Mortgage fraud, bank bailouts continue
By Jerry Goldberg
The lifting of the major banks' "foreclosure moratoriums" — which had been instituted to stem the outcry over massive fraud in the processing of foreclosure documents — demonstrates the necessity for the working class to launch a struggle to win a genuine two-year moratorium on foreclosures and evictions predicated on the premise that housing is a fundamental human right.
With the federal government having essentially nationalized the mortgage industry, the president has the authority to implement such a moratorium through executive action.
Bank of America on Oct. 18 announced its intent to resume foreclosures in the 23 states which have judicial foreclosures. BOA had suspended foreclosures in those states on Oct. 1 due to revelations of fraud in the processing of foreclosure documents. BOA also announced it would resume foreclosures in a few weeks in the remaining 27 states. This move will likely encourage JP Morgan Chase and GMAC, who had similarly suspended foreclosures in the 23 judicial foreclosure states, to resume taking people's homes. (New York Times, Oct. 18)
Barbara J. Desoer, president of Bank of America Home Loans, stated, "We did a thorough review of the process and we found the facts underlying the decision to foreclose have been accurate. We paused while we were doing that, and now we're moving forward."
While even bourgeois commentators treated this announcement with the cynicism and derision it deserved, Bank of America was emboldened to make this move with the backing of the federal government.
From the onset of the exposure of massive bank fraud, the Obama administration has opposed any calls for a national moratorium on foreclosures. When David Axlerod, President Barack Obama's chief advisor, appeared on CBS's "Face the Nation" Oct. 10, he came out against a national moratorium. He was followed by Housing and Urban Development Secretary Shaun Donovan, who published an article Oct. 17 in the Huffington Post that also rejected calls for a national moratorium, saying it would hurt the economy.
Billions for banks
Bank of America noted that the major holders of its mortgages, Fannie Mae and Freddie Mac, had been consulted during the review and had signed off on the decision to resume foreclosures. Of 14 million mortgages BOA services, one-half of them — worth $2.1 trillion — are owned by Fannie Mae and Freddie Mac, the giant mortgage holding companies controlled by the U.S. Treasury. (NYT, Oct. 18)
Fannie Mae and Freddie Mac were formerly government-sponsored enterprises, private corporations chartered by the federal government to give them enhanced standing to buy or back up mortgage loans.
However, in July 2008 Fannie Mae and Freddie Mac were taken over by the federal government due to massive losses they incurred as a result of the record rise in foreclosures caused by the fraudulent and predatory lending practices of the banks. The federal government placed Fannie Mae and Freddie Mac in trusteeship under the Federal Housing Finance Administration, guaranteeing up to $200 billion in federal tax dollars to back up their loans. That figure was raised to $400 billion, and is now uncapped.
According to a June 3, 2009, statement by FHFA Director James Lockhart, Fannie Mae and Freddie Mac own or guarantee 56 percent of single-family mortgages worth $5.4 trillion in the U.S. When combined with the Federal Housing Administration, the federal government backs or issues a whopping 75 percent of the country's mortgages. (Associated Press, Sept. 9, 2008)
What this means is that when a borrower goes into foreclosure, the bank which made the loan gets paid off at the loan's full value by Fannie Mae or Freddie Mac. In addition, the government pays the bank to process the foreclosure. Then the government takes over the home, evicts the homeowner and any tenants, places the home on the market, and sells it at a fraction of the loan's value.
The difference in what the government paid the bank for the loan, and what the home sells for after foreclosure and eviction, is paid for by taxpayers. That arrangement amounts to a silent bailout of the banks.
For example, a home several doors from where this writer lives in Detroit sold for $137,000 in 2001. The home was then foreclosed and the loan was taken over by Fannie Mae. The home is now being listed by Fannie Mae for $31,000. The $99,000 difference between the $130,000 still owed on the home for which the bank received full value, and the $31,000 for which Fannie Mae is selling the home, is paid for out of taxpayer funds.
This bailout to the banks, which occurs with virtually every foreclosure, has already amounted to $145 billion.
While the FHFA estimated that the total cost of this bailout will be $221 to $363 billion, in 2009 the Congressional Budget Office estimated that Fannie Mae and Freddie Mac would require $389 billion in federal subsidies through 2019. (Bloomberg News, Oct. 21)
Barclays Capital Inc. analysts put the price tag as high as $500 billion, and Sean Egan, president of Egan-Jones Ratings Co., estimated that the total taxpayer bailout to the banks through Fannie Mae and Freddie Mac will total $1 trillion. (BN, June 13)
These figures do not include the additional hundreds of millions of dollars in federal subsidies on FHA-backed loans.
Still-soaring foreclosures, no relief for homeowners
The Obama administration has announced modest loan modification programs to help homeowners, such as the Home Affordable Modification Program, in exchange for this continued massive bailout.
HAMP and other programs are supposed to be mandatory for the banks. But the banks do not comply to help homeowners in any significant way. The government relies on the banks themselves to carry out these modifications, and the federal government and most courts have refused to enforce any sanctions for refusal to perform them.
With the banks knowing they will be getting paid full value on the loans after foreclosure, the banks have little incentive to modify loans and have sabotaged HAMP and led to the program's virtual collapse. As of August less than one-sixth of the 3 million homeowners who were supposed to be helped have received loan modifications, and the number of borrowers being offered trial modifications has drastically declined. (NYT, Aug. 20)
It was recently exposed that Fannie Mae and Freddie Mac are using the same law firms that prepared the fraudulent documents for the major banks in their processing of foreclosures and evictions. Fannie Mae and Freddie Mac are sanctioning loan servicers if they do not toss people out of their homes within a short period of time. (NYT, Aug. 22)
Obama: Issue moratorium now!
Today the foreclosure crisis continues to intensify. An estimated 2.8 million foreclosures are projected across the U.S. during 2010, with foreclosures totaling 9 million for the years 2009 to 2012. The total lost home-equity wealth due to foreclosures is expected to be $1.9 trillion for the years 2009 to 2012. (Center for Responsible Lending, Aug. 20)
Foreclosures and evictions are a direct product of persistent high unemployment. Of the 1 million homeowners who received foreclosure counseling through the National Foreclosure Mitigation Counseling Program, 58 percent listed unemployment as the main reason for default. (HousingWire, June 1)
With the federal government controlling or backing the vast majority of mortgage loans, President Obama has the clear authority to implement a two-year moratorium on foreclosures and foreclosure-related evictions through an executive order.
A moratorium would let homeowners and tenants remain in their homes, stabilize communities and allow time to develop a long-term solution to this crisis. Then home loans could be restored to their proper value and housing for all guaranteed.
We must fight each foreclosure and eviction and begin implementing such a moratorium through direct action. During the Depression of the 1930s, move-ins reversed many evictions and led to foreclosure moratoriums being enacted in 25 states, which were upheld as constitutional by the U.S. Supreme Court.
What is needed is for the working class to launch a mass struggle to win this demand. It's time to fight to reverse the government policies which place the well-being of the financial institutions ahead of the welfare of the people.
Goldberg is an anti-foreclosure attorney and a leader in the Detroit-based Moratorium NOW! Coalition to Stop Foreclosures, Evictions and Utility Shutoffs.