It sounds like hype to say it, but underwater homeowners can change the course of history. It's not me saying that -- it's the numbers. People who owe more than their homes are worth have the power to become the a powerful new political and economic force.
They've got the numbers, they've got the votes and -- if they can get organized -- they've got the economic clout. And we can prove it.
This is something I and others have been pondering for a while, and it's been on my mind again as I look forward to being on a panel at the Take Back the American Dream conference with New York Attorney General Eric Schneiderman, Heather McGhee from Demos and MSNBC's Alex Wagner. It also came up in a conversation we had this weekend on The Breakdown with members of the Home Defenders League, a group that's looking to organize underwater homeowners.
How powerful are those homeowners? The numbers are staggering.
40 Million Strong
A new and more accurate study by Zillow shows that the number of underwater homes is higher than we had thought, and that that 16 million homes are underwater. If those households are the same size as the American average, then the average number of people living in them is 2.6. (I thought it might be higher, but I cross-tabulated some Census Bureau numbers and came up with 2.63.)
That's more than 40 million people.
40 million people is more than the population of Connecticut. Of Iowa. Of Mississippi. Of Kansas, Arkansas, Utah, Nevada, New Mexico, West Virginia, Nebraska, Idaho, Maine, Hawaii, New Hampshire, Rhode Island, Montana, Delaware, South Dakota, Alaska, Vermont, North Dakota, the District of Columbia and Wyoming ...
In fact, it's more than all of them put together.
That's right: The number of people living in underwater homes is larger than the number of people living in twenty-two states and the District of Columbia. The residents of those states are represented by 44 senators. The number of people living in underwater homes is greater than the entire population of California, our largest state.
How many voting-age people live in underwater homes? Statistics are hard to come by, but if we assume it's 1.5 voters per household here's the figure we get:
24,000,000 voters. 132,618,580 people voted in the last presidential election. That means these homeowners could account for as much as 18 percent of all voters -- if they all turned out to vote. It also makes them one of the largest potential voting blocs in the country.
These numbers are going to get smaller little by little as foreclosures move forward, so we may eventually have to give back Connecticut. But it's a huge number. If the Home Defenders League continues to show up at Obama and Romney rallies and steps up its efforts to exert pressure on both parties -- and if it's able to rally large numbers of underwater homeowners -- underwater homeowners could become an enormous political force.
A Debtors' Revolution
They could become an equally powerful financial force, too.
We don't normally think of underwater homeowners as having economic clout, but they do -- if they get organized. How much clout? Zillow now estimates the underwater portion of their mortgages at $1.2 trillion. That's "trillion," with a "t." And that's just the lost value in their mortgages.
But their clout doesn't just extend to the mortgage amount that's underwater. It involves the whole amount owed to the banks. Another data group, CoreLogic, reported at the end of 2011 that the average "underwater" amount on these homes -- the difference between what was owed and what the home is worth -- was $64,000. But the average total owed was $252,000.
If these ratios are still accurate, then we can multiply that $1.2 trillion by four to get the total amount these underwater homeowners owe banks:
$4.8 trillion.
To paraphrase an old saying, if one person doesn't pay his mortgage, it's a tragedy. If 16 million don't pay, it's a freakin' revolution.
When you do it, it's immoral. When they do it, it's "strategic."
It was a stunning act of moral hypocrisy for the Mortgage Bankers Association, which calls itself "the voice of the real estate finance industry," to do a short sale on its Washington, D.C., headquarters, walking away from its own underwater loans even even as CEO John Courson was lecturing homeowners on their "legal obligation" and the terrible "message they would send" if they did the same. (More here.)
How did the Mortgage Bankers Association get away with it? How was Morgan Stanley able to walk away from its San Francisco headquarters when the building's value plummeted below what it owed, abandoning both the building and the debt despite having available capital of $213.2 billion?
Do you think they were given moralistic lectures about being greedy, or about how they should've known better? Do you think they told to worry about "the message they would send"? Do you think their lenders threatened them with legal action?
Do you think their FICO scores went down, or that any of their executives had problems with their next job application?
What these corporations did is called "strategic defaulting"; a number of others have done it too. How did they do it? With clout. They command a lot of money, and that makes them powerful. They also do enough other business with their colleagues to make it worthwhile for lenders to give them a pass, or cut them a generous deal that reduces the principal they owed.
