Make Wall St. Pay for the Catastrophe They Caused: New Bill Would Fine Banks $20,000 for Each Forclosure
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The epidemic of foreclosures that began in 2008 has been devastating America’s families, communities and the state economy.
Nowhere is this more true than in California, where one in five U.S. foreclosures has taken place. Since 2008, more than 1.2 million Californians have lost their homes, and the number is expected to exceed 2 million by the end of next year. More than a third of California homeowners with a mortgage already owe more on their mortgages than their homes are worth.
As a result, home values in the state are estimated to plummet by $632 billion. That translates into a loss of more than $3.8 billion in property taxes. One foreclosed home in a neighborhood can reduce property values for the rest of the houses in the neighborhood, and a cluster of foreclosed houses compounds the physical, economic, and social devastation.
And just as local governments are starving for revenues, they are asked to deal with the increased costs - estimated at $17.4 billion over four years - caused by the foreclosure mess. These include public safety, maintenance of abandoned and blighted properties, inspections, trash removal, sheriff evictions, unpaid water and sewer charges, and the provision of emergency shelter.
We can't solve California's fiscal disaster without addressing the foreclosure crisis. It doesn't make sense to make severe cuts to state and local budgets only to allow Wall Street banks and their overpaid CEOs to drain billions more from our states. The banks created the housing crisis with toxic lending practices and they need to be part of this solution.
A bill sponsored by Assemblyman Bob Blumenfield (Democrat, Los Angeles) -- the Foreclosure Mitigation Fee (AB 935), which is currently going through legislative hearings - would require banks to pay their share of foreclosure costs. Backed by a broad coalition of consumer, community and labor groups, the bill would impose a $20,000 fine on banks for each foreclosure.
The $12 billion revenue over next two years would go entirely to local communities in order offset the multiple costs borne by our neighborhoods because of foreclosures and shared between public safety, public education, local governments, redevelopment activities and small businesses.
Los Angeles County alone will face an estimated 381,461 foreclosures through 2012, costing local governments $918 million in lost property taxes and $2.8 billion to pay for the problems. Riverside and San Bernardino counties have been particularly hard hit by the foreclosure earthquake. But no county, city, or small town in California has been spared the devastation.
Indeed, the foreclosure tsunami and the housing market crash are the primary causes of the severe budget crisis facing California's municipalities and counties, forcing local officials to slash services and lay off tens of thousands of employees.
But many Californians are asking, why should taxpayers and communities have to pick up the tab, and face such hard times, for a crisis they didn't cause? They - and the families caught in the maelstrom - are the victims of this human-made disaster.
And let's be frank. Wall Street's reckless and predatory lending practices were responsible for the mess we're now in. Bankers pushed homeowners into high-cost loans they couldn't afford. They engaged in deceptive and often illegal activities, like not informing consumers that they qualified for conventional loans, tricking them into more costly and risky subprime mortgages.
Wall Street banks bundled these risky loans into "mortgage backed securities" that were given the seal-of-approval of ratings agencies (Moody's and Standard & Poor), and then sold them to foreign governments, pension funds and other unwitting investors.