Homeownership: old myths, painful realities
Michelle Glass, 27.12.2012 16:48
The American dream is being mourned by many. The familiar story of homeownership goes something like this: a person finds a home they love, goes to the bank to get a loan, uses the loan to buy their dream home, and then makes monthly payments to the bank until the loan is paid off. Sound familiar? If this story is assumed to be true, the foreclosure crisis looks like the logical consequence of Americans overreaching and “buying more house than they can afford” while the banks are just enforcing the consequences of non-payment. The reality is much more complex and disturbing. Here’s what we all need to know to understand the housing crisis, how it affects all of us, and how to fight back effectively.
Let’s say you find a home you love, so you go to the bank for a loan and use that loan to buy the home. There are at least thirteen additional undisclosed entities involved in your loan that you may or may not ever hear about. These entities all have an interest in your loan, but not necessarily the same interest, and they certainly don’t share your interests. These shadow entities change many times over the life of the loan, and many of these transactions go unrecorded. This clouds the chain of title, which is the ability to track the changing ownership of the loan and prove legal rights to collect payments on the loan, and it deprives county budgets of revenues from recording fees. It is estimated that Jackson County loses about $1 million every year to these unrecorded transfers. That’s enough to fund our entire veterans’ services program!
The rapid transfer of interest in the loan happens through unregulated, highly profitable Wall Street transactions that tricked the market into thinking there was demand for homes, driving home values up. But the demand was manufactured and the bets were on us, with some investors putting their money on homeowners defaulting and some investors betting we’d keep paying. It all came crashing down when too many bets came up to collect at once and there wasn’t enough real money to pay them all off. So here we are with an economic collapse resulting in job losses, home values crashing, the foreclosure crisis, and Wall Street banks acting surprised and begging for endless taxpayer bailouts.
With this information, let’s revisit foreclosures. Mortgage servicing banks and investors have been paid in full by government-funded investors’ insurance, taxpayer-funded bailouts, and now quantitative easing to the tune of $40 billion a month in taxpayer money. At the same time, the largest mortgage servicing banks—Bank of America, Wells Fargo, Citigroup, JP Morgan Chase, and Ally Financial—have refused to work with homeowners who want to keep making their payments but cannot afford payments on loan values that are based on pre-crash home values, not today’s market value. This has left left sixteen million homeowners owing more than their homes are worth, putting these families at greater risk for default and foreclosure in the future.
Why don’t the banks do more to help homeowners? Our research shows that foreclosures are roughly 46% more profitable for mortgage servicing banks than if the homeowner kept making payments. Big banks don’t care about the homes; they just want their share of the payout from a complex mortgage and foreclosure system that powerful Wall Street interests have set up.
Things start making more sense when the real economic incentives are revealed. For example, it no longer seems baffling that over four million homeowners have lost their homes since 2007, with another seven million at risk, and that the banks are doing very little to help. Over $7 trillion in equity has been moved from Main Street to Wall Street through foreclosures, and that number is growing. That was our retirement savings, capital for small businesses, and money to send the next generation to college. Foreclosures have proved to be a powerful mechanism for widening the wealth gap in this country, putting financial stability and the American dream even further out of reach for generations of hard working low-income and middle-income families.
In order to fight back effectively, we must first understand the real story of foreclosures. Then we must fight back on the individual, legal, and cultural levels.
By providing education and resources on housing and foreclosure issues, homeowners and renters understand their rights and options. This empowers homeowners to effectively fight foreclosure, which results in more families in their homes, stronger communities, and healthier local economies.
In Oregon, courageous homeowners are successfully fighting in court to expose and stop wrongful foreclosures. The court rulings they have won build powerful legal precedent that has had a ripple effect in Oregon, leading to the cancellation of thousands of similar foreclosures for homeowners who never had to fight. The precedent is focusing the attention of national media and elected officials on the fraudulent practices of banks. This has led to strong action by Attorneys General Kroger and Rosenblum, the Oregon legislature, and officials in Multnomah County who voted unanimously to sue mortgage giant MERS for lost revenues.
On the cultural level, we must tell the real story of foreclosure and economic collapse. The mainstream story of who crashed the economy—the lazy unemployed or deadbeat homeowner—is a myth that masks the role foreclosures play in the movement of wealth from families at the bottom to bankers and CEOs at the top of our economy. The real story highlights the destructive role big banks play in our economy while undoing the shame placed on homeowners, struggling small business owners and the unemployed.
The work outlined above is not the work of any one person or group, but the work of a movement. Foreclosures are a strategic point of intervention for addressing growing inequality in America and the mechanisms driving the growing gap. By tackling the foreclosure crisis on all levels, families remain in their homes and people come together in empowered understanding and action against a common threat. Together we are building the grassroots pressure on our elected officials to create real solutions to the housing crisis: a temporary foreclosure moratorium, a real investigation of mortgage servicing banks, their foreclosure practices, and mortgage write downs for underwater homeowners. Foreclosures serve the interests of the powerful and wealthy in America. Strategic grassroots action is the most effective form of resistance.
Michelle Glass is the communications director at Project REconomy, Oregon’s only homeowner-led nonprofit offering education, grassroots action, affordable mortgage research, and attorney referrals to keep families in their homes. Find out more at www.projectreconomy.org.