If senior White House adviser David Axelrod's comments this weekend are any indication, the Obama administration is woefully misreading the foreclosure fraud crisis currently gripping the U.S. economy. Axelrod refused to commit the administration to a national moratorium on foreclosures, and mischaracterized a massive, systematic fraud perpetrated by Wall Street banks as a set of unfortunate "mistakes." This is not a minor scandal and it will not simply go away. President Barack Obama needs to stand up for the middle class and protect our economy from Wall Street theft. If he doesn't, the economic and political price will be devastating.
The full transcript of Axelrod's appearance on CBS' Face the Nation with Bob Shieffer is here, but here are his key comments, emphasis mine:
"It's bad for the housing market and it's bad for these institutions which is why they're scrambling now to-- to go back through and-- and-- and through their documentation for all of this as they should. The President was concerned enough to veto a bill that came to him last Thursday, that would have unintentionally made it perhaps easier to make mistakes. . . . I'm not sure about a national moratorium because there are, in fact, valid foreclosures that-- that-- that probably should go forward. And where the documentation and paperwork is-- is proper, but we are working closely with these institutions to make sure that they expedite the process of going back and reconstructing these and throwing out those that don't work . . . . Our hope is that this moves rapidly and that this gets unwound very, very quickly."
Let's straighten some facts out first. Lenders aren't just making "mistakes"--they're fabricating documents, forging signatures and lying to judges in order to illegally throw people out of their homes and slap them with thousands of dollars in illegal fees. Consumer advocates were not worried that the bill Obama vetoed on Friday would make it easier for lenders to make "mistakes"--they were worried it would make it harder to expose rampant, systematic fraud committed by Wall Street banks against American families.
Nor is this a problem that can be resolved quickly. Banks are resorting to fraud for a reason--they don't have the documents that prove they have the right to foreclose. It's not like JPMorgan Chase or GMAC need to dig through a filing cabinet to find the right form--the form doesn't exist. Banks willfully, knowingly destroyed key documentation in order to cut costs and boost bonuses. Other banks that bundled these mortgages into complex securities didn't ask for this documentation for the same reasons.
This creates legal liabilities for the banks that can push them into failure. A lot of these securities were packed with fraudulent mortgages--loans where banks falsified borrower information in order to push them into predatory loans. Investors who bought these mortgages have been trying to force banks to repurchase the fraudulent loans. But now that banks cannot even document which loans they own, the entire fraudulent mortgage securitization framework may land on the banks' doorstep. If that happens, we're going to see some very big banks go under.
What does all this mean for borrowers? We've already seen plenty of cases in which banks are foreclosing on the wrong homes--kicking out borrowers who haven't missed any payments, or borrowers who are working with the bank on receiving a loan modification to keep them in their homes. But even for borrowers who have stopped paying their mortgages, the fraud process creates serious dangers. Banks charge all kinds of fees on borrowers when they foreclose--fees that often amount to thousands of dollars. The current wave of fraud is enabling an onslaught of grotesque, illegal fees. When you create new documents and forge signatures, you can claim people agreed to ridiculous things they never agreed to, tell ridiculous lies about the house being foreclosed on, and generate thousands of dollars in improper fees.
In other words, banks and their lawyers are breaking the law to steal from borrowers facing financial hardship. This impropriety may create losses so big that megabanks are going to fail. Smart political leaders need to get out there right now and prove that they are backing American families, not Wall Street elites. A foreclosure moratorium is the first step, the second is a major new initiative to reduce mortgage debt to a level that borrowers can afford--that prevents foreclosures and keeps this mess from spiraling into a financial calamity. The mortgage market needs to reflect economic reality, not inflated banker dreams.
Other leaders have figured this out. If Obama refuses to stand up for the middle class, he'll be hanging many embattled Democratic members of Congress out to dry, politically undercutting them on an issue of household financial security in the middle of a brutal recession. Swing-state Democrats like Senate Majority Leader Harry Reid, D-Nevada, Rep. Debbie Wasserman-Schultz, D-Fla., and Rep. Alan Grayson, D-Fla., Rep. John Conyers, D-Mich., and Carolyn Kirkpatrick, D-Mich., have already endorsed foreclosure moratoriums. Attorneys general in Connecticut, Massachusetts, Illinois, California, Iowa, Texas, and Ohio have either imposed state-wide moratoriums or investigations into foreclosure fraud, and Ohio is already suing GMAC. Why does the president want to kneecap members of his own party?
What's more, Axelrod's comments put the White House on the same side as Republican Whip Eric Cantor, R-Va., a Wall Street crony who voted to bailout the big banks with no strings attached, but refused to support Wall Street reform. For his services, Wall Street rewarded Cantor with $2.1 million in campaign contributions for the 2010 elections. Here's what Cantor said on Fox News Sunday:
"If you impose a moratorium on foreclosures, what you're telling people and institutions that lend money is they do not have the protection to take the risk they need to, to extend credit so people can get a mortgage . . . . You're going to shut down the housing industry if that's the case . . . . People have to take responsibility for themselves."
Cantor's reasoning is, of course, complete nonsense. People do need to take responsibility for themselves, which is why the government has a responsibility to stop banks from systematically defrauding borrowers on an epic scale. But note Cantor's positioning on the issue. He claims that if the government does anything to help troubled borrowers, that assistance will cause a financial catastrophe. It's a phony story that completely ignores the financial catastrophe already brewing, one created by massive Wall Street fraud, not the government's big, bleeding heart. Cantor is peddling a monstrous lie, but if Obama doesn't push-back against it, he will politically hamstring any opportunity to fend off the economic fallout from this mess, and leave troubled borrowers at the mercy of Wall Street predators.