The foreclosure mess and how homeowners are fighting back.
Patrick: There is an epidemic of banks erroneously foreclosing on mortgages and committing outright fraud. The money from the bank bailout, conducted in the final months of the Bush Administration, either went to pay raises and other perks such as Lear jets for the fat-cat capitalist CEO’s of the Banks or the money went to these deceptive mortgage subsidies that were set up to expire after six months. The six month terms are now ending and the greedy bankers are repossessing the properties and throwing families out on the street.
Chuck: If in fact a bank erroneously forecloses on a property than this is a problem that can be corrected and if the bank is acting fraudulently than they are committing a crime and should be prosecuted. If the problem is endemic, as you say, than it should be investigated by State Attorneys General or by Eric Holder, the US Attorney General.
Regarding the subsidies, while the government and private agencies could play a role in helping mortgage holders in trouble to re-negotiate their mortgages, the taxpayer subsidies to Fannie Mae and Freddie Mac should end. It is unfair to subsidize people who have gone into default because they took on larger mortgages than they could afford or really for any reason. Most mortgage holders, not necessarily wealthy people, have played by the rules and made their mortgage payments on time often with great difficulty. Why should they have to pay while people who were not responsible get bailed out?
If the houses go into foreclosure it will be auctioned off by the mortgage holder which presents opportunities for first time home buyers who qualify to buy homes and a lower price. There is also no great shame in renting as no one is entitled to own a home. While the dislocation might be painful the free market should be allowed to do its job. The lesson to be learned is that it is a mistake for the government to pressure banks to offer mortgages to people who can’t afford them as this corrupts the entire system. Government policies have caused close to a trillion dollars in bailout debt for Fannie Mae and Freddie Mac, a policy that has continued under the Obama Administration.
Patrick: The banks have figured out yet another way to profit from their original subprime mortgage fraud, devastating communities across the country in the process. They have outsourced their foreclosure processing to shady law firms who forge documents and make up false records and histories to evict honest homeowners – even when they are current on their mortgages or have even paid them off. The foreclosure scammers forge documents, backdate signatures, charge illegal fees and evict people from homes that the banks don’t even own, destroying lives and communities.
Prosecuting a bank that is fraudulently trying to or has repossessed your house is a huge challenge for a homeowner, especially if he or she is out of work or sick. The police in Boston cannot arrest the President of Bank of America in South Carolina. So saying this is a law enforcement problem is unrealistic. Yes, the Attorney General should go after these people, and both state and Federal prosecutors are going after them, but that takes time and does not help the homeowners. So homeowners are filing class action suites, but these take time too. Congress needs to enact very strict regulation, a kind of one strike for bankers – one illegal foreclosure and you go to jail, and not a country club jail.
The question about subsidies to modify mortgages is a fair one, but it is the wrong question. The right question is why the $700 billion the Bush Administration gave the banks in 2008 – with some set aside for modification – has not been used for that? Instead of modifying loans, the banks used the funds to buy stock, pay bonuses, buy other companies. Again, possibly criminal, but hard to prosecute even if the Administration were determined to do so. And Eric Cantor already said he opposes any regulation of the mortgage industry, so the Republicans have already been bought and are now owned by Wall Street, as are many Democrats.
True, there is no shame in renting, and in fact in a time of falling home prices it is the smart thing to do. And selling foreclosed homes to speculators who then resell them to first time buyers is OK too. However the discovery that the banks have been committing crimes in false foreclosures has stopped those sales and put many buyers at risk of having to return homes they thought they bought from the banks that owned them. Once again, dishonest, unregulated greed destroys lives and economies without a care.
But there is yet a larger problem. The investors who bought the mortgage derivatives want their money back. The banks can’t give it to them no matter how many homes they foreclose and lives they destroy. These are toxic assets and unless the mortgages are modified and the hedge funds that bought them take the losses they signed up for , we will have another meltdown. When a hedge fund invests in a derivative, they take a risk; now they are demanding that they avoid the risk and the taxpayers and homeowners take the loss so the hedge fund managers can earn yet more hundreds of millions. In free enterprise you take the risk and you earn the reward or you accept the loss. We don’t have free enterprise, we have Wall Street oligopolies. And we don’t have democracy, we have an auction, which is why this is happening.