Up against the banks
The effort to halt foreclosures grows
Published: July 6, 2011
What she and Goldberg and others in Moratorium Now!, as well as the group People Before Banks — a coalition of faith-based organizations, organized labor, and local groups — are saying is that the whole situation is such an incredible mess, time is needed to sort it all out.
While the issue of using a moratorium to address the crisis is the subject of a legitimate debate, the fact that some lenders made a conscious decision to entice homeowners into taking out loans that the lenders knew couldn't be sustained is a matter of record.
U.S. Sen. Carl Levin, a Michigan Democrat, helped establish that as chair of the permanent subcommittee on investigations.
In November 2008, Levin's committee launched a bipartisan investigation into the cause of the devastating economic collapse that began earlier that year. The results of that investigation were detailed in a 639-page report released in April.
A key part of that study was a look at Washington Mutual Bank (WaMu), "the largest bank failure in U.S. history."
The report details how the nation's largest thrift embarked on a strategy steering customers away from traditional 30-year loans and pushing them into taking out volatile adjustable rate mortgages because they were significantly more profitable for the bank when those loans were bundled together and sold to investors. One of the bank's subsidiaries, Long Beach Mortgage, led the way.
It turned out to be a sort of Ponzi scheme. As long as housing prices kept escalating, and borrowers could keep refinancing, there wasn't a problem. Warnings from some employees that the growth being experienced during the first part of the 2000s couldn't be sustained were ignored.
In addition, according to the report, bank officials were made aware that there were "high volumes of fraud" being perpetrated by some employees issuing loans.
Examples of that fraud included "falsified income documents, unreasonable income for the stated profession, false residency claims, inflated appraisal values, failure of the loan to meet bank guidelines, suspect Social Security numbers, misrepresented assets and falsified credit information."
The bank raised commissions on these high-risk loans as a way to encourage employees to push them; special training, including role-playing and instructional videos, were used to teach employees how to better peddle these high-risk, high-profit loans to wary customers.
It wasn't just the bank and its subsidiaries that were found to be at fault. The investigation found that the credit rating agencies that were supposed to accurately evaluate the risk of these bundled loans, the big investment houses such as Goldman Sachs and Deutsche Bank, which bought them, and federal regulators, who were supposed to keep a careful eye on the whole process, all failed to do their jobs.
From 2005 to 2007, WaMu issued high-risk loans worth hundreds of billions of dollars.
In November 2008, after this figurative house of cards collapsed — and those enticed or duped into taking out these loans were starting to be thrown our of their actual homes — the Office of the Comptroller of the Currency, which oversees all nationally chartered banks, identified the 10 metropolitan areas across the United States with the highest rates of foreclosure for subprime and other risky loans. Detroit led the list. And WaMu's Long Beach subsidiary was the lender with either the highest rate of foreclosures or the second highest in nine of the 10 cities.
As the Detroit News reported after Levin's report came out:
"One lender cited in the report — Long Beach Mortgage Co., a former subsidiary of Washington Mutual — sold more than 3,800 metro Detroit homeowners on risky loans during the height of the market between 2005 and 2007. More than half — 51.3 percent — of those properties were in foreclosure within a year."
As the group People Before Banks contends, "When layoffs and the spike in adjustable rate mortgages forced millions of homeowners into delinquency on their loans, the bonds and unregulated derivatives based on these mortgages lost value. Banks and insurance companies holding such 'toxic' assets lost billions.
"The Economic Stabilization Act of 2008 provided these Wall Street financial corporations with a $700 billion taxpayer-financed bailout."
Homeowners put at risk of losing the roof over their head got the HAMP.
Launched by the Obama administration in April 2009, the Home Affordable Modification Program (HAMP) has so far managed to provide permanent loan modifications to about 730,000 homeowners.
That compares to the 3 million to 4 million homeowners the administration said the program would help when it began.
On average, those receiving the modifications are able to reduce their monthly payments by about $500 a month.
The problem is that the number of homeowners having their mortgage payments permanently reduced pales in comparison to the number of foreclosures. According to RealtyTrac, there were more than 6.6 million homes facing foreclosure during the first two years HAMP was in existence.
In May, the nonprofit news organization ProPublica released the results of a yearlong investigation into HAMP. Using Treasury Department figures and documents obtained through the Freedom of Information Act, reporters there came to the conclusion that the administration's "fumbling efforts" had largely "failed homeowners."
