mortgage crisis

This is What Happens When We Compromise with Conservatives Who are Wrong

Susan Ozawa — Tue, 09 Jun 2009 14:12:49 -0700

Many look at the American Recovery and Reinvestment Act as a victory for Keynesian economics and the progressive majority and as a down payment on fundamental investments we need in vital public services, infrastructure projects and programs that address the needs of the most vulnerable.

There is no doubt that these government expenditures were necessary to compensate for the drastic shrinkage in the economy set in motion by the financial crisis. The movement toward energy conservation and efficiency, and toward supporting various underfunded public agencies and social assistance programs, marked a significant shift in the political climate in our country after years of energy dependence and regressive economic policies.

However, we lost the battle on allocating the funding necessary to assist distressed states and we are now seeing the consequences. Conservative Democrats made a political trade-off with the right over the share of the American Recovery and Reinvestment Act devoted to tax breaks over vital spending. This trade-off was bad economic policy. Handing over money to the general population in the form of tax cuts is not as efficient an economic stimulus as money spent directly by the government, particularly on wages. But now we know the cost in human terms.

In California, plagued by tent cities of those foreclosed on and pushed off the rental market, Governor Arnold Schwarzenegger’s budget cuts paint the portrait of a state without a proper bailout. Seven days will be cut from the public school year; thousands of inmates will be released from prison and others will be packed into county jails; health care will be cut off for more than one million children, including those from low-income families who do not qualify for Medi-Cal, California's Medicaid program; $5.9 million in state funding for four poison call centers will be cut; funding for 220 state parks will be cut; 426,000 seniors will be denied in-home support services; the state Adult Day Health Care program will be eliminated, denying services to about 36,000 Californians and culling 6,500 employees jobs at the state's 300 centers. It’s difficult to overstate the human toll of reconciling a $24 billion budget gap.

And these cuts are on top of cuts at the municipal level. In Los Angeles County, 2,250 teachers are expected to lose their jobs. This is in a public school system already struggling with large classroom sizes and significant underfunding.

Those of us advocating for aid to states and municipalities were not using pie-in-the-sky figures of pet projects; we were pushing for the minimum funds required to meet projected shortfalls reported by the states so that the fabric of the country’s vital services could remain intact.

We argued on rational terms. We argued on economic terms. We argued on moral terms and we lost to those who were sure compromise was the only game in town. We lost more than we could afford in our compromise with Bush-era thinking, believing we were still in a Bush-era political climate and not in a crisis that requires triage and backbone, not pawn-brokering where you sell your valuables at a loss when you get into trouble.

These kinds of cuts are just the beginning. According to the Center on Budget and Policy Priorities:

Some 47 states are facing financial stress in their fiscal 2009 or fiscal 2010 budgets.
Budget deficits are already projected in 46 states for the upcoming fiscal year.
Combined budget gaps for the remainder of this fiscal year and state fiscal years 2010 and 2011 are estimated to total $350 billion to $370 billion. The CBPP lists more cuts.

Soon, most of us will all understand the only kind of trickle-down economics that has ever functioned—the regressive rule in the distribution of costs—that when times are tough those most vulnerable bare the burden, unless our elected representatives pay the price for failing to represent our needs.

Now that we see the link between political compromises and human suffering, we must act without equivocation. The ultimatum given to Congress by former Treasury secretary Hank Paulson to secure a $750 billion Wall Street bailout was wrong-headed and uncompromising, done without evidence or moral justification. Congress jumped. We must see that there is no compromise required when states and municipalities are flailing from the bursting of a crisis they did not cause. There is only one place to turn and that's Congress.

Three things you can do:

Tell your Congressional representatives they need to answer to you and not Wall Street. If they voted to weaken the Economic Recovery and Reinvestment Act, for the passage of the Wall Street bailout and against mortgage cramdowns, campaign for a new candidate who will fight for those struggling because of this crisis. See where they stand here.
Support Health Care reform by urging Congress to institute a public plan option, especially the Blue Dog conservative Democrats who are equivocating in their support. See how true health care reform would relieve states here.
Prepare for a fight on more funding for states and those in need from Congress. See the list of those gearing up for the next battle here.

Whatever you do, do not go gentle into that good night.

Mortgage Re-Defaults Rising With No Sign of Slowing

Armand Biroonak — Mon, 22 Dec 2008 08:33:09 -0800

The rate of home mortgage borrowers defaulting after their loans are modified is rising and shows no signs of leveling off, U.S. banking regulators said on Monday.

