a California HDL activist whose own home faced foreclosure. “It would keep millions in their homes and put billions back into people’s pockets.”
HDL organizer Nathan Henderson-James added, “We’ve experienced three years of broken promises from Big Banks and failed assistance efforts from the federal government. We have had enough of the talk and half-measures and are calling for bold action.”
In California, one bold initiative is a private/public idea letting local governments address foreclosure through eminent domain, typically used to clear property for public-interest projects. Counties in Florida, Nevada and New York also are considering the idea.
Not exactly government intervention since the concept was proposed by a private firm, Mortgage Resolution Partners (MRP), the idea would have MRP raising capital needed to essentially condemn and “buy” home loans from the banks and the bondholders (using eminent domain requires governments to give owners “reasonable compensation,” often current fair market value). The condemnation process gives both sides a chance to argue about value before a judge.
Once a county seizes such loans, they’d be owned by a legal entity created by local government – San Bernardino, for instance, has set up a Joint Powers Authority to manage the loans. Then it is the new owner of the loan and could approach homeowners with a choice: Keep making inflated payments or get new financing. In conjunction with companies like MRP or similar firms, communities could arrange for new lenders to take part, helping homeowners buy back their homes at current market prices. Since the approach is funded by investors, no public money is risked.
It’s no surprise that Wall Street’s trade group, the Securities Industry and Financial Markets Association (SIFMA), denounced the idea and threatened legal action. But popular push-back could succeed if mortgage victims organize.
“Virtually every community in America was the victim of a broad fraud scheme perpetrated by banks, lenders, ratings agencies (and, yes, even the government-sponsored enterprises like Fannie and Freddie) to artificially inflate the real estate market,” wrote Rolling Stone reporter Matt Taibbi. “The people who bought houses at the peak of the market and are now under water, they are victims of a crime.”
The Home Defenders League is online at www.homedefendersleague.org