Sure, they're all country-club buddies, too, and homeowners are not. But these are people who'll negotiate with anyone -- once it's clear they have more to lose than they have to gain by not negotiating.
Eyeball to Eyeball
Does that mean that 16 million underwater homeowners should strategically default too? Not necessarily -- but they should be willing to default, if that's what it takes, and they should be prepared to act in an organized manner. After all, even if only one-fourth of these mortgages (in dollar terms) went "on strike," the banks would losing more than a trillion dollars from their books.
If homeowners are willing to go to the brink, to walk away if necessary rather than pay unjust mortgages, banks will suddenly become very willing to negotiate. But they won't do it until it's clear they have a lot to lose if they don't.
It's about hanging tough to get a fair deal -- and not giving up until you do. They call it "Staring eyeball to eyeball to see who'll blink first."
Sure, the banks can repossess the underwater negotiators' homes, but another Zillow study showed that banks lose far more than the underwater amount when they do that. If something like this became a mass movement, or anything approaching one, the banks would stand to lose hundreds of billions of dollars unless they came to the bargaining table prepared to make deals.
Hundreds of billions? As William Shatner used to say, "Now you're negotiating!"
Movement and Reality
Is this all a fantasy? After all, even the Home Defenders League isn't talking about a mortgage strike -- yet. And it, like other efforts to fight bank fraud against homeowners, is still in the start-up phase. But things could change quickly if the movement catches hold, just as it did in the Arab Spring and the early weeks of the Occupy movement.
How can it become a movement? The right mental state helps. If they haven't already, underwater homeowners have to get past the shame some of them are still feeling. That emotion's been imposed on them by corporate-fueled media. (Sometimes that shame has led to suicidal thoughts and acts, and to the kinds of heartbreak reflected in the emails I began receiving when I first started writing on this topic a while back.)
Nothing's better for getting past unwarranted shame than getting together with others who are in the same situation.
Then people have to get organized and disciplined. They have to decide how far they're willing to take this struggle, and how committed they're willing to become to various forms of action: political protest, nonviolent demonstrations, arrests, or legal action arising from non-payment of mortgages. They'll have to choose leaders and negotiators.
Realistically, these homeowners aren't all going to act in unison. But if large enough numbers of them band together, they can change ... everything.
Nothing to Lose
First people need to get interested, then they need to get involved. Both of these steps can be taken at the Home Defenders League, at gatherings like the American Dream conference, at Occupy rallies, and at other places where independent activists are willing to fight for economic justice.
It doesn't cost a nickel -- and it could be the best investment anyone's ever made.
As Kris Kristofferson said, "Freedom's just another word for nothing left to lose." Underwater homeowners have already lost a lot. It's time to use their hard-won freedom to win a little justice, too.
Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future and the host of The Breakdown, broadcast Saturday nights from 7-9 pm on WeAct Radio, AM 1480 in Washington DC.
Follow Richard (RJ) Eskow on Twitter: www.twitter.com/rjeskow
Janet Tavakoli: Jamie Dimon's SNAFU: JPMorgan's Other Derivatives' Losses
10/6/2008 – $8.68 billion dollar settlement with Countrywide for the State of California
8/3/2010 - $600 million dollar settlement with Countrywide Financial with the New York City Pension Funds
10/15/2010 - $67.5 million settlement with the SEC
2/2/2011 – Former Countrywide executives make a $6.5 million settlement with California
In fact, the Attorney General of California sent us a letter requesting that we be prepared to testify if called upon to do so.
6/29/2011 – B of A settles with 22 institutional investors for 14 billion.
7/20/2011 – Countrywide settles a class action suit for charging excessive fees to more than 450,000 borrowers.
12/21/2011 – Countrywide settles bias suit for $335 million dollars for discrimination
With all the settlements and court cases regarding bank fraud still pending, the lenders are still allowed to foreclose and remove families from their homes.
Yet the evidence tells us that these families have been lured into liar loans and later into default:
A) The FBI estimates that 80 percent of all mortgage fraud involves collaboration or collusion by industry insiders.
B) Register of Deeds, John O’Brian has documented massive fraud.
C) San Francisco study found 85% error in foreclosures
The author here says the same thing, yet I don't see anyone beating up on him.
