Look, I know what you are thinking. Every day, it seems, comes news of another mortgage lawsuit or settlement, including a foreclosure abuse deal between HSBC and federal regulators announced Friday. It's hard to keep them all straight. Frankly, if you didn't lose your home to foreclosure, or come close to doing so, you might not know what to think. Maybe you manage to muster some vague feeling of irritation about the behavior of U.S. financial institutions, but mentally you're already trying to place that overvalued "Z" in your Scrabulous game.
But what happened, and is happening now, might affect you more than you think. Here are three takeaways from the crisis that should matter to far more than the 8 million or so U.S. households that received a foreclosure notice.
1. Had the federal government acted decisively at the outset, your home would probably be worth more than it is now.
Rising home prices over the last year have finally revived the housing market, pulling millions of underwater borrowers up from the sea. This is fantastic news for some people who clung to their homes, and kept making mortgage payments, as prices collapsed. But millions more, who bought in places like San Bernardino, Calif. or Brockton, Mass., still owe more than twice what their homes are now actually worth.
These borrowers are far more likely to lose their homes to foreclosure, a process that damages neighborhoods and holds down home values across the board. Offering some form of principal reduction, or debt relief, to these borrowers from the outset would have saved homes and likely shortened the housing crisis. Yet in a recent interview with the Wall Street Journal, outgoing Treasury Secretary Timothy Geithner said government-sponsored debt relief wasn't possible, or fair.
And you know, I like explain to people that we didn't have $500 billion or three-quarters of a trillion dollars to provide principal reduction to the American homeowner, and doing so would have been a very inefficient way to help the economy, and really unfair in many ways.
But Congress did give Geithner a $45 billion check to help homeowners as part of the TARP bank-bailout fund. About 90 percent of that money went unspent. Housing groups, and analyses by both Treasury and the Federal Housing Finance Administration, determined that a principal reduction program targeted to those it was most likely to help would both limit foreclosures and save taxpayer money.
Geithner, though, was never really on board, falling back again and again on the "moral hazard" argument -- that bailing out some homeowners and not others wasn't just, and could encourage people to intentionally default. Geithner briefly changed his tune on principal reduction, and went so far as to chastise Edward DeMarco, the acting director of the FHFA, for refusing to allow Fannie Mae and Freddie Mac to write down loans as part of the $25 billion settlement between banks and the states last March. But his recent comments suggest his true position never wavered much.
2. Buying a new home loan is more difficult than it should be.
In the run-up to the housing crisis, millions of borrowers who had no business buying a home did so. Now, millions of would-be buyers who could afford a reasonably-priced home are locked out of favorable interest rates. There are lots of reasons for this, including a reticence by mortgage bankers to lend money without first securing a first-born child as collateral. But the most significant factor is the reluctance of Fannie Mae and Freddie Mac to buy any but the most gold-plated mortgage, a development that marks a significant retreat from the original purpose of the government-controlled mortgage behemoths, which was to provide middle America a broad path to the housing market.
DeMarco, who has run the agency as acting director for two years, has defended this position as looking out for the best interests of taxpayers who spent more than $180 billion to bail out the companies. Obama could put forward a nominee to replace DeMarco at the top of the FHFA, or potentially even fire him, but despite persistent rumors about his imminent departure, DeMarco has held onto his job.
3. The bank regulators have decided that helping homeowners is just too hard.
There's plenty to say about what the recently-announced $8.5 billion foreclosure abuse settlement means for homeowners who applied for relief to the review process that it replaces: good news for people who didn't deserve a dime and probably bad news for those who lost their home because of massive bank errors (and yes, Wall Street Journal editorial board, as dozens of reporters have documented, this definitely happened). The deal is also a boon to the banks, which are no longer on the hook for an open-ended liability and get a tax break on what they pay out, to boot.
But for the rest of us, the takeaway is this: bank regulators simply can't be trusted to clean up the mess from a banking crisis. They failed to make sure that the mortgage companies were dealing fairly with homeowners struggling to make payments and then failed to oversee a review process meant to determine what, exactly, had gone wrong. The upshot now is that we will never really know how many homes could have been saved from foreclosure had banks followed the rules.
The best hope, then, is to prevent future crises. Which is reason to pay close attention to whether the financial sector is able to curb the parts of the Dodd-Frank law most likely to stop all this from happening again.
How's that going? Two-and-a-half years, and $200 million in financial industry lobbying expenditures later, more than half of the required rules still haven't been written.