Many of the nation's banks are failing to do their part to solve the nation's housing crisis, and are therefore obstacles to economic recovery. On Monday, Sen. Richard Durbin, D-Ill., called them out on it.
Speaking at the Center for American Progress, Durbin noted that the housing crisis wiped out over $14 trillion in household value as result of dangerous Wall Street gambling and speculation, the greatest loss of financial wealth in American history. A family loses its home to foreclosure every 13 seconds. The Center for Responsible Lending estimates by 2012 that at least 9 million families will be forced from their homes as a result of foreclosure. Indeed, more than 9 million families could be forced from their homes as a result of dramatically rising unemployment.
In the face of this, the Home Affordable Modification Program -- which depends on the voluntary participation of banks -- has done little to help families facing the heart-wrenching experience of losing their homes. The program was intended to help 4 million of the families expected to face foreclosure this year to stay in their homes. However, so far the program has only served 200,000 families, and only 9 percent of loans have been modified to keep families in their homes. Several banks such as PNC Bank and American Home Mortgage have yet to modify a single loan due to the voluntary restrictions.
If the events of the past year have taught us anything, it's that you can't trust Wall Street to put corporate greed before helping regular people. In fact, a recent Washington Post article highlighted that banks actually make more of a profit by foreclosing on a home than attempting to work out a way to keep a family in a home even with the financial incentives of the Home Affordable Mortgage Program. Indeed, several mortgage lenders, according to Durbin, have used the opportunity to modify people's loans to give them even more predatory loans because they can make more money off of it when the loans fails.
Durbin called for forcing any bank that received money as part of the bailout to be required to implement loan modification plans. He called for funding for mandatory arbitration programs, which provide families with financial counselors so that they can fairly renegotiate the terms of their contract. Furthermore, he said families that could not find a way to pay for their mortgages should be allowed to stay in their homes and be allowed to pay rent for an extended period of time.
The most important thing that is needed is to give families the ability to renegotiate mortgages that are worth more than the value of their homes. "There is growing consensus that principal reductions are the key to sustainable modifications that won't redefault, since a homeowner who has equity will fight harder to make the mortgage work," Durbin said.
If the banks failed to take proactive measures to help families to stay in their home, Durbin said he would fight once again to pass "cramdown" legislation that would empower judges to force down mortgage rates for families struggling to make payments on mortgages worth more than the values of their homes. Last April, the banking industry spent $42 million to defeat this bill, leading Durbin to proclaim that the banks "frankly own the place." Twelve Democratic Senators paid off by Wall Street voted against this sensible measure.
Durbin was optimistic about the vote, however, noting that he had received more votes on the cramdown legislation this year than had when he had introduced the measure previously. Durbin recounted how one senator told him he was forced to change his vote after seeing the misery that families were suffering from losing their homes.
It is now up to us as a movement to demonstrate to our elected officials the measure and deep pain that families demonstrate when they lose their home. In order to force the banks to act we must take to the streets to as Dr. Martin Luther King Jr. said "to create such a crisis and foster such a tension that a community which has constantly refused to negotiate is forced to confront the issue. To so dramatize the issue that it can no longer be ignored." When a family loses a home, they lose more than just losing a piece of property or the money invested in it. They lose a backyard where children can play in the afternoons and the family can have barbecues on a hot summer night. They lose a living room painted in their favorite color and adorned with cherished memories. They lose a sense of not just being in a community, but being part owners of it. They lose, in a real way, the foundation of their lives.
We can't allow Wall Street to go on cheating people out of the most important possession of their lives -- their home.