Tuesday, December 29, 2009

Millions More to Lose Homes in the United States During 2010

Millions more to lose homes

Gov’t continues to bail out bankers, not homeowners

Published Dec 23, 2009 4:32 PM

Moratorium on foreclosures needed now more than ever

By Jerry Goldberg

Testimony at a hearing on Dec. 8 by the U.S. House Committee on Financial Services documented how the foreclosure crisis is getting worse.

Laurie Goodman, senior managing director at Amherst Securities, a leading broker/dealer specializing in trading mortgage-backed securities, testified that in the third quarter of 2009, 14.1 percent of borrowers — or 7.9 million homeowners — did not make their mortgage payments. She estimated that 7 million of these 7.9 million homeowners will lose their homes. (www.house.gov)

Julie Gordon from the Center for Responsible Lending testified that the effects of high unemployment and defaults in exotic Alt-A and option mortgages will add millions of homeowners to this total. She estimated that by the time this crisis abates as many as 13 million families will have lost their homes. In addition, tens of millions of other homes are suffering a decrease in property values totaling hundreds of billions of dollars in lost wealth, costing states and localities enormous losses in tax revenues used to pay for government services.

Gordon testified how the Obama administration’s Home Affordable Modification Program has fallen far short of its promise to help 3 million to 4 million homeowners with loan modifications. After nine months of operation, only approximately 650,000 homeowners are now in a trial modification. However, only a fraction of those in trial modifications have received a permanent loan modification. In addition, HAMP has no provisions for principal reductions and offers no help whatsoever for the unemployed who cannot pay their loans due to the loss of their job.

Government bank bailout continues

How is it that bank profits are rising while foreclosures grow exponentially? The reason is that the government is increasingly guaranteeing bank losses due to foreclosures by reimbursing the lenders at full value for overvalued mortgages when there are defaults. This “silent bailout” continues every day even as the banks make a show of returning their Troubled Asset Relief Program funds so they can go back to paying $30-million executive bonuses.

Fannie Mae and Freddie Mac, which own or guarantee about half of the country’s mortgages, were taken over by the government in July 2008. The Treasury Department committed $400 billion in taxpayer money to fund the takeover initially. Fannie Mae and Freddie Mac are burning so much cash bailing out the lenders — $15 billion by Fannie Mae in November alone — that the Treasury is considering an infusion of another $400 billion in taxpayer funds into these entities. (New York Times, Dec. 17) Coupled with funds from the AIG and GMAC bailouts, which are being utilized to pay off lenders on foreclosed properties, it is estimated the total government lifeline to the banks to cover their losses from foreclosures could rise to $l trillion.

The effect of this continued bailout to the banks is that it actually discourages lenders from reducing the principal on mortgages whose values they inflated through their predatory lending practices. This is because they know the government will pay them full value when the borrowers default.

Goodman testified to Congress that in the second quarter of 2009, 30.5 percent of mortgage loans in bank portfolios received a principal reduction as part of a modification. However, the corresponding number for loans guaranteed by the government through Fannie Mae, Freddie Mac, Federal Housing Administration, etc., was zero.

Incredibly, while the current situation cries out for a moratorium on foreclosures and fundamental reductions in loan principals, the Obama administration and Congress have been silent in implementing these measures and have not enforced already-passed legislation which could do so.

For example, the Helping Families Stay in the Their Homes Act, passed on May 20, states that it is the sense of Congress that there should be a moratorium on foreclosures until the Treasury Department certifies that HAMP has been implemented. Clearly, the statistics cited above and testified to at the congressional hearing demonstrate that HAMP has not been fully implemented. Yet Congress and President Barack Obama have not enforced this law and implemented a moratorium.

In addition, the Fannie Mae and Freddie Mac bailout bill, the Home Economic Recovery Act passed in July 2008, provides for loan modifications and workout agreements by servicers when the net value would be greater than the value of the home in foreclosure. Why isn’t the government ordering that banks holding Fannie Mae and Freddie Mac loans reduce the principal on those loans to their real value? Instead, they are paying lenders the inflated mortgage loan amount, and then selling the homes for less than half that amount, with the taxpayers picking up the difference.

The fight against foreclosures and evictions and against the banks and government that continue to bail them out will be a critical part of the fight for jobs and economic justice as the struggle unfolds in the coming months.

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