(MintPress) – President Barack Obama had lofty ambitions for his multi-faceted approach to turn around America’s reeling economy. Earlier in the week, however, one of those goals was belittled and shot down. A major piece of Obama’s campaign when he took office at the peak of the economic downturn was to ease the impacts of the housing crisis by requiring some mortgage companies to forgive some outstanding home loans that had homeowners underwater.
Big-bank mortgages, which have accounted for more than an estimated 10 million foreclosures nationwide since 2007, have become a hot-button issue for protesters, particularly those in the Occupy movement. At a recent rally in Philadelphia, Green Party presidential candidate Jill Stein was arrested during a sit-in. The protest was organized to lobby Fannie Mae to meet with two Philadelphia area residents who were facing foreclosure from the bank. Demonstrators called for officials within Fannie Mae to meet with the residents to renegotiate the terms of their mortgage to allow the residents to continue paying and keep their homes.
The Federal Financing Housing Agency (FFHA), the independent United States regulator that oversees mortgage firms Fannie Mae and Freddie Mac, said that it rejected the Obama administration’s plan to reduce the mortgages for those who are already underwater by the amount they are currently behind on.
Edward DeMarco, director of the FFHA, said that the anticipated benefits of using targeted principal reductions on some loans do not outweigh the costs and risks. The announcement of DeMarco, who was appointed to the position by George W. Bush, is a blow to Obama’s attempts to alleviate a poor housing market.
In a letter to DeMarco, U.S. Treasury secretary Timothy Geithner said he and the administration were let down by the agency’s decision to not help homeowners in need.
“I am concerned by your continued opposition to allowing Fannie Mae and Freddie Mac to use targeted principal reduction in their loan modification programs,” Geithner wrote. “However, I do not believe it is the best decision for the country, because, as we have discussed many times, the use of targeted principal reduction by the GSEs would provide much needed to help to a significant number of troubled homeowners.”
Unfortunate trend
One in 126 homes around the country has had at least one foreclosure filing against them, making the housing crisis that started in 2007 the deepest since the 1930s. America’s largest banks, including Bank of America, Wells Fargo, Fannie Mae and Freddie Mac, have been accused of being unwilling to work with homeowners when they struggle to pay their monthly mortgage payments.
After the government bailouts of Fannie Mae and Freddie Mac, the banks were absorbed by the FHFA as part of a conservatorship program, giving the FHFA legal and regulatory authority over the banks.
Anthony Newby, an organizer for Occupy Homes MN, one of the most prominent Occupy branches in the country, and an organizer for Neighborhoods Organizing for Change, said DeMarco is one of the primary obstacles in the way of policy change within certain banks.
“We’ve publicly supported a push to remove DeMarco from office. … Obama has the ability to replace him and we think it’s way past time,” Newby said in an interview with MintPress.
William Black, associate professor of economics and law at the University of Missouri–Kansas City, said the decision of the FFHA to not comply with Obama’s request to forgive loans and lower mortgage rates is predictable, but counterintuitive.
“This is the safe bureaucratic course where they’re not going to be criticized. As the agency’s own study found, it’s not a bad idea,” Black said in an interview with the Real News. “In other words, they could often recover more if they were to reduce the principal, and it would be very good for the overall economy, which would be very good for Fannie and Freddie, because Fannie and Freddie’s greatest problem is the overall economy, which is depressing any recovery in home prices, and as long as there’s no recovery in home prices, Fannie and Freddie will have staggering losses. So it’s a really bad decision made for the worst of bureaucratic instincts.”
At the beginning of the year, the Obama administration created a mortgage fraud task force to investigate cases of alleged fraud in home loans and mortgage-backed securities. While no reports have been released to show any of the task force’s findings, Obama has specified the group will focus on mortgage lending practices and selling home loans into bonds for investors to purchase.
One practice being reviewed was found in 2010 when Ohio’s attorney general Richard Cordray criticized particular banks for attempting to restart foreclosures by altering faulty paperwork. Cordray noted that Wells Fargo, Bank of America and JPMorgan Chase were trying to rewrite mortgage papers to cover up for fraud committed during foreclosures. He said that the problem was created during a tactic called “robo-signing” – the practice of approving and signing foreclosure documents and affidavits before reviewing the information.
“The banks are committing fraud on the court, essentially perjury, and then saying ‘Whoops! You caught me! Here’s some different evidence and use that instead,’” Cordray said. “I know a lot of judges are not going to take kindly to that.”
Protests, efforts remain strong
Large banks that have been responsible for a majority of the foreclosures have been the subject of the Occupy movement, which has devoted a large amount of its attention to preventing foreclosures for Americans with its Occupy Our Homes group. The group works with homeowners who face foreclosure to have the opportunity to renegotiate the terms of their mortgage with the banks.
Nick Espinosa is another organizer with the Occupy Homes MN movement. In June, Espinosa was successful in preventing an auction sale on his mother’s home by pressuring the lending bank to renegotiate the terms of her loan. He said it should not take that kind of effort to keep families in their homes and that banks could prevent the rising rates of foreclosure if they wanted to.
“Countless families could stay in their homes if banks simply modified their loans based on the actual market value and reduced their principal, instead of the price to which banks inflated them before they crashed our economy,” Espinosa said in a June interview with MintPress.
Earlier in the week, an “Occupy Fannie Mae” event was held in Philadelphia to protest unjust foreclosures. The group organized a sit-in inside the lobby of the Fannie Mae branch, and a handful of those participants were arrested for refusing to leave. Of those arrested was Green Party presidential candidate Jill Stein, who has been vocal against the practices of bank lenders, who she said have been bailed out by the government for their own reckless practices. Stein’s vice presidential running mate was also arrested.
“If democracy has anything to do with it, this is what the future of America should look like,” Stein said at the demonstration. “It should look like keeping people in their homes. It should look like jobs that actually pay living wages and which are available to everyone. It should look like health care for everyone as a human right, through Medicare for all. It should look like affordable, higher education, which is a free, tuition free … instead of bailing out the bankers who got us into this crisis to start with, we should be bailing out the homeowners and the students.”
Newby said the Occupy Homes MN movement is hoping to expand its reach to help others in the state, but also groups around the country with their efforts. He noted that the groups influence could also benefit programs to improve renters’ rights and homelessness.
“We want to nationalize this and expand it statewide to cover state issues with folks who live in rural Minnesota who are in the same position … and folks across the country,” Newby said. “I’m actually really excited about the growth so far, but I guess I’m more excited about where this could go in the next six to 12 months.”