The Long, Drawn Out Fight Against Foreclosure Fraud

In December 2010, I was part of a national gathering of citizens' groups who met with Iowa Attorney General Tom Miller in Des Moines.  We announced and discussed with him our agenda to push for a just and broad-ranging settlement between the fifty states' Attorneys General, various key federal agencies, and the large banks who had committed fraud in their dealings with homeowners on mortgages and foreclosures.  Miller was the lead AG in the negotiations, and he was talking tough at our gathering.  At that time, we were hopeful for a settlement in the next six months.

During the ensuing months, NC leaders met twice with NC Attorney General and his staff to discuss progress and emphasize the need for justice for homeowners.  We continued to hope there would be a resolution in the near future.

That six months passed.  Then in July 2011, I joined another group of leaders in Chicago at the meeting of the National Association of Attorneys General, where outgoing president of the group, NC AG Roy Cooper, presided.  We had conversations with various AGs and their staff, capping off our visit with a face-to-face meeting with four of the state AGs:  Cooper of NC, Miller of Iowa, Lisa Madigan of Illinois, and George Jepsen of Connecticut.  We came away from the meeting encouraged that our allies were continuing to fight, but discouraged that the final agreement remained elusive.  Hopes for a large fine to create a fund to assist homeowners were diminishing, with the figure $20 billion circulating widely (compared to the $700 billion bailout received by the banks).

Some state AGs threatened to pull out of the negotiations, frustrated over the compromises being forced by other state AGs, who were taking sides with the banks.  These compromises would gut their efforts for justice and leave citizens, municipalities, pension funds, and homeowners high and dry with no recourse.  Soon the California and New York AGs did withdraw from the negotiations.  Miller's reports to the public seemed to predict limited settlements that would let the banks off the hook.  The delays favored the banks, who continued to make large profits, pay out large bonuses, and foreclose on the little people, homeowners and the unemployed, who have no cash reserves to endure a prolonged battle.  News in the fall and winter showed little progress.

The Occupy Wall Street movement and its many sibling Occupy movements raised hopes.  Their agenda, as a mass movement, was less focused than our organizing had been.  However, they had similar concerns about big banks, the failed bailouts, people losing their homes, and an economy that serves only the elite 1%.  "We are the 99%" is a powerful cry of defiance.  I suspect that this movement played a part in building pressure on the state AGs to stand more firmly with the people suffering rather than with the banks stonewalling.

In part because of some organizing around foreclosure fraud in January, President Obama responded in the State of the Union Address that he had directed AG Holder to intensify his efforts on the foreclosure fraud issue, creating an office focused on bringing these negotiations to completion.  He then announced revisions in the HAMP program which would make unspent funds available to a larger range of homeowners.  He further changed the existing programs to bring Fannie Mae and Freddy Mac mortgages into eligibility for assistance.  So the end of January offered portents that change might be coming.

So I rejoiced to read the news this week that there are signs of progress toward a better settlement than had previously been intimated.  The fine paid by the banks will likely be larger than expected, even if still only around $25 billion.  The question of whether banks will be immune to further lawsuits seems to be shifting toward allowing homeowners, mortgage-based security buyers, and other interested parties the right to sue for damages.  This means that city, state, and private pension funds who were enticed into purchasing investments that were hiding toxic assets will have recourse to recover losses.  This could mean good news for so many people whose retirement savings were set back dramatically by the recent crash.

Keep watching for news that this drawn-out battle will end soon.  It's about time for justice.

Homeowners' Shame

Since the foreclosure crisis began to be named in 2009, I have been noticing a pattern among homeowners facing hardships.  They are ashamed, so they keep their problems to themselves.

This speaks to certain moral convictions that form the bedrock of what many would believe makes a good U.S. American.  Because in the U.S., the concept of what it means to be a Christian is largely derivative from, or a corollary to, what it means to be a good U.S. American, these moral convictions find their way into the character and lives of good, church-going people.

Self-reliance is one of the moral convictions of which I am speaking.  Christians are likely to cite Paul's remarks to the Thessalonians in support of a belief in self-reliance:  those who will not work, shall not eat.  Again in Galatians, just after telling the church folk to bear one another's burdens, Paul turns around to say that each one should carry her own load.  Thus it is not outside of Christian faith to believe in the goodness of carrying one's own weight. 

Yet for faithful biblical and theological teaching, self-reliance is always tempered by being set in the context of community mutual responsibility.  Isolated from the communal context, self-reliance can become arrogance and blind optimism in times of good fortune, or it can transform into self-hatred in times of bad fortune.  "Fortune" is a key concept here, but one that self-reliance likes to ignore. 

