From Prosecutions to Peanuts

It was only last December that the head of a 50-state attorney general investigation into foreclosure fraud boldly told homeowner advocates, “We will put people in jail.”

That was Tom Miller, Iowa attorney general, who added, “One of the main tools needs to be principal reductions, just like in the farm crisis in the 1980s…there should be some kind of compensation system for people who have been harmed…And the foreclosure process should stop while loan modifications begin.  To have a race between foreclosures and modifications to see which happens first is insane.”

That was then. Now Miller is backing off his tough talk, replacing it with a strategy of negotiating with the big banks and a bunch of federal agencies to come up with a settlement.

The amount of the potential settlement is $20 billion, according to press reports.

Gone is any notion of prosecutions.

There’s been a lot of discussion about whether this amount is too high or too low. The banks contend that they might have been sloppy about their paperwork but they foreclosed on only a few people who hadn’t been making their mortgage payments. No harm, no foul.

But homeowner advocates and critics are outraged, arguing that the banks are guilty of more than slovenliness, they violated laws intended to protect consumers. You can’t pass laws that require banks to follow certain procedures and then allow the banks to flout them. That reinforces one of the most corrosive aspects of the bailout and its aftermath – that the system is rigged so that the banks don’t have to follow the law.

Not to mention that $20 billion is pocket change to the big banks and won’t go far in modifying the mortgages that they refused to touch so far.

In addition, any fund that is controlled by the banks rather than a responsible government agency is a recipe for continued inaction by the banks.  See the disastrous Obama Administration HAMP program, which is somewhere between an abject failure and an actual scam that rips off homeowners.

Miller’s retreat is not the only distressing signal coming from the foreclosure front. Here in California the new state attorney general, Kamala Harris, made the strong protection of homeowners in foreclosure a key plank of her campaign. Yet her office recently signed off on a feeble $6.8 million settlement of a lawsuit against Angelo Mozilo and another top official of Countrywide Financial who presided over that company’s orgy of subprime lending before the financial collapse.

$5.2 million of the money goes into a restitution fund for victims. Mozilo and his president, David Sambol, admitted no wrongdoing. They’re not on the hook for the money- Bank of America, which bought Countrywide will pay it for them.
As David Dayen points out on Firedoglake, the settlement was probably inherited from her predecessor, the present governor, Jerry Brown. But that doesn’t mean she has to tout such a pittance as some great victory for the state.

It’s just a very small drop in a bucket with a very big leak in it.

If you live in California, you can call Harris’ office and suggest she stop caving into predatory lenders and start living up to her campaign promises.

Wherever you live, please contact your attorney general and remind them they are, after all, not the bankers’ buddies, but the people’s prosecutors.

Here are numbers where you can reach your state attorney general.

 

In this “Bust Bowl,” It’s Every Person for Themselves

During the 1930s, drought and dust storms combined to devastate farms in the heartland of the United States, already decimated by the Great Depression. One quarter of the population of the “Dust Bowl” lost their farms and ranches when the banks foreclosed on them. Millions left the Great Plains for California or elsewhere.

Today, the entire nation is trapped in a “Bust Bowl,” laid low from coast to coast by the collapse of an economy based largely on finance and speculation. The “official” unemployment rate, which has been above 9.5% for the last fourteen months, understates the true devastation wrought by the Wall Street debacle. Vast numbers of our citizens have descended into poverty: 42 million Americans – one in seven – are considered poor.  Just an hour or two outside LA, 15 to 20% of residents in towns like Bakersfield and Riverside are below the poverty line.

Back in the Thirties, farmers joined together to protect each other against foreclosures: trying to block authorities from seizing the farms, moving furniture back into the homes of the evicted, and refusing to bid on properties that were foreclosed. But there’s little sympathy for our neighbors evident these days.

To the contrary, speculation has ingrained itself so deeply in the American psyche that people view foreclosures as an opportunity to snatch up a home at distressed prices. And now that some banks are pulling homes off the market because they can’t prove they hold the mortgages, as my colleague Martin Berg has described, would-be purchasers are unhappy. The New York Times quoted a Florida mother who was supposed to move into a foreclosed “three bedroom steal” when Fannie Mae took the house off the market. “Now I’m sharing a room with my son,” she complained. “What the hell is up with that?”

It’s hard to feel sorry for someone who is trying to reap some kind of a windfall from someone else’s tragedy.

I know, everyone’s just trying to get by. The Times noted that one man who had lost his own home to foreclosure after falling behind on his payments had made a successful bid on another foreclosed home – his “dream house” – only to have the deal frozen by the bank.

But is the solution to beggar thy neighbor?

Consider the debt collector profiled in the New Yorker this week. A former drug dealer who did some time, “Jimmy” now runs a small operation in Buffalo, New York. He buys bad debts from businesses like banks and credit card companies for a few cents on the dollar, and then does what he can to collect from the people who owe the money. Anything he can get, he keeps. With so many Americans out of work and deeply in debt, the collection business is booming these days. Buffalo’s home to quite a few such firms these days, because, as Jimmy explains, “Buffalo is broke!” Jimmy’s got five kids and he’s trying to make a living and meet the payroll for his staff, whose job is to nag and cajole people into paying something on what they owe. Plus he’s up against some bigger firms that are willing to break the law in order to collect. But it’s not a pretty picture, especially because it soon becomes clear that Jimmy’s company is in trouble, and he may soon find himself among the debtors of Buffalo.

The average American is not going to be able to leverage himself out of this economic nightmare.

In the Thirties, the federal government ultimately came to the rescue: prodded by Roosevelt, Congress authorized the courts to reduce a farm mortgage to its diminished market value, and to suspend a farm foreclosure for three years. (A conservative US Supreme Court initially struck the law down as an improper intrusion of the government in the banking business, but it was later upheld.) Farmers were also allowed to borrow money through the federal government to pay off their old mortgages. This was the New Deal.

This time around, Wall Street firms have been given access to trillions of dollars of federal money at rates approaching zero interest, but with no requirement that they lend this taxpayer money back to taxpayers at all, much less at fair interest rates. Thus the banks, credit card companies and investment firms are back in business and in fact, most are rolling in dough. The rest of us have to pay exorbitant interest to borrow our money, if it is offered at all. And at the behest of Wall Street, the US Senate rejected a proposal to allow federal bankruptcy courts to modify mortgages so people could stay in their homes. A few days ago, the Obama administration rejected a nationwide moratorium on foreclosures. "While we understand the eagerness to make sure that no American is foreclosed upon in error, we must be careful not to over-reach and apply a remedy that will make the underlying problem of foreclosures worse," according to the Federal Housing Administration.

I'd call this a "Raw Deal."