Who’s to blame for the foreclosure epidemic?

[Joanne98]

By Sharon Black

Published Oct 26, 2008 10:03 PM

From television programs to radio talk shows—the victims of the foreclosure crisis are being made out to be the villains. The argument goes something like this: “People should have read the fine print” or “People were just too impatient and wanted big houses.”

Even worse is the myth that workers in general are responsible for the crisis “because all of us were just living beyond our means.”

Nothing could be more injurious than to blame those who are suffering for a system that they have very little control over.

To feel ashamed and alone is a recipe that guarantees that working-class and oppressed communities will not fight back. It also pushes individuals to take painful desperate measures.

The case of Addie Polk, a 90-year-old widow, is one of those examples. When the sheriff’s department came to Ms. Polk’s modest home in Akron, Ohio, to evict her, she shot herself in the chest.

It took this kind of desperate act for Fannie Mae to allow her to stay in a home that was originally priced at $10,000.

In Baltimore, a majority Black city, the racist, predatory lending practices of Wells Fargo Bank are the subject of a lawsuit. The city charges that when Black people applied to the bank for mortgages, two-thirds were told they qualified only for the subprime mortgages. Only 15 percent of the bank’s white customers in the same area were channeled into subprime loans.

This racist and sexist practice was multiplied across the country in Black and Latin@ communities everywhere.

But the foreclosure problem goes far beyond just the issue of “bad loans.” The estimated 10,000 homes foreclosed each day are tied to the broader crisis.

With the advent of high tech and the globalization of the economy, workers have seen their wages decline. At the same time the development of advanced technology has pushed capitalist production higher than ever.

With wages declining—the only way that workers can either survive, or in the case of the capitalist economy, buy back a fraction of what they produce—is to buy on credit.

How many workers have refinanced again and again just to pay off medical bills or for college education for their children? Who pushed credit cards and the extension of credit? Who pushed second mortgages on homes?

Even in the case of the housing market itself, the same forces were relentlessly at work. In every major city, rental units are overpriced. In most major cities the cost of an apartment is now one-half or even more than the average worker earns in a month.

The longtime standard has been that an individual should pay no more than one-fourth of their monthly wages on housing—something that is now virtually impossible. This situation forces workers into all sorts of deals, including fraudulent loan schemes, just to be able to have a roof over their head.

And the capitalists themselves are like drug addicts. Profit is a drug stronger than heroin or anything else sold on the street. It doesn’t matter that there are real needs like housing, food and medical care. If a profit can’t be made, then these critical needs will not be met. And if it is necessary to increasingly rely on credit and paper debt—no matter how dangerous—it will be done.

The so-called dream of owning a home has now been turned into a nightmare.

If there was any benefit at all, it was that after so many years workers could build equity in their home, which would give them some tiny sense of security, and that maybe your children, especially if you were working class, might have something after you died.

The present crisis has wiped that away.

Housing is a right!

In reality the dream has always been a myth under capitalism. There never has been that much separating renters from so-called homeowners. It is the banks that own workers’ homes and for 25 or 30 plus years workers pay “rent” to mortgage bankers.

An immediate solution is to fight for a moratorium on all foreclosures and evictions. A moratorium would give workers and the general community a period of time to find larger solutions to the crisis.

The billion-dollar bailout and takeover of Fannie Mae and Freddie Mac has now elevated this demand to a federal level. The government now controls 75 percent of the country’s mortgages. This places the responsibility of acting on behalf of the workers at the doorstep of the federal government, which could end all foreclosures with the stroke of a pen.

Elevating this demand politically has the potential to allow working-class communities the confidence to proceed to more direct and immediate methods of stopping foreclosures—that is, stopping the sheriff from removing furniture and keeping families and individuals in their homes and apartments.

The problem of housing must be looked at on a deeper and more profound level. Why should housing not be readily available to all workers? Why should such a necessity be provided solely on the basis of whether it is profitable for some landlord, bank or real estate company?

