Bush Mortgage Plan to Aid Big Banks – Home Foreclosures Hit Record Highs
San Jose, CA – On Dec. 6, the Mortgage Bankers Association of America reported that home foreclosures and late mortgages rose to record highs in the July to September period. The next day, Bush’s Treasury Secretary Paulson announced a plan to aid home-buyers. While consumer advocates criticized the plan for being too little, too late, Wall Street liked the plan, which would let banks off the hook, and sent stocks up.
The Mortgage Bankers Association of America (MBAA) reported that a bit more than three-quarters of one percent (0.78%) of all mortgages went into the foreclosure process in the three months ending in September. This was the highest level since the MBAA began reporting this statistic in 1972. In addition, 5.59% of residential mortgages were at least 30 days late, which was the highest since 1986. These numbers show that the housing market continues to worsen, as a perfect storm of adjustable rate mortgages resetting to higher rates, falling home prices, and a slowing economy batter home-buyers.
The problems in the mortgage market are spilling over into other credit markets, despite the Bush administration and Federal Reserve claims that they were ‘contained.’ Late payments for auto loans from finance companies and dealers rose to 2.77% in the April to June period, which is the highest since the recession in 1991. Many school districts, cities and counties in Florida were also swept into the growing credit crisis when the Florida State Investment Pool stopped withdrawals after almost half their deposits fled upon news that the pool held billions of dollars of investments backed by subprime mortgages. This left these local government without the cash to pay their bills and payrolls.
The Bush administration mortgage plan was worked out with big banks and mortgage lenders. It calls for subprime mortgages whose rates are resetting starting Jan. 1, 2008 until July 2010 to have the initial low rates continue for up to five years. However most homebuyers who are in financial trouble will not be covered by this plan. First of all, only homebuyers who have adjustable rate mortgages and poor credit will qualify. This covers a minority of homebuyers (45%) going into foreclosures. Homebuyers in this group who are already behind on their mortgages more than 60 days or in foreclosure are not covered. Also those who are deemed able to pay the higher rate are not included. Each mortgage borrower would have to negotiate their extension individually. With all these hoops to jump through, the California Greenlining Institute said that only 12% of subprime mortgages and 5% of oppressed nationality homebuyers would end up benefiting. Finally, the whole plan could be dragged out by lawsuits from investors who bought investments based on these mortgages.
One detail reported in the Wall Street Journal, but not in other newspapers, is that only subprime mortgages packaged into securities and sold to investors are covered by the plan, not loans made and held by banks. While mortgages made and held by banks are only a small part of the total subprime mortgages, this is another example of how the big banks who funded, processed and profited from the securitization of mortgages are being let off the hook.
Take, for example, the mess in Florida. Local governments want the state to guarantee their moneys in the State Investment Pool, while the state wants the local government to share the losses on investments. But nobody seems to be pointing their fingers at the big banks that set up the ‘Structured Investment Vehicles’ or SIVs that the state pool invested in. The banks should be forced to take over the SIVs and cover any losses to the local governments.
Tough times require tough solutions. The country is facing the biggest housing bust since the great depression of the 1930s. We know the Bush administration record on dealing with disasters from New Orleans after Hurricane Katrina. We can’t afford to let the Bush administration and their masters on Wall Street continue to propose band-aids while whole neighborhoods, especially poor, African American and Latino communities are engulfed in an economic disaster. What working people need is a New Deal on housing, which will put families and neighborhood needs over the greed of Wall Street.
We need a foreclosure moratorium of at least a year on owner-occupied homes together with a moratorium on evictions of tenants in foreclosed properties. During this time laws covering mortgages need to be fixed by banning prepayment penalties and putting a freeze on mortgages resetting to higher interest rates. We need to change bankruptcy laws so that they cover home loans and allow home buyers in financial distress to repay their loans at lower, fixed interest rates. Finally, owners of foreclosed properties must either maintain them or have them condemned and seized without compensation as financial, health and safety hazards to their communities. These condemned properties should be turned over to local governments who can sell some, rent out others or put them to some other use for communities.