"Although Treasury Department officials and mortgage servicers claim the industry has gotten better at handling modifications, the average rate of modifications in the past two years is not significantly different than the rate before HAMP launched," ProPublica reported.
Although $37 billion of the $700 billion that went to bailout Wall Street was set aside for HAMP and another program, "little more than $1 billion of that" had been spent as of May.
The Congressional Oversight Panel estimated last December the Treasury would ultimately spend only about $4 billion of that $37 billion.
In addition, "about $7 billion was set aside for the Hardest Hit Fund, which provides subsidies to states for various foreclosure prevention programs," ProPublica reported. That, too, has been slow to get off the ground. Only $104 million has been spent so far."
In written testimony that Detroit attorneys Fluker — who in recent months has twice been sanctioned (wrongly, she says) by judges claiming she filed "vexatious" appeals while representing clients facing foreclosure — and Goldberg provided to Congress, they point to one of the more distressing aspects of the efforts to keep people in their homes.
The two attorneys testified that Freddie Mac and Fannie Mae, which were designed to help increase homeownership by backing affordable loans and had to be taken over by the federal government as a result of the massive losses sustained once the housing bubble burst and the market collapsed, now "own or guarantee" more than half this country's single-family mortgages. When combined with the Federal Housing Administration loans and other government program, the feds "back or issue a whopping 75 percent of the country's mortgages.
And so, while the government on the one hand has set aside billions for programs (administered by banks) to help keep people in their homes, on the other hand that same government is largely responsible for foreclosing on properties.
As the Rev. Ed Rowe of the Detroit's First United Methodist Church said during June's public hearing, "We're foreclosing on ourselves."
It would be easy to say that support for a moratorium is largely a left vs. right kind of issue. And certainly, there can be that element to the debate.
That rift showed itself in the hearings held by the House Judiciary Committee last December, when Detroit Democrat John Conyers Jr. was still chair.
Holding the view of the right was Rep. Louie Gohmert (R-Texas), who warned of the dangers of halting foreclosures, saying, "All indications are that a moratorium would cause further harm to the already depressed housing market."
Conyers, on the other hand, referring to the devastating affect the crisis has had on communities — especially communities of color, which were targeted by predatory lenders — said:
"Current projections estimate that by the time this foreclosure crisis abates, as many as 13 million homes will ultimately be lost to foreclosure. And yet on Wall Street, mortgage lenders and services and Fannie Mae and Freddie Mac, all of whom received taxpayer bailouts to the tune of billions of dollars over the last two years, have, in many instances, turned a blind eye toward homeowners in similar financial distress."
"We hear report after report," he continued, "that homeowners are drowning in bank bureaucracy with lost documents, unexplained rejections, and some of them [loan servicers] just closed down, period, and vanished. You can't even get them on the phone, and they aren't even in their business location any longer. And so many homes are rushed through foreclosure without homeowners having a realistic opportunity to restructure their mortgage."
But the debate is not quite as clear-cut as Republican vs. Democrat.
In a phone interview with Metro Times, economist Dean Baker — co-director of the left-leaning Center for Economic and Policy Research in Washington, D.C — questioned the value of instituting a moratorium, giving validity to the fear that loans, already admittedly hard to get in a city like Detroit, would completely dry up if lenders were confronted with the possibility that even more people would stop paying their mortgages.
On the other hand, the pro-moratorium faction points out that the market is already saturated with vacant homes — that quickly become worth nothing once scrappers strip them of plumbing and anything else of value.
According to the Jacksonville, Fla., firm Lender Processing Services, Inc. there is currently such a backlog or foreclosed homes in Wayne County that it would take almost two years to sell them off at the current rate.
Moratorium advocates contend that a halt on foreclosures, rather than hurt any housing recovery, would help stabilize the market by keeping deeply discounted foreclosed homes from adding to the glut, and driving down prices even further.
Four years ago, when attorney Goldberg — who had researched the legal precedent set during the Depression — raised the possibility of the state declaring a financial emergency with then-Gov. Granholm at a town hall meeting, the concept of a moratorium was largely foreign to most people.
But he and Fluker and a handful of activists — many of them people who work for nonprofits tasked with helping people remain in affordable housing, and, as a result, witness to the consequences up close before most others — have been relentlessly pushing the issue.
They've taken their struggle to the street. Literally. Staging protests at banks and holding rallies at the homes of people facing foreclosure.