In a country as wealthy as the U.S. there is no reason that anyone should go homeless or find it cost prohibitive to have a roof over their head. Clean, decent, safe and attractive housing must be a right for everyone!


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http://www.workers.org/2008/us/forclosures_epidemic/

[BlueManDude]

1. Barney Frank and poor people.

[nc4bo]

2. Donald Trump on Faux news placed the blame squarely on "our" shoulders

He blamed those of us who got the loans. Not one single word regarding the role nor the responsibilities of the banks or even the deregulation that allowed it all to happen.

Blame the damn poor 100% for 100% of this debacle. :wtf:

[FormerDittoHead]

7. ...From the man who doesn't let a hat drop before he files for debt restructuring...

Not personal bankruptcy, but the Donald doesn't hesitate to hire contractors, for his casinos, etc. only to then have his corporation file for GOVERNMENT PROTECTION (aka bankruptcy in this case, chapter 11) so he can pay them less than / later than when he originally agreed to.

Next time, how about taking some personal responsibility for your bad management, Donald, and take the hit out of your own wallet?

No? I didn't think so.

In all fairness, I know people who work for Trump and they say he treats his employees better than most others, but he should leave his life lectures out of the media. He was born on third base and rode the real estate boom up by being a master bullshitter.

[Warpy]

3. Holding wages down for 40 years is to blame

which is what conservatives always do. Then they substitute easy access to debt as a way to float the consumer economy in the short term. Conservatives are completely incapable of thinking long term except in crowing that they'll be in charge forever, in the manner of the appalling Delay.

There is a limit to how much debt people can take on before servicing it cuts into subsistence. We've exceeded that limit among student loans, car loans, mortgages, and credit cards. People can't continue paying the minimum on all those debts without going without food. Something has to give, and it's the creditors that are going to have to do the giving in the absence of meaningful wage increases.

Conservative economics always starves the demand side of the economic equation while it fattens the supply side. This is just the latest endgame of an economic dogma that has been proven wrong time and time again.

Undoubtedly, when those of us who know what the problem has been all die off, the conservatives will be back with a slightly different vocabulary and sell it again to a new generation. The outcome will never be any different, though.

[Imperialism Inc.]

14. I was going to post something very similar to that.

Without all the borrowing supply-side economics would have crashed much sooner and much worse than it did. They handed out gifts to capital, capital creates new goods with it, but no one's income has gone up so no one can buy the new goods without borrowing. Of course the financial industry was more than willing to loosen their standards and pick up a raft of new debt slaves but if incomes don't eventually go up faster than inflation it has to crash in the end.

[sendero]

16. "access to debt"..

.. nobody is forced to take on debt to buy a tract mansion.

The bankers SHOULD HAVE KNOWN what they were getting into. But so should have the borrowers. Not all of them, but plenty of them were just playing the keep up with the Jones' game using other people's money.

I, and every other financially responsible American, are going to have to suffer through this downturn and pay to bail out the losers. I have no sympathy for any of the players in this drama, the lenders, the borrowers, the regulators, the speculators, none of them. They all pretty much suck.

[CoffeeCat]

4. I'll tell you our story...

We purchased our current home about three years ago.

We drove around our suburb (population 30,000) looking for houses and cool neighborhoods. Our first red-flag
was the onslaught of "For Sale" signs that screamed, "Get in this house for only $900 a month!" Those signs
were in front of gorgeous houses--scaled-down McMansions that were about 400,000. In our area, that money
buys a lot of house.

After finding a nice house--a bargain, I might add--we entered into the financing phase. We sat down with the
mortgage broker and she told us how we could get into this house for "so cheap" and she talked about the "awesome"
financing options that "make it so easy for people to have a small house payment." She was ecstatic. She
talked as if doing an interest-only loan was the most intelligent move a person could make, "Oh yeah, you have
a small house payment, and you have all of this extra money to buy furniture or pay down credit-card debt...it's
just so smart. Who wants to pay a $2,000 house payment, right?"

