What to Learn from the Foreclosure Crisis

The Recession that began in 2008 has not affected everyone equally. While large banks including Wells Fargo, Bank of America, and JP Morgan Chase –the same lenders who pushed for the widespread implementation of sub-prime mortgages and then compiled them into mortgage backed securities, and who further bet against the viability of these toxic securities as they knew they were untenable – received hundred of billions of dollars from the Federal Government because, as they argued, without them the economy would be in shambles. Without large capital reserves the financial institutions argued that they would be unwilling to lend out credit, which in turn meant small businesses, the great generator of jobs and economic activity, would be force to lay off workers or close up shop completely.

Not  all surprising is the fact that they convinced an entire generation of  leadership in Washington that this was true. In late 2008 and early 2009, just as president Obama was getting into the White House, the largest, most corrupt and shadowy organizations in our economy got close to $700 billion dollars with no strings attached. This last fact, combined with the news that federal bailout money was being used for outrageous bonuses and multi-million dollar retirement packages, enraged the citizenry and is where one can find the beginning of the Tea Party movement.

The other side of this coin is what happened to the houses that the big financial institutions own by virtue of their note and mortgage. Since the widespread availability of credit in the 1990s and early 2000s home prices inflated far beyond cost of living and inflation generally causing a bubble. This created large pools of home equity which people were encouraged to tap into to make necessary repairs, send a child to college, or just have in case of an emergency. In 2008 when it became apparent that the prices were in fact widely inflated and that enough people had begun to default on their first, second, or third mortgage it was finally time for the bankers to admit what was really going on. The rest, as they say, is history.

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By 2011 millions of American workers have been forced to vacate their homes due to foreclosure. Several million others are waiting for the axe to fall. Even more are struggling to find work, perhaps looking to secure a second job in order to simply pay the bills. Unemployment remains at record rates, and underemployment is at nearly at an all time high. The question often asked is, “What can I do?”

As part of the American Recovery and Reinvestment Act the United States Treasury department set forth a program known as Home Affordable Modification Program (HAMP) which was designed to modify the outrageous interest rates, terms and payments that people had been duped into signing by mortgage brokers and bankers. The terms of this program were simple; first, the borrower needed to show the hardship faced (the majority of these are due to a loss of income either by employment termination or a steep cut in wages and/or hours); then the lender would compare the income over the expenses of the individual and drive a payment amount based on the 31% of one’s income which the Treasury department has laid out as the approximate payment a borrower should make towards their mortgages; and once approved for a modification by the bank, the borrower then only had to make 3 payments for a trial period and the loan would be henceforth modified. Sounds simple, so why ha it been a failure?

Given the relative simplicity of this program, it was widely hoped that it would be a big success and stave off the massive amount of foreclosures that were being foreseen. Combined with the fact that many of the large mortgage companies had been buying and selling said mortgages and mortgage backed securities without properly transferring the note, mortgage and deed, they had been forced to reevaluate the legitimacy of their foreclosure filings, this program was touted as a possible alternative for most of those in foreclosure or nearing it. However, the very people that are supposed to be giving the modification are the same companies who first gave out the sub-prime mortgages, then bundled them together into securities and bet against those securities (ultimately causing the crash) and there is no government agency or watchdog group that is able to oversee the modification process.

Since the banks have been left to their own devices, the modification program has been a dismal failure. Of the nearly 30 million people that are eligible, only a fraction have been able to even qualify and only a small percentage of those have actually been able to secure a modified loan. In many instances the lender will drag their feet, “lose or never receive documentation” or “be unable to speak with the borrower,” and will unilaterally and without notice deny a modification and being or continue foreclosure proceedings. This has been recently reviewed by the banking committees of Congress and sanctions have been placed on against Wells Fargo, JP Morgan Chase and Bank of America for failure to comply with the guidelines and for failing to modify more loans. Essentially the too-big-to-fail crowd has decided that its better for the profit margin to simply kick people from their homes than to help them.

However, even if one is faced with foreclosure there are several defenses and ways to avoid the economic hardship that is inevitably going to follow. First, it is very important to contact and attorney, but be sure to do your research and pick an attorney who is genuinely for the workers as many are only looking for your hard earned money and will provide sub-par defense. In Florida, for instance, state law forced mortgage companies to provide the original note and mortgage when filing a foreclosure action. The purpose of this law is to ensure that when the banks where bundling and selling mortgage securities the person who serviced the loans keep changing hands and the state needs to keep trace of the ownership of land. In order to legally transfer property, the note and mortgage must be transferred with the local comptroller to update public records. In many cases, the banks simply failed to do so. If a person facing foreclosure has paid several different people the mortgage payment over the years, this may be a valuable legal defense. Again, if facing foreclosure one ought to speak to an attorney right away.

All in all the economic crisis of 2008 has shown us several things. First, the interconnectivity between Washington D.C. and Wall Street. It is no surprise that as soon as the profit margins of the large financial institutions began to be squeezed, they immediately called on their former bosses, friends and mentors at the Treasury Department and Federal Reserve and, like Oliver Twist simply asked “Can I have some more, please?” The second thing so clearly shown in the economic recession is how the bank bailout can mobilize people, we see it today in the Tea Party. Whilst the Tea Party has nearly the opposite perspective they should have, one cannot deny the just nature of their anger, their drive and their ability to organize. Lastly, it has been shown that the federal government, stacked by those who seek only to make themselves and their close allies even more wealthy, have been nearly silent on the fact that record numbers of people who are not looking for millions of dollars in government money, remain unable to find work. Conservatives for instance believe that a lower tax on the rich will somehow spur economic growth, however, the last 25 years have shown that not to be the case. Countless American workers remain chronically underemployed and many more have stopped looking for work completely.

In short we need to take some lessons from the Tea Party and utilize working class anger over bailouts, foreclosures, and unemployment to mobilize the workers to engage in the political process and to stand up with us and march to our capitals and our large financial institutions and demand a fair, just and democratic economy!

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