The data showed that after six months, nearly 37 percent of mortgage loans modified in the first quarter were 60 or more days delinquent. After three months, 19 percent were 60 or more days delinquent or in the process of foreclosure

Consumer Bankruptcies Up

OurFuture.org Staff — Thu, 06 Nov 2008 08:38:07 -0800

The sagging economy sparked 106,266 consumer bankruptcy filings in October, the first time monthly filings topped 100,000 since the bankruptcy law changed in 2005, the American Bankruptcy Institute said. During the first year after the new law took effect, personal bankruptcy filings plummeted dramatically, and since then, have risen gradually. In October, though, filings jumped 40% over the same month in 2007. For the year, bankruptcy filings are expected to exceed 1 million. "This underscores that the underlying economic problems of consumers who are facing high debts, flat incomes and now declining home values are a very powerful force that pushes people over the edge," says Samuel Gerdano, ABI executive director.

The Free Market is to Blame

OurFuture.org Staff — Thu, 30 Oct 2008 08:10:33 -0700

The Truth about the Community Reinvestment Act

Hillary Hampton — Mon, 29 Sep 2008 11:11:27 -0700

Conservative commentators in the Wall Street Journal and the National Review, and on YouTube are spreading the myth that the Community Reinvestment Act, a law designed to eliminate discriminatory banking practices, caused the current financial crisis. In the words of Fox News' Neil Cavuto, “Loaning to minorities and risky folks is a disaster.”

Conservatives have twisted the facts to substantiate their revisionist history. But don’t be fooled: the financial crisis was caused by conservative financial follies and bankers run amok and nothing more.

Myth: The Community Reinvestment Act forced banks to make loans to all low-income families and people with poor credit, fining banks that refused to comply.

Fact: The Community Reinvestment Act has encouraged banks to lend fairly and responsibly for over 30 years. The Community Reinvestment Act does not impose fines; it periodically examines FDIC-backed banks and issues them a CRA-compliance rating. [Community Reinvestment Act] To receive a high rating, banks must meet the financing needs of as many members of their community as possible and must not discriminate against racial and ethnic groups or certain neighborhoods. However, a bank cannot receive a high rating unless it is also maintaing “safe and sound banking practices.” [Community Reinvestment Act] In other words, the CRA requires banks to lend to working-class families and people of color, but only when those people have been deemed credit-worthy.

Myth: The housing bubble burst when too many people with home loans mandated by the Community Reinvestment Act failed to make their mortgage payments.

Fact: More than half of problematic sub-prime loans made in the last few years were issued by banks that are not regulated by the CRA. [U.S. House Committee on Financial Services] The CRA applies only to financial institutions that are insured by the FDIC, but not to independent mortgage companies such as Countrywide. In fact, non-CRA lenders were twice as likely as CRA lenders to issue excessively expensive subprime loans to vulnerable creditors. [Federal Reserve Bulletin] Responsible mortgages made by CRA lenders have a low rate of foreclosure similar to that of traditional mortgages. [Federal Reserve]

Myth: In 1995, Bill Clinton changed the Community Reinvestment Act to allow the securitization of CRA and subprime mortgages.

Fact: The 1995 revisions to the CRA changed only the way in which a bank’s CRA compliance is evaluated; they made no mention of mortgage securitization. [60 F.R. 22156] Under the 1995 rules, banks are rewarded only for making mortgages in their communities, not for re-selling mortgages as securities.

Myth: President Bush and Senator McCain tried to stop the subprime mortgage crisis, but Democrats blocked their efforts.

Fact: Bush and McCain supported the Federal Housing Enterprise Regulatory Reform Act of 2005, which would have created a new government agency to oversee Fannie Mae and Freddie Mac and other federal housing programs. However, the bill would have done nothing to stop the rash of subprime lending that preceded the housing bubble because it provided oversight for only Fannie and Freddie, not for the companies that issued subprime mortgages. [GovTrack]

No End In Sight For Housing Slump

OurFuture.org Staff — Tue, 09 Sep 2008 08:03:55 -0700

Even after U.S. Treasury Secretary Henry Paulson placed government-sponsored enterprises Fannie Mae and Freddie Mac under federal "conservatorship" on Sunday, the outlook for U.S. housing prices is poor. Unsold home inventories remain at record levels, and foreclosures are increasing at an alarming pace. There is little sign of stabilization in the housing market. Several factors suggest that housing prices are likely to continue falling into 2009.