Contrary to the self-deceptive claims of the Romantic/Progressive era, which led poets to wax eloquently about being "the master of my own fate," human beings are not individually in control of their own destinies.  First of all, human society is a complex, dynamic system in which many people are engaged in non-coordinated activities and agendas.  What I do may effect you, and vice versa.  Second, many powerful forces can affect the lives of particular people, completely without their own knowledge and participation.  The housing bubble, the house of cards called credit default swaps, and the entangled labyrinth of mortgage-backed securities were mostly invisible to average people.  Yet when these huge economic systems began to implode, they took away jobs, home values, credit availability, health insurance, and hope for many people.

Under new circumstances, people formed by self-reliance and the assumption that it mechanically leads to success, found themselves in a pit of shame.  They should have known, they thought, not to buy that much house, get that big a mortgage, borrow against their equity, etc.  Certainly there was a time, in another generation, when many people would have been more cautious.  Yet fed by a steady diet of "the rules of the old economy no longer apply" and "low downpayments are the new norm" and "housing values never go down," plenty of people were pointed, urged, or lulled into believing that extending more credit and taking out more debt would be an excellent plan, even a good example of self-reliance.

Closely related to self-reliance is the moral conviction of individualism.  This more encompassing concept asserts that knowledge, value, and action originate in the individual person.  Thus, individualists make up their own minds for themselves, adopt their own values, and do what they decide to do.  The myth that individualism perpetuates is that "doing it my way" is both a good idea and an actual practical activity.  The outcome is that people who do not have all the information that they need, have not experienced the pitfalls of certain activities, and may not be reasoning with full clarity, become convinced beyond the shadow of a doubt and "know that they know that they know that they know" what they should do.

Individualism linked with positivity can be a dangerous combination.  Many people think that if they do not think bad thoughts, entertain bad consequences as real possibilities, or say out loud what might go wrong, then everything will be fine.  This ignores that one person's thoughts and words operate without any relation to the risky, careless, and unjust actions of others who may be controlling millions and billions of dollars of economic power.

Individualists, counting on self-reliance, operating with positivity, expect that their efforts will lead to satisfying results.  They don't deny risks, but they have done what they should have done and things should go well.  If things don't go well, the self-reliant individual has trouble avoiding the conclusion, "I have no one to blame but myself."

Thus, shame has a powerful role in an economic crisis.  It protects the wealthy securities traders from a mass uprising against them because the average people blame themselves for their economic problems.  Many keep the problems to themselves, ashamed to admit that something has gone wrong. 

People who lose their jobs, have their homes foreclosed, and fall into medical debt may stop going to church, or even leave their churches, ashamed to admit that they are not prospering.  They theologize the problem to believe that they have sinned or failed God, interrupting the input-output machine of being a good person in order to get blessings from God.  They must be bad, for the blessings have stopped.

This shame makes it hard to organize people harmed by the economic downturn.  Some simply give up.  Others keep trying the same thing over and over, sure that if they just try harder the system will work.  Only a few get so fed up with the way that powerful economic institutions abuse and oppress them that they start to fight back.

What got me to write about this was a personal experience.  I am not facing foreclosure.  For now, my wife and I both are holding our jobs.  We are not in economic distress, as compared to many people.  We are, however, making lots of big financial decisions because we are relocating from North Carolina to Texas, while I still work in North Carolina.  After a year and a half of transition, we are finally preparing to sell our house.

Credit is tight, so even with a respectable credit rating, borrowing may not be easy.  Optimistically thinking that the process of getting a construction loan would not be hard, I was awakened repeatedly to realize there are many hoops to jump through and obstacles to overcome.  I can take that--life is not easy.

What caught me by surprise was a powerful emotional hit that came when a lender suggested that there were undisclosed details that would hinder the loan process.  Along with dread, there was a deep feeling of failure and inadequacy that welled up.  The dread was that feeling of wondering if there would be anything I would be able to do to solve the problem.  My self-reliance had not worked.  I was ashamed.

Now frankly, it was a very minor setback.  We continue to make progress on remodeling and getting credit to put our house in order.  It is not all worked out, but I'm not in the kind of mess many people are in.  But the reason to write about it is that I had a temporary and partial glimpse of what is multiplied millions of times over in this country with people who have lost jobs, lost homes, face foreclosure, face medical costs they can't pay, and feel ashamed.

