On May 20 the Home Defenders League, a national network of homeowners fighting foreclosure, will descend on Washington and attempt to meet with Attorney General Eric Holder. They will be demanding real restitution for homeowners robbed by predatory banks, prosecution of Wall Street criminals, and resetting all mortgages to current market rates. The groundswell of activity by groups like Home Defenders League is a sure indication that the foreclosure crisis is not over, and administration responses have been ineffective.
Some two weeks ago, President Obama finally announced the firing of Federal Housing Finance Agency Director Edward J. DeMarco. Housing activists in New Bottom Line and other organizations had been campaigning for months against De Marco, who refused to allow government lending agency Fannie Mae to give principle reductions to underwater homeowners. 45 members of Congress and nine state attorneys general had also called for his ouster.
However, firing DeMarco on May 1 was a case of too little, too late.
It was too late because over 5 million American families had already lost their homes. According to Zillow, despite minor improvement in 2012, another 13.8 million families are still underwater with negative equity today.
DeMarco announced as long ago as July 2012 that Fannie Mae would refuse to write down principle on the loans of America’s underwater borrowers, even though to do so would save taxpayers up to an estimated $1 billion. Supported by the banks and mortgage insurers, DeMarco instead vowed to continue Fannie Mae’s draconian policy of mass foreclosures.
The firing of Ed Demarco was also too little.
It was too little because it failed address the enormity of the ongoing housing crisis. Some project that we still face 10 million more foreclosures over the next decade, affecting over a quarter of all US homes with mortgages. Total American homeowner negative equity still adds up to an estimated $1 trillion.
As Dean Baker pointed out, the DeMarco - Fannie Mae controversy, while a symbolic focal point, was overblown. By the most optimistic estimates, the total number of homeowners who would be helped by Fannie Mae principle reduction (rejected by DeMarco) is 500,000, or only about 3.7% of underwater homeowners. The economic impact will be negligible. DeMarco (who is Republican) is a convenient political scapegoat for an administration that has effectively blocked any broader principle reduction for four years.
Firing Ed DeMarco is also too little because the chief architects of the foreclosure crisis still hold every other key position of authority in the administration. Obama’s appointment of Jacob Lew to succeed Timothy Geithner as Treasury Secretary was the last straw in placing what Bill Black calls “Wall Street on the Potomac” at the very heart of government power.
Incremental Fannie Mae principle reductions are a step but nowhere near sufficient. What is needed is to end the foreclosure crisis by eliminating negative equity altogether. This can be done with principle reduction, the mass resetting of mortgages demanded by the Home Defenders League. This would restore hope to homeowners by reducing their debt obligation to the current value of their home, not the inflated value of their original loan. Banks resist this because it would wipe out investors and force them to list their assets at their real value. Banks would then be forced to seek another bailout or reorganization through a Resolution Trust Corporation type of arrangement – and open the door for genuine bank reform.
In their “Green New Deal”, Jill Stein and Cheri Honkala have called for measures that would simultaneously address the housing and banking crises, by creating public banks where necessary to replace failed private ones, and then write down mortgages to affordable levels.
We the people have an opportunity to influence the outcome, but only if we get organized. The ones who really need to be fired are the Democratic and Republican parties who created and perpetuate the Washington-Wall Street axis that continues to rule America. Their media outlets would like us all to believe that the financial meltdown of 2008 is over and we are experiencing a return to normalcy. But a normalcy that continues to seize people’s homes and drive us into destitution is unacceptable and unsustainable. The 2012 JP Morgan and HSBC crises prove that the banking industry is still completely out of control, and regulators are helpless to stop it. An economic system that does not feed, clothe, and house its people is in political and moral crisis. It is time for the people to perform an intervention.
~ Sandy Perry is an outreach minister at CHAM Deliverance Ministry and organizer at Affordable Housing Network in San Jose, California. He serves as Secretary of Housing in the General Welfare Branch of the Green Shadow Cabinet.