But Is It Enough?

Yesterday, President Barack Obama finally introduced his plan to help homeowners who are on the verge or in the throws of foreclosure.  In Washington State, as in numerous states across the nation, foreclosures are usually done without any intervention from the court.  Rather, notices of foreclosure are sent to the homeowner by the lender (or usually, through some foreclosure specialist who does this for a living) and the clock starts ticking.  In Washington, a homeowner has 180 days from the notice of foreclosure to come up with the delinquent payments plus accrued late fees, attorney fees (even though no attorney for the bank is involved), assessments for mailing, publishing costs...you get the drift.  And because these foreclosures are done without any judicial review, there are chances that a lot of foreclosures happen to folks who may not be in default, or who are close to coming up with the delinquencies but can't find a voice at the end of the phone at the lender to talk to.  And from this time last year when policy-makers started talking about the foreclosure crisis to yesterday, you can only imagine that there have been a lot of foreclosures.  A lot of families put into the streets.  A lot of stress, pain, and suffering.

Meanwhile, the least discussed part of the Obama plan is the stick he will ask Congress to impose if lenders do not cooperate in stemming some of the tide of foreclosures.  Currently in US bankruptcy law if you are in default of your mortgage and you file for bankruptcy, the only thing the bankruptcy court can do for you is to suggest you find the money to become current.  A bankruptcy judge can not "force" a lender to modify the loan.  However, this was not always the case, but the banking lobbyists got to Congress and the so-called cram down provisions were taken out of the bankruptcy code (a note here, if you're a corporation a bankruptcy court can "force" lenders to adjust terms of loans...gee, are we surprised?  And ironically, cram-down provisions are still legal for second homes and vacation properties...hmmm, who owns those I wonder?).  

Today, in the financial press, such as the Wall Street Journal, there is a lot of gnashing of teeth over the possible re-institution of the cram-downs.  And I ask again, what world are these financial institutions living in?  If these geniuses get what they want, they may end up owning every house in places like Nevada!

But here is the thing that caught my attention in listening to President Obama.  Several times in his speech he said that this plan would help "people who followed the rules."  The first time I noticed this kind of language was during the Clinton Administration.  The language is code for: "we're not going to help people who are poor, on welfare, or are not breaking their backs to make minimum wage."  For instance, the Obama foreclosure plan is specifically excluding people who "bought more house than they could afford."  Apparently, they did not follow the rules.  Or the plan is not designed to help people whose mortgage debt exceeds 105% of the current market value.  I guess those folks didn't follow the rules either.

Here's what I want to know:  First, who wrote these so-called rules?  Second, since when do politicians, who haven't followed very many rules themselves, get to dictate what rules are followed in a crisis like this?  Third, is it then true that the mortgage brokers who made gazillions of dollars and realtors who are driving around in their big honking Mercedes bought with their fat commissions after luring, purring, and assuring people that indeed they could afford this house, did they follow the rules?

My suggestion to politicians?  Lose the line about Americans who follow the rules.  We all know what you're trying to do, to assuage the few people left in America who may get upset that their tax dollars are being used for any bail out whatsoever.  But really, they will never be happy so why bother trying to assure them "only the rule followers" will be helped.

Frankly, if I were President, I would attempt to call a halt to foreclosures right now.  Suspend every single one of them.  1 in 10 homes in America are in some financial stress, whether it is worth less than the mortgage, in default, struggling to make payments, whatever.  That is a lot of folks.  Call a time out.  Ask Treasury to take 180 days to compile data on exactly what the problems are, where, who are the people, and what can we do to keep the greatest number of families in their homes.  Maybe we do mass cram-downs.  Wipe the slates clean of the consumer debt, cleaning up bank balance sheets as well, adjust the mortgages to where the greatest number of people stay put.  Backload the debt for a future sale.  Eliminate the due on sale clauses in Deeds of Trust so a borrower can sell the house without the buyer having to find a new loan.  There are tons of things we can be doing now to increase the numbers of people not losing their homes.

And oh, the next time, you know, in the next boom-bust cycle?  Let's make sure everyone knows what the rules are and follows them, so we're not segregating out people who simply got suckered.  Or we're not also bailing out the lenders, automotive manufacturers and whoever else has great lobbyists, who by the way, have never played by the rules.