The epidemic of foreclosures that began in 2008 has been devastating America's families, communities and economy.
Nowhere is this more true than in California, where one in five U.S. foreclosures has taken place. Since 2008, more than 1.2 million Californians have lost their homes, and the number is expected to exceed 2 million by the end of next year. More than a third of California homeowners with a mortgage already owe more on their mortgages than their homes are worth.
As a result, home values in the state are estimated to plummet by $632 billion. That translates into a loss of more than $3.8 billion in property taxes. One foreclosed home in a neighborhood can reduce property values for the rest of the houses in the neighborhood, and a cluster of foreclosed houses compounds the physical, economic, and social devastation.
And just as local governments are starving for revenues, they are asked to deal with the increased costs -- estimated at $17.4 billion over four years -- caused by the foreclosure mess. These include public safety, maintenance of abandoned and blighted properties, inspections, trash removal, sheriff evictions, unpaid water and sewer charges, and the provision of emergency shelter.
We can't solve California's fiscal disaster without addressing the foreclosure crisis. It doesn't make sense to make severe cuts to state and local budgets only to allow Wall Street banks and their overpaid CEOs to drain billions more from our states. The banks created the housing crisis with toxic lending practices and they need to be part of this solution.
A bill sponsored by Assemblyman Bob Blumenfield (Democrat, Los Angeles) -- the Foreclosure Mitigation Fee (AB 935), which is currently going through legislative hearings -- would require banks to pay their share of foreclosure costs. Backed by a broad coalition of consumer, community and labor groups, the bill would impose a $20,000 fine on banks for each foreclosure. If the bill passes in California, it could encourage other states to support comparable legislation and help energize a movement to reign in Wall Street abuses.
The fee would generate about $12 billion in revenue over next two years. This would go entirely to local communities in order offset the multiple costs borne by our neighborhoods because of foreclosures and shared between public safety, public education, local governments, redevelopment activities and small businesses.
Los Angeles County alone will face an estimated 381,461 foreclosures through 2012, costing local governments $918 million in lost property taxes and $2.8 billion to pay for the problems. Riverside and San Bernardino counties have been particularly hard hit by the foreclosure earthquake. But no county, city, or small town in California has been spared the devastation.
Indeed, the foreclosure tsunami and the housing market crash are the primary causes of the severe budget crisis facing California's municipalities and counties, forcing local officials to slash services and lay off tens of thousands of employees.
But many Californians are asking, why should taxpayers and communities have to pick up the tab, and face such hard times, for a crisis they didn't cause? They -- and the families caught in the maelstrom -- are the victims of this human-made disaster.
And let's be frank. Wall Street's reckless and predatory lending practices were responsible for the mess we're now in. Bankers pushed homeowners into high-cost loans they couldn't afford. They engaged in deceptive and often illegal activities, like not informing consumers that they qualified for conventional loans, tricking them into more costly and risky subprime mortgages.
Wall Street banks bundled these risky loans into "mortgage backed securities" that were given the seal-of-approval of ratings agencies (Moody's and Standard & Poor's), and then sold them to foreign governments, pension funds and other unwitting investors.
When the scam imploded and Wall Street's bets went sour, the bankers were bailed out by the taxpayers. Goldman Sachs got $53 billion in bailout funds; Bank of America received $230 billion; Wells Fargo pocketed $43 billion. Meanwhile, the top executives got outrageous compensation packages. Last year, for example, Wells Fargo CEO John Stumpf received $17.1 million in salary and bonuses.
But California residents lost billions in savings in their homes, neighborhoods were devastated, businesses crashed and laid off employees, and local governments spiraled downward into fiscal hell.
The largest banks -- Bank of America, JP Morgan Chase, Wells Fargo, and Citigroup -- are among the top lenders foreclosing on California families. Not surprisingly, these are among the banks that have been flooding Sacramento with political cash in order to thwart legislation designed to make them -- the real culprits of the foreclosure massacre -- pay for the suffering they've caused.
