4 Ways the Big Banks are Still Screwing Homeowners - And How They're Fighting Back
It's been five years since the bursting of the housing bubble kicked off the financial crisis that shook the world.
And in those years, the banks received trillions in bailouts and ultra-low-interest loans while millions of homeowners around the country have been left to fend for themselves as they faced down foreclosure with little help from the government. Banks have foreclosed on 4 million homes since 2007, and there are millions more to come. Proposed settlements have been weak, and programs designed to help keep people in their family homes have done little other than funnel money back into the pockets of the same bankers who created the crisis.
The latest news doesn't get much better — progressive online organizing group CREDO sent an email out this week claiming that the task force President Obama announced in his State of the Union, led in part by progressive champion New York Attorney General Eric Schneiderman, has been understaffed, perhaps deliberately so.
“This matters not just because of broken promises, but because the foot-dragging has serious consequences. Many of the various types of fraud that this task force is supposed to be investigating have statutes of limitations, some of which will run out on the very last securitization deals completed before the housing bubble collapsed,” wrote David Dayen at FireDogLake. The delay in staffing the task force, he noted, looks a lot like letting the clock run out.
“The latest task force has not provided the needed results, and as a consequence of inaction, homeowners continue to be victimized,” Matt Browner Hamlin, an organizer with Occupy Our Homes, told AlterNet. The big banks are still gaming the system, screwing over working families while continuing to profit. Here's four ways the banks are still doing exactly as they please despite all the task forces and settlements — and some ways you can help fight back.
1. Taking Advantage of Government-Backed Refinance Program to Rake In Profits
Cora Currier at ProPublica reported this week that banks that refinance homes under the federal government's Home Affordable Refinance Program (HARP) are still sticking homeowners with high interest rates for their underwater mortgages.
Designed to help people who find themselves owing more on their home than they could sell it for (because the housing bubble artificially inflated home prices, which fell dramatically when the bubble popped), HARP was supposed to let those borrowers “take advantage of lower market interest rates.” In fact, though, it's become another way for banks to make money.
According to a new report by an investment group, the incentives for the program don't push banks to give customers the lowest rate possible, instead allowing them to set rates that might not be much of an improvement over the ones they currently have. In addition, Currier wrote, “The report says the big banks are able to make a considerable profit from refinancing their existing customers under HARP, and that there is little incentive for them to go outside their own customer base and seek out more HARP business on mortgages that originated with other lenders.”
Who are the culprits? You guessed it, the big-bailout big banks: JP Morgan Chase, Bank of America and Wells Fargo. But HARP is a government program, and the responsibility for making sure it isn't abused should lie with the federal government.
“Banks finding ways to screw homeowners under federally sanctioned programs is "dog bites man" news,” Browner Hamlin said. “This is what we've seen throughout this administration, and there's zero evidence to suggest helping homeowners at the expense of banks is suddenly going to become the administration's priority.”
2. Refusing to Write Down Principal on Mortgages
While the HARP program allows borrowers to refinance at lower rates, even at its best, it's only modifying the interest on the loan. To really make up for the collapse in home value caused by the housing bubble, the banks would have to write down the principal — the actual cost of the home — to what that home is worth right now (rather than its artificially inflated bubble price).
They're resisting doing so (backed up, we should add, by government officials). Obviously, they don't want to take the loss, but since foreclosing leaves the banks holding properties they can't do anything with (more on that in a minute), it should seem that writing down the mortgage to a point where the borrower can pay it back would be better than getting nothing for the home, right?
Mike Konczal of the finance blog Rortybomb made the point last month that in a growing number of cases now, the mortgage holder would be willing to reduce principal, but the holders of second liens (home equity loans or second mortgages) on the homes are holding up the process, mostly because they don't want to admit that the liens are probably worthless. And those lien holders? Once again: Bank of America, JP Morgan Chase, Citigroup and Wells Fargo.