In a similar vein, I've wondered what would happen if a sizable fraction of the tens of millions of long-term unemployed all decided to go camp on the Washington Mall, until they have jobs?
What do they have to lose?
Their jobs?
Or should they worry that it will, somehow, make them 'unhireable'???
Would the ghost of MacArthur send his troops in to club them and gas them?
And as someone who has gone through this and got back on his feet and has had time to reflect
I wish it where possible to do this because the bank lied to me about the term of the deal and I'm not a math god I'm just a working man trying to pay my bills and rise my kids and there should have been disclosure on the banks part
This is just about creating more classes between people.
Don't invest in bubble economies unless you are prepared to take a bath.
rings hollow. It spite of never having a mortgage or owning a derivative
or having an unpaid debt, the value of my home, rental property and retirement accounts crashed precipitously. That's what I call "no fault".
No government program ran to my aid nor should it have.
This is just another way the government is trying to divide people into different victim classes.
The 1% has been waging all-out war on the 99% for thirty long years.
The evidence is all out there for all to see.
If you are so blind that you cannot, then you are part of the problem.
Before you go spouting off further on this site, please read:
"The Politics of Rich and Poor: Wealth an the American Electorate in the Reagan Aftermath" by Kevin Phillips (Nixon Republican)
"Conservatives without Conscience" by John Dean (Nixon Republican)
"Broken Government" by John Dean
And, for a good overview of the Party that has royally screwed this country, and how it has done so, go review:
http://www.rollingstone.com/politics/news/how-the-gop-became-the-party-of-the-rich-20111109
The first and second article of the Virginia Declaration of Rights adopted unanimously by the Virginia Convention of Delegates on June 12, 1776 and written by George Mason, is: "That all men are by nature equally free and independent, and have certain inherent rights, of which, when they enter into a state of society, they cannot, by any compact, deprive or divest their posterity; namely, the enjoyment of life and liberty, with the means of acquiring and possessing property, and pursuing and obtaining happiness and safety." (Found on Wikipedia.)
An analysis of Jefferson's use of this phrase was provided by Garry Wills, in his book Inventing America: Jefferson’s Declaration of Independence.[7] While arguing against the commonly held belief that Jefferson took this phrase - but lightly - from Locke's "life, liberty, and property", Wills also argues against the belief that Jefferson was merely offering some vapid nicety, to which the government could not be held to account: "When Jefferson spoke of pursuing happiness, he had nothing vague or private in mind. He meant a public happiness which is measurable; which is, indeed, the test and justification of any government."
Money lenders & our government have failed us.
"Pursuing happiness" does NOT mean at the expense of others.
And "safely" means protection by the rule of law. How you could
read Jefferson and interpret it as paean to government entitlements
and collective ownership is puzzling. Did you study in Moscow?
instead the money went to the creditors, without the flow through that would have helped the people who were defrauded, who through no fault of their own found themselves victims of a policy of artificial valuation and confusing fake transactions of the property they were purchasing...
but you know what they say about coulda shoulda woulda... shrug
The government shouldn't have bailed out anyone or if they really felt they still had to bailout the bankers they should have made it contingent on hard numbers in terms of mortgage reduction and help for homeowners, although I realize that could be construed as an indirect bailout.
I feel ZERO moral compunction to keep on paying for the house when it appears to be worth less than I still owe...after 15 years of mortgage payments and 20% down. Sure, we pulled some capital out in the heyday, but only to improve the property and theoretically increase its value.
So now I'm happy to stay here - mortgage free - until the bank decides to evict us, and then hand them the keys and walk away. It's a mathematical decision, not a moral failing on my part.
But you, like many others, equate the current value with the value the bank paid up front on your behalf. You don't want to keep making payments on an asset that you feel is not worth what you owe. But the bank has already made the purchase and has no option to reduce the amount they pay. The fallacy of your thinking is that you feel like you are paying the bank for an asset that isn't worth the purchase price. The real analogy is that you are PAYING BACK the bank, who purchased your home on your behalf.
In your opinion, is it equally moral to borrow 100 dollars from a friend, pay back 80 bucks in 4 payments of 20 each over 4 months, then decide you don't want to pay back the rest? Even if you used 10 of that original 100 to buy that same friend lunch?