We were NEVER told about conventional, fixed-rate loans. She only told us about interest-only loans, adjustable-rate
loans with balloon payments, and we were NEVER, EVER told about the downside of these dangerous loans.

My husband and I sat stunned, listening to this pitch. We told her that we wanted a conventional, fixed-rate,
thirty-year mortgage. She looked befuddled. "Are you sure! There are so many options for home buyers these
days!" We told her we were sure.

She actually had to get up out of her desk and look for the paper work for a conventional loan. She didn't know
where it was. This person was so used to selling creative financing and talking people into risky loans--she no
longer knew how to to do a conventional loan.

After this fiasco, my husband and I left her office, returned to our car and sat stunned in silence for a few
minutes. Neither of us said anything for a long time. Then I looked at my husband and said, "This is not
sustainable. This is going to blow up. What happens when those $900 payments balloon up to $2,000 and people
can't make that payment? What happens when interest rates go up on those adjustable-rate mortgages? America
is so screwed."

Driving home, we'd see those "Get in this house for low!" signs and we would feel like throwing up. We're not
finance geniuses, but we saw the housing crash three years before it happened. We've been preparing for disaster,
saving our cash ever since. Also, there's a credit-card bubble that's going to burst--that will make the housing
bubble look like a Sunday picnic.

Who's fault is it? Our Congress critters relaxed the rules that banks, mortgage companies and finance companies
need to follow. The laws had to be relaxed in order for the doors of economic destruction could be opened. Our
society relies on our leaders to regulate banking and finance--in order to avoid disaster.

Our leaders were more than happy to kow tow to the credit-card companies and the banks. They opened the door.
Many people walked in, but those people weren't the ones responsible for the industry standards.

And certainly, it wasn't poor people who were flipping houses and making millions before the crash happened.
In my suburb, it wasn't the poor who were buying 500,000 houses and then defaulting. Most of these people
were dual income earners who got in over their heads. Two teachers cannot afford a McMansion, but the banks
insisted they could.

Everyone shares some blame--but they gatekeepers are supposed to regulate. They failed.

[doodadem]

8. Our Story

Our farm is currently in foreclosure. At least we see the light at the end of the tunnel though.

We weren't living beyond our means, we didn't sign up for some stupid terms. As I've posted about previously in the past few years, we have lost a tremendous amount of money to lawyers in an ongoing lawsuit with our stupid neighbors trying to take our property. But we were making it. Then in July, my husband was laid off from his job of 7 years, and hasn't been able to get anything since.

All that crap you're ever told about your mortgage co. working with you under such circumstances? Or your other creditors? Pure shit. They don't care. When you try to work something out with them, it's all about--how fast can you pay us and we're not settling for less. We get piles of certified letters that have to be signed for, and piles of letters from attys and agencies with "Avoid Foreclosure" right on the envelope for our small town postmaster to see and talk about. Notices of a Trustee appointed for our foreclosure sale. It is very very stressful and painful.

I'm self employed, and luckily my business picked up a little the past couple months. I came up with the 10K to make up our mortgage. Just as we were getting ready to pay it, Wells Fargo finally came back with an offer to restructure our mortgage--knocking the rate back from 6% to 4 1/2%, and reducing our payments by $500 a month. We would not have to make up back payments, but added 10 years to our mortgage (40 years now).

We opted to do that, and keep the 10K to live on. In the mean time, we still keep getting the hateful letters, and the county records still show us in foreclosure until the process is finished. Tons and tons of people out there aren't so lucky though.

[CoffeeCat]

9. I am so sorry for your situation...

I read your story with great interest and also great sadness--because painful financial situations
take an incredible toll.

I'm sorry about your neighbors. What a challenge to be neighbors with people who are causing so much
stress. I hope that legal situation has been resolved, and I hope your neighbors paid through the nose
for their lawyers too.

I think there are so many people who are vulnerable right now--and they don't even know it. You guys
were doing all of the right things, and then your husband lost his job. So many people are going to
find themselves in that very situation. Jobs are going to disappear at exponential rates in 2009.
It's going to be a bloodbath. I don't think as many people are as prepared for trauma--as you guys
were. So many people are living on the financial edge now.