3. Continuing Illegal Foreclosures (And Getting Their Behinds Covered by Government Settlement)
It almost seems ridiculous to have to mention it, but the big banks are still booting people out of their homes, all too often without the proper documentation or legal right to do so.
Browner Hamlin noted, “There has been repeated documentation of the banks' criminal behavior in pursuing fraudulent foreclosures, forging mortgage documents, committing perjury, defrauding homeowners by misapplying their payments, and on and on and on. There is zero question that bank executives belong in jail for their behavior throughout the foreclosure crisis.”
But last week, a judge approved the $25 billion settlement over “misconduct” and fraud on mortgages from Bank of America, Citigroup, JP Morgan Chase, Wells Fargo and Ally Financial, allowing the banks cover for ongoing shady dealings and leaving homeowners little protection. Dayen compared the case of a borrower who sued Wells Fargo and won $3.17 million in punitive damages to what she'd get under the settlement deal: $2,000 if she's been thrown out of the home already; maybe nothing if she's been lucky enough to hang on to it.
Dayen continued, “More important, these systemic crimes are ongoing, as the judge in the Wells case expressed. The settlement did not stop the train rolling downhill of a broken and corrupt servicing sector.”
As ProPublica reported, almost 6 million homes in the United States remain in danger of foreclosure — and there's absolutely no reason to think that those mortgages are based on less fraudulent paperwork or that the banks have suddenly stopped their “array of business practices, some dating to the 1990s, that were designed to skirt the law and fatten profits.”
4. Abandoning Foreclosed Homes — or Selling Them in Bulk to Hedge Funds
What happens after the banks throw a family out of their home? Well, there are a couple of possibilities.
In many cases, the homes simply sit there. With no one taking care of them, they fester and drive down property values in the surrounding neighborhood. Swimming pools left abandoned have been breeding grounds for disease-carrying mosquitos, and taxpayers wind up paying, both on a local level as municipalities hike rates to cover the property taxes they're not making on the foreclosed properties, and on a federal level if Fannie Mae or Freddie Mac wind up owning the home and paying for its maintenance.
All foreclosed homes aren't equal, of course. A new complaint against Wells Fargo claims that foreclosed homes in black and Latino neighborhoods are more likely to be badly maintained and marketed. The Atlanta Journal-Constitition reported:
“Homes in minority neighborhoods were more likely to look abandoned, with overgrown vegetation and garbage visible, while homes in white communities generally looked lived-in and better maintained. ... In Atlanta, NFHA partner Metro Fair Housing of Atlanta examined 187 homes and found foreclosed homes in black neighborhoods were 4.65 times more likely than in white neighborhoods to be missing 'for sale' signs. Nearly one-third of such homes in predominantly black neighborhoods had broken or unsecured doors, compared with 14 percent in mostly white areas.”
What's more, if the homes aren't simply left to sit there, they could be sold instead in bulk to hedge funds who want to rent them out to make money. In the words of Daniel Gross at Yahoo, “What could go wrong? Well, pretty much everything.”
Gross explained that the odds of hedge funders making good landlords for rental properties are pretty slim. Houses are not like stocks — they require upkeep and personal involvement. And then, if hedge funders do manage to buy a bunch of homes from Fannie Mae and Freddie Mac, and flip them at a profit, “it'll be yet another example of public entities absorbing losses while private entities rack up gains.”
We've heard that story before, haven't we?
So what can be done?
CREDO has a petition you can sign, calling for full staffing and support for the Schneiderman task force on financial fraud. Groups like the New Bottom Line have been fighting for principal reduction and working to keep families in their homes.
And Occupy activists around the country, from New York to Georgia to Michigan to Maui, have been using direct action to keep people in their homes. “The number of home occupations, eviction defenses and foreclosure auction disruptions continues to grow around the country,” Browner Hamlin explained. “In Detroit, Bertha Garrett joined with Occupy Detroit, Moratorium Now!, People Before Banks and the UAW to successfully block her eviction and buy her house at a fair, affordable price. In the last week, eviction postponements have been won by homeowners in Minneapolis, Maui and North Miami Beach.”