People like Belva Davis, who two years ago was facing foreclosure on her East English Village home on Detroit's east side.
A house that she owed $150,000 on was worth maybe $20,000. But the lender was playing hardball. The Moratorium Now! folks rallied around her, turning out as many as 125 activists, politicians and supporters to help draw attention to her plight.
"Wow," she said at the time. "I'm just one little person, and sometimes I feel like I'm fighting Goliath."
Except that the number of Davids continues to grow, and they are becoming angrier and angrier at the devastation being wrought by the foreclosure crisis.
The problem of predatory lending showed itself in Detroit before it appeared most other places. Which is one of the reasons why the backlash started sooner here as well.
And with each fight that the Moratorium Now! crew engaged in, their numbers grew. Which is why perhaps 150 people poured into that June public hearing.
The struggle under way is far from a new one. It is different now than it was five years ago, though. The problem of predatory lending, as James H. Carr, chief operating officer of the National Community Reinvestment Coalition, pointed out in testimony that he gave to yet another congressional subcommittee in 2009, was not an "equal opportunity" issue.
"African-Americans and Latinos were targeted disproportionately for deceptive high-cost loans," he testified. "According to a study by the U.S. Department of Housing and Urban Development, subprime loans are five times more likely in African-American communities than in white neighborhoods, and homeowners in high-income black areas are twice as likely as borrowers in lower-income white communities to have subprime loans."
Now, though, it is widespread unemployment that is causing people to lose their homes. And what was once mostly an inner-city issue has spread to the suburbs.
As the problem has grown deeper, the struggle has grown broader.
Consequently, what once seemed like a radical demand — to let people stay in homes they could no longer afford — has become mainstream enough to gain the apparent support of a majority of county commissioners — white and black, urban and suburban.
Recently, that growth took a quantum leap when the Untied Auto Workers announced that it was throwing its considerable weight behind the effort.
In a statement from union President Bob King, which was introduced at the hearing, the union's position was made clear:
"The economic and human catastrophe of foreclosures is reason enough for government intervention to stem the tide of eviction, homelessness, abandoned houses, neighborhood blight and declining property values. An estimated 100,000 families were foreclosed in Michigan last year according to the Center for Responsible Lending, and fully one-quarter of this total were homes in Wayne County."
The statement referenced Levin's investigation, and that fact that the senator has called the "mounting toll of foreclosure in Detroit a 'man-made crisis, the product of reckless risk-taking and rampant conflict of interest' by mortgage companies and banks that engaged in predatory — and illegal — lending practices.
"All of which raises the question: Should the sheriff be giving legal cover to what the chair of the FDIC calls 'pervasive' fraud evident in the foreclosure process? Or should we call for a moratorium of sheriff foreclosure sales of occupied homes and investigate the harm these practices are causing the county and its citizens?"
That public hearing in June was unlike any most folks had ever been a part of. Commissioner Burton Leland, who represents northwest Detroit, said that he has been engaged in civic activity for 30 years and that he'd never been involved in an event so "passionate, elegant, informed and intellectual."
"I was informed and moved tonight," he said.
And then there's Commissioner Scott, who introduced the resolution, which, if passed, would also have an advisory question put on the November ballot, asking county voters as a whole if they want the sheriff to impose a moratorium.
"We have a fight on our hands," she said. "But we can win it if we stand together."
It is a fight that includes such people as Sandra Hines who, like Fluker, made the journey to Washington to testify before Conyers' committee.
She told of how the house her mother owned, free and clear, until she was convinced to refinance. And then, after having lived in it for 40 years, saw it taken away.
At times, he testimony sounded eerily like the speech given by the character Ma Joad in the film version of John Steinbeck's The Grapes of Wrath.
"I don't get it why you all sit here and make decisions over our lives, and you all can't see that if you throw us out of our homes, we don't have a life. ... All of you got a home. You've got money. You've got health care. You've got the best insurance that anybody can have. You probably have the best homes that anybody can have. Don't you think other Americans want that too?
"Isn't that what America is suppose to be about? The land of the brave and the home of the free? The people, the people, the people have worked and built America — what it used to be, because America ain't what it used to be no more. My mother used to always say, they're going to turn America into a third world country. Well, you just about did it.
"Come to Detroit and look at the neighborhoods, how they've been ravaged by home foreclosure and eviction. ... I don't know where those people are at.
"I came here to tell the story of the people. Maybe if the people were telling the stories, y'all would get it."
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