I'm glad to hear that you were able to make it. You should be really proud of yourself. I'm sure
you're holding onto that 10k like it's the last money you'll ever have. We're doing fine, but we're
hoarding cash and not buying anything. Every penny we save now goes into the mattress, not the bank.

Thanks for sharing your story. I'm glad you're on solid ground now. Is your husband still looking
for work? You know what it's like to go through that, and we're going to need a lot of empathetic people,
when this financial crisis reaches its peak.

[Celebration]

11. an "aha" moment, you had

I happened to go to Ft. Lauderdale around the time of the biggest boom. I saw so much condominium construction there that I just dropped my jaw. I had never seen so many big buildings on the coast. I knew there weren't enough people to afford them. Something was amiss.

Another tipoff came from my massage therapist. His wife had many types of management jobs but had quit hers as a mortgage broker, of sorts. Why? They were encouraging her to put people into loans that they could not afford, and she decided to go with her conscience, rather than make 100 grand a year.

Anyway, I knew there was a problem, but I certainly didn't know the extent of it then.

[CoffeeCat]

12. Do you get the same feeling about credit-card spending?

We had "aha" moments about the housing market, but the moments I have
about epidemic credit-card spending in this country are more like an "OhhhhhhSHIT!!!"
moments.

When households severely decrease their credit-card spending (for a multitude of
reasons), I think we're in for hell on Earth.

I think a person can somewhat insulate themselves from being affected by the
housing crash. I see no way in hell that most people will be unaffected by
the credit-card bubble bursting.

I fail to see how an economic collapse is prevented.

Do you get any of the same feelings about the credit-card bubble, as you did
when you had your "aha" moment about the housing industry?

[Celebration]

13. not an aha moment

But only because it is not visible, like a huge condo complexes up and down the beach.

I had an aha moment when I posted this, though--

http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=114&topic_id=34561

I should have gone 200% short the stock market at that point.

[barb162]

20. Eloquently stated. n/t

[norepubsin08]

5. One word: Republicans!!!

[Trajan]

6. The ultimate solution ....

1) Restore loan terms to reason ...

2) Lift wages of workers ...

I cannot seem to break through about the effect of weak wages here at DU : http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=132&topic_id=7825588&mesg_id=7825588

[leftofthedial]

10. predatory lenders (and the deregulators who enabled them)

bear a huge portion of blame, but it's really our shallow culture of consumerism--more! more! more! that made it inevitable once the capitalists were turned loose.

[PassingFair]

15. The banks and the mortgage companies that made it more affordable to buy above your means...

than to rent.

Really, it was cheaper to do an interest only loan
in a good neighborhood and send your kids to a good
school than it was to buy in a horrible neighborhood
and afford private schooling or rent in a good school
district.

EVEN if you had to walk away at the end of 3-5 years.

You would have pocketed enough savings over rent to
have some money left over.

[Greyhound]

17. Every single person & entity in the business. From the real estate salespeople to

the banksters to the lawyers to the mortgage brokers to the appraisers to the fucking notary public that oversaw the signings, they all knew this was nothing but a confidence scheme and took their money and looked the other way.

The Amerikan ejukashun system also bears some blame for turning out a people so ignorant of everything from language to science and mathematics that they are, for all intents and purposes, nothing but stock animals suitable only for extracting valuable commodities from their existence until they can be used for fodder.

[sendero]

18. I have to agree...

.. I find it utterly astounding that someone would take on a 300K+ debt without understanding even the rudiments of the mortgage loan.

Anyone can spend 30 minutes on the internet and learn about fixed-rate, ARM, option ARM, etc, etc. loans and how they work, and those having 2 brain cells to rub together would KNOW that an ARM when interest rates are already low is a horrible idea. In fact, ARMs are pretty much a bad idea ALWAYS.

