Wednesday, October 15, 2008

Foreclosure Fight: The Push for a Michigan Moratorium

Foreclosure fight

The push for a Michigan moratorium

Evictee Sandra Hines wants to help others avoid the same fate

By Curt Guyette

As it became clear last week that the $700 billion federal bailout was failing and talks to avert a worldwide economic meltdown continued, protesters in Detroit called for immediate action they say would address a fundamental part of the crisis: people being forced from their homes as a result of foreclosures.

While the group Moratorium Now! staged a protest outside City Hall on Friday, some of its members were inside delivering a letter to Mayor Ken Cockrel Jr., asking him to petition Gov. Jennifer Granholm to declare a state of emergency in Detroit and use her executive power to impose a moratorium on mortgage foreclosures. Depression-era legislation gives the governor authority to take such action, say advocates.

Among the people holding signs in front of the Spirit of Detroit was Sandra Hines, who said her family lost its home to foreclosure last December.

"Where were our leaders at before things got to this crisis point, and where are they now?' asked Hines, who now lives with relatives. She described a growing sense of anger spreading across the country. "The people are awake now, and we aren't going away," she said.

Spokesman Daniel Cherrin confirmed that the mayor received the group's letter on Friday, but said that, as of Monday morning, Cockrel hadn't yet had time to review it. Members of Moratorium Now! say there's no time to waste.

"During the past year," they wrote in the letter, "while city government was consumed with the mayoral crisis, thousands of Detroiters lost their homes due to the foreclosure epidemic that has hit our city. Every day, the predatory lenders are tossing senior citizens out of their lifetime homes. Our neighborhoods are being destroyed. Property values have plummeted. A review of Detroit HUD homes sold in the last week reflects average prices of approximately $2,000 per home. The New York Times reported that 18 percent of Detroit's homes are empty, the highest percentage of any city except New Orleans.

"The people of Detroit cannot stand to wait one more day for the imposition of an emergency moratorium on foreclosures."

Earlier this year, state Sen. Hansen Clarke (D-Detroit) introduced SB 1306, which would impose a two-year moratorium on evictions across the state. That doesn't mean homeowners would be allowed to stay in their homes and pay nothing, Clarke has said. Judges would determine payment amounts, allowing time to recover for those who have been laid off or who are suffering financial setbacks because of illness.

Brian Seibert, president of the Michigan Mortgage Brokers Association, told Metro Times that a moratorium is both unnecessary and counterproductive.

He pointed out that homeowners facing foreclosure have the option of filing for bankruptcy before their homes are sold at a sheriff's auction, typically held after three mortgage payments have been missed. Bankruptcy filings automatically bring a judge into the picture, achieving the same result as the foreclosure legislation, Seibert said.

Clarke's bill, however, enables a judge to intervene after a home has been sold at the sheriff's auction and is still in the six-month redemption period.

"We don't want people to have to file for bankruptcy in order to keep their home," Clarke says.

Seibert also says that if Michigan unilaterally enacts a moratorium, lenders will stop supplying mortgages here, choosing instead to do business in states where homeowners either have to make payments or relinquish their homes more quickly.

A report last month from the bipartisan Congressional Report Service (CRS) found that moratoriums would have "both costs and benefits."

"Evidence from the Great Depression suggests that states that enacted moratoriums provided relief to some owners but saw higher costs of credit and fewer loans compared with states that did not," the CRS reported.

Clarke points out that, because of the financial crisis, loans are already drying up. So a moratorium wouldn't make things worse in that regard. What it would do, he says, is help homeowners, the communities they live in and lenders.

The problem now is that when homes are vacant as the result of foreclosures, scrappers are stripping them of everything of value, causing their worth to plummet, bringing down the value of neighboring homes. Moreover, lenders can be left with homes that are worth virtually nothing.

A moratorium would allow time for individual homeowners to recover, and for the overall financial situation to stabilize. By keeping people in their homes, the lenders win because properties retain more value than if they become vacant, thereby protecting the value of nearby homes.

"Everybody wins," says Clarke.

Attorney Jerry Goldberg, part of the Moratorium Now! coalition, says that Granholm has so far rejected calls to use her executive authority to institute a moratorium. Granholm's office says legislative action is needed before she can act. Goldberg disputes that claim.

"This is something I think every governor in the country should do starting yesterday," says Robin Hahnel, professor emeritus of economics at American University and currently visiting professor at Portland Sate University.

One reason for governors to take action is that the $700 billion bailout recently enacted by Congress provides no guarantees that individual homeowners will be protected from foreclosures.

Timothy Canova, a professor of international economic law at the Chapman University School of Law in Orange, Calif., views the situation similarly.

After reviewing SB 1306, Canova told Metro Times that, in his opinion, the proposed law is certainly constitutional. "The United States Supreme Court upheld a similar foreclosure moratorium act that was passed in 1933 by Minnesota during the Depression in the case of Home Building and Loan Association v. Blaisdell," he says.

Moreover, government action that helps protect those "at the bottom of the economic pyramid" is vital. As he noted in an opinion piece posted on the website hosted by the left-leaning Institute for Public Accuracy:

"I am unconvinced that this $700 billion bailout for Wall Street will have any lasting positive effect. ... The Bush administration is once again using fear to scare people into supporting a dangerous course. There are almost 10,000 foreclosures a week now, and between 1 million and 2 million adjustable rate mortgages are due to adjust upward in the next year. Without help for the bottom of the pyramid, Wall Street will be back next year asking for another trillion dollars."

Curt Guyette is Metro Times news editor. Contact him at 313-202-8004 or cguyette@metrotimes.com.

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