Since 2007, the financial industry has spent $70 million to buy political influence in the state Capitol -- that's nearly $50,000 per day. Almost $46 million went for campaign contributions to candidates and elected officials, while more than $23 million went for lobbying expenses.
Six banks alone - B of A, JP Morgan Chase, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley -- have invested more than $9 million in political cash. Lobbyists and industry associations, like the California Bankers Association, the California Independent Bankers Association, and the California Mortgage Bankers Association, have doled out $4.5 million in what some call our system of legalized bribery.
The key organizations behind this pro-consumer bill include the Alliance of Californians for Community Empowerment, the Service Employees International Union, the California Reinvestment Coalition, the community organizing group PICO California as well as the California Council of Churches, California Association of Retired Americans, California Labor Federation, California Nurses Association, the Center for Responsible Lending, and the State Building and Construction Trades Council. They correctly believe that California's economy can't recover without addressing the cost of the foreclosure crisis.
AB 935 doesn't solve the entire foreclosure calamity. But it does have several very positive aspects. First, it may create an added incentive for banks to modify more loans so that families can remain in their houses. So far, most banks have pushed the pause button when it comes to renegotiating troubled mortgages with owners who could lose their homes through no fault of their own. Second, the revenues collected from the foreclosure fee will reimburse local governments for some (though certainly not all) of the costs our communities are now facing from foreclosures.
Until we make the banks pony up for the devastation they've caused, the taxpayers are left holding the bag, subsidizing the reckless behavior of excessively paid top bank officers, who threw a huge party for themselves and are making the rest of us clean up their mess. That's not shared sacrifice.
Right now, Californians are bearing the full expense of the foreclosure mess. Shouldn't the big banks be part of solution to the problem they helped create?
Peter Dreier is E.P. Clapp Distinguished Professor of Politics and chair of the Urban & Environmental Policy Department at Occidental College. A version of this article appeared in the Los Angeles Daily News.
Within the last two years:
1) I lost my job of 23 years, due to a company acqusition, where the President's payout was "38 million", and he had only been with our company a whopping 6 years (another topic altogether), but does contriubute to the overall economy, and problem with the housing crisis....like, um "Coporate GREED, and rediculous CEO payouts"
2) Last year my husband fell ill, and can no longer work.
3) Used my retirement savings to keep paying the mortgage, and yes, our loan is a Countrywide/BofA loans.
4) Now we are out of money and can no longer pay the mortgage, and we are waiting for BofA to call us back in 2-3 weeks I'm told, regarding avoiding foreclosure and assistance in staying in our home...yeah, right!! We'll see!! And our home is now only worth 175,000k.
So if there are folks taking the hard stance about people who bought homes that shouldn't have, and should be defaulted regardless, take another look, because things are not always so black and white.
You could write BofA and tell them that you "want" to pay off your mortgage, but you need to have the paper trial establishing to whom the pay-off is to be made as you do not want to pay twice. Give them your name and street address but not any loan number. If they cannot produce the paper work to prove that they own your mortgage when you want to pay if off, they lack the paperwork and should not be able to prove they own your mortgage if they try to foreclose.
Also, hire an honest attorney (I know, it's an oxymoron) If the S/L has not run, you might sue for fraud depending on the representations Countrywide made when you took out the loan.
The fact of the matter is, the banks gambled, just like the homeowners did. But where many homeowners were mislead into thinking they could afford to roll the dice, the banks knew all along that it wasn't that simple...this is their BUSINESS. They bear a much higher responsibility for the resultant mess.
Now they balk at any kind of accommodation to these homeowners? Because there's the matter of CONTRACTS, and contracts must be binding, or there will be some kind of financial Armageddon? Then what about all those pesky public employee unions that are being told that THEY have to forget about THEIR contracts because of the new financial reality? Oh, that's right...the rules don't apply to the "little people".