Everybody acts like they didn't know any better. I can't decide which are more pathetic, those who really didn't understand what they were getting in to, or those who now want to ACT LIKE they didn't know.

[yop]

21. People have always been idiots

Even in the good old days, people didn't really understand their mortgages. The difference between the last few years and the good old days is securitization. In the good old days, banks were putting their own money at risk when they issued a mortgage. In contrast, recently, the banks have only been intermediaries- they issued the mortgage, then immediately sold it to investors.

Incentives matter. In the old days, banks did not want to drive people bankrupt, because their money would disappear when the homeowner went under. With the current bubble, they stopped caring because they got their fees upfront and had no stake in the longterm performance of the loan. Even honest bankers made lots and lots of bad loans- they simply had no incentive to do the necessary checks.

Borrowers and investors did have strong incentives to make better decisions. But borrowers were idiots, just like they have always been. And investors were caught up by a failed theory, so they behaved just as stupidly.

[sendero]

23. Can't argue with much of that..

... I think you are basically correct.

Lenders used to make loans with the expectation of being repaid, because they lost money if it wasn't. Along comes securitization, and relieves them the burden of giving a crap whether a loan will be repaid or not.

The answer of course is to re-regulate the mortgage and banking business with a vengeance.

[barb162]

19. "Why should housing not be readily available to all workers? "

What I wish the author would say is there must be a liveable wage.

[GSPowner]

22. Put it right on the back of those who are responsible!

What a worthless article...thanks for posting but this article it is devoid of any personable responsibility and simply pointing fingers at our economic values. This is not what the Democratic party this is! This is the kind of crap that the Republicans will start screaming Socialist over! What’s next I see this person calling for food and clothing is a right for everyone too! It is depressing I thought I would find sharp and intellectual debate on more of the responses here to sharpen my opinion and most are nothing more than foul mouth hated filled ad-hominem attacks. You can’t influence people when you respond with hated filled, personal attacks and then also failing to remove the plank in your own eye and being a hypocrit.

1st - on the borrower for not being smart enough or reasonable enough to make good decisions and seek proper counseling about financial decision
2nd - for greedy lenders and brokers looking to make risky loans with higher margins to people that could not afford them to make more commission
3rd - Fannie Mae and Freddie Mac executives that lied about their financial exposure and risks
4th - Barney Frank and his crew for their reckless and stupid policies
5th - Congressional and House leaders who felt it was wise to push for legislation that encouraged and pushed the sub-prime market


What to do about the?

1 - borrower – provide some counseling and guidance to mitigate their losses BUT we are not in the business of bailing out everyone that makes bad decisions
2 – Mortgage lenders that broke the law prosecute and strip them of their credentials and heavy fines, and strip the ones of their credentials that broke the ethical rules of the profession
3. Censure and removal for their seat for Barney and his pals and prosecute those that broke the law
4. House and Congress that pushed the ethical envelop - vote the bums out...and by the way folks there are plenty of Democrats in this bunch and from what I have read quite a few more than the Republicans and as much as we all would like to blame President Bush he would likely be one of the last Republicans responsible...maybe accountable to some degree because of his position in the Republican party but not responsible.

[ozone_man]

24. Greenspan and Rubin economics.

Back to the Clinton years is really where the bubble economics started, including the repeal of Glass-Steagall, allowing this unregulated derivative market.

The stock market bubble crash under Clinton led to the real estate bubble creation by lowering rates to 1%. So, the money shifted from stocks to real estate, fueled by home equity loans at rock bottom rates. Now, all markets, including commodities are crashing together as there are no more places to hide. The dollar is king now, since it's the only safe place to be.

The amassing of huge consumer debt has led to our present situation, including the large number of home foreclosures. The consumer is tapped out and will be a for a number of years. The debt has to be purged before new growth can occur. These home owners will have to become renters again. As a consumer society, we became vastly overextended in terms of our wants and means to pay for them, and now we must settle for meeting our needs, and most important, to recognize the difference between our wants and our needs. Lean times ahead.