The moment Obama appointed Geither, we knew we had elected Bush III.
$100.000,- annual remuneration, retirement at 52 with 85% of the last year salary as retirement income plus life long health care at tax payers expenses for a prison guard.
Has anyone looked at the remuneration of police chiefs, majors, city council members ($100.000,- for their part time labors) and the like in places like Bell?
The legislature should make every foreclosure prove that they are entitled to foreclose; often they were in such a reedy haste they never did the paperwork. Next when, the bank should have to prove that the loan was not caused by predatory lending practices. Many homeowners took out loans with stepped-up monthly payments which would kick in after 3 to 5 years. When the buyers said that they could never afford the higher monthly payments, they were assured that the bank would refi them before the stepped-up date arrived and the monthly payments would remain low. The bank had no intention to refi.
The loan companies did not care about anything except selling the mortgages to Wall Street ASAP, and Wall Street then knowingly took the bad mortgages, bundled them together, had credit agencies give fraudulent AAA ratings and then sold them while buying CDS that the mortgages were bad.
People with Unclean Hands have no business in court. The better solution is for the courts to reject these foreclosures and require the bank to pay the homeowners' costs and attorney fees.
a) Blaming banks solely for the housing crisis, as cathartic as it might be, is wrong. The truth hurts too much. The Fed with its cheap easy credit & congress-driven legislation that pushed home ownership, dropped standards, & made Freddie & Fannie the subprime insurer & the purchaser of last resort all had bigger rolls than the banks did. & don’t forget the borrower, they were complicit in their own failure.
b) This has less to do about fairness for the ‘supposed’ victims of the crisis & more to do with vengeance & profit taking by the state. California already has one of the worst business reputations in the nation. I am sure that employers will love to rush back to the state when they find out that the state ignores rule of law & contracts to expropriate property.
c) This will change the cost dynamics of getting mortgages in the future. As with all taxes, they are eventually passed onto the consumer.
d) There are a lot of people that DESERVED to lose their houses & a lot of mortgages that were provided in good faith by the bank using fair & open standards. Punishing these banks for merely trying to get their fair share of their money back is the kind of banana-dictatorship actions that hurts lawful businesses that are just behaving in line with previously published laws.
Kai
What exactly have the banks done for their part of this fiasco??? Bailed out, no strings attached, they suffered none, they sacrificed nothing and continue to profit...nothing fair about that either.
And if the rebuttal is that the banks were bailed out, remember that they have to pay the TARP money back - it's not a gift. So the banks who made bad loans bear the loss. The TARP money keeps them going till they can restore enough capital to pay it back. But the banks wind up with a lower net worth as a result of their mistakes when the loans are paid back to the feds.
Terry T said it correctly. This law does not differentiate against banks with legitimate claims to the houses they lent against based on fair and open lending practices. It, like you, assume that all banks were complicit in fraud and that all borrowers were defrauded and that simply is not the case. I would argue that subprime makes up a very small percentage of the overall loans provided, with most being your standard vanilla loans, that were simply written when prices were high and the market looked rosy, and now the markets are bad and the prices down. That is not the banks fault, and they should not be penalized for it.
I agree that the banks should not have been bailed out. But keep in mind that the largest mortgage holders, JP Morgan, Bank of America, Wells Fargo, etc. were all in fairly good shape and would have remained so if they had not taken up the government’s request to purchase other failing mortgage providers. Assuming that all their loans are bogus is an overstatement and they should be protected against defaulters.
Kai
OK. Great. So let’s get the paperwork in order, make sure the RIGHT owner is filing and foreclose. Broken title chains is nothing new and it does not void mortgage agreements, despite what some judges are claiming, you simply re-file, re-establish the title chain and foreclose. It takes more time but is not that costly and is easily rectified.
But that is not the issue. The issue is should banks be penalized for filing a foreclosure. Of course not, especially if their paperwork is in order as you like it, right?
Kai