If there is any truth in the Christian faith, then the teachings of the Bible should make it clear that the winners and losers of economic life do not equate to the ones God loves and hates.  Economics is rough in its sorting process.  Leverage, muscle, cheating, and injustice have inordinate power over people's destinies.  That is why the Sabbath Year and Jubilee systems were put into place in the biblical economic teachings. 

No economic system can claim to be just if it allows and promotes permanent indebtedness, homelessness, poverty, and joblessness.  There has to be a reset system to get people back into the economic game.

Moreover, our wealth is not our own.  It is for all of God's children.  Churches must find a way to leave behind their accommodation to modern economics and recommit themselves to be communities in which "there is no one in need among you."  We don't have to be ashamed to love one another enough to share our lives with one another.  That is the way of Jesus, who said, "Follow me."

Attorneys General Must Get Tough on Foreclosure Fraud

NAAG is the National Association of Attorneys General.  AGs from the fifty states and the various other jurisdictions such as territories, districts, etc., gather periodically to cooperate in how to manage common issues and work together on multi-state problems.  Some of the cooperative work they have done includes the Tobacco Settlement and the current Foreclosure Fraud Investigation.

Through North Carolina United Power, I have been participating with a working group of national organizations who are in conversation with the AGs about the Foreclosure Fraud Investigation.  Recently, we took a group to Chicago to meet with some of them about their work to protect homeowners and keep families in their homes.  I was interviewed by the local CBS radio affiliate in the hours before our meeting.

Among the key items of our agenda are:

• broad availability of principal reductions to reset the housing market and remove the risk of more foreclosures;
• remedies for all who have been harmed by fraud other criminal acts, whether they have already suffered foreclosure, are in process, or are facing impending foreclosure;
• the end of dual tracking, with simultaneous loan modification discussions and foreclosure procedures;
• all possible efforts for loan modifications and other non-foreclosure procedures should precede the initiation of foreclosure procedures;
• criminal prosecutions for criminal acts; and
• regulatory regimes to keep this kind of mortgage fraud from being repeated.

We were able to meet with four of the state Attorneys General:  Lisa Madigan of Illinois, Tom Miller of Iowa (the leader of the task force working on the foreclosure fraud investigation), Roy Cooper of North Carolina (President of NAAG who pushed the foreclosure fraud investigation forward), and George Jepsen of Connecticut (newly elected).  Our conversation was formal, perhaps overly so.  We discussed our agenda, they discussed their records, and then we exchanged questions and vague answers.  The time was short:  only 30 minutes.  There was very little new that came out of the meeting, but do not assume that I am saying it was not worthwhile.  Let me clarify why this was such an important meeting.

In organizing, we plan an action to get a reaction.  When we get our reaction, then we evaluate what we have learned and begin to plan future research and actions in light of it.  Our action in Chicago revealed a number of important things about our work on to change the conditions faced by so many families being hit by foreclosures.

This action showed something to our organizing groups, to the four AGs present in our meeting, to the many other AGs at the hotel but not at our meeting, and to the press and their readers.  To us, it showed that we have the power to bring the key law enforcement figures in the foreclosure negotiations to the table, even if we and they know they cannot negotiate publicly with us about potential criminal proceedings against banks.  Not only do they meet with bankers.  They also meet with us.

To the AGs present, we were able to deliver a multiracial, multiethnic, knowledgable, prepared, faith-based and non-faith-based, nationwide constituency to speak intelligently and passionately about this critical work they are doing.  They found us to be what we said, representatives of hundreds of thousands of citizens, thousands of churches and synagogues and mosques, and from states all across the nation.

To the AGs not present, we made it publicly clear that their colleagues who are leading in this foreclosure investigation are willing to meet with us.  Miller, Cooper, Madigan, and Jepsen will meet with us not only in their private chambers back home but in a public forum where they can express, even with the press in the room, their strong agreement with our agenda.  They were very adamant that they would not settle for an agreement that did not fundamentally change the practices of mortgage lending and foreclosure.  They believe the result must benefit homeowners and borrowers, not primarily get lenders off the hook.

To the press and their readers (including bankers) we were able to show that the case for principle reduction remains strong, with a powerful constituency.  Among the key items reported was the commitment to take banks to court if the negotiations do not bring fundamental change.  These AG negotiators  have not given up on a strong settlement and will not accept a weak settlement.  Our action got broad coverage in newspapers and in banking industry news sources.

The investigation and negotiation of a settlement could come very soon.  Or it could drag on through the summer.  Sooner is better, and we are expecting to see a court decree with tools to provide real help to homeowners.

Big Banks See Fines and Penalties Coming

Bloomberg reported on Saturday that Bank of America and Wells Fargo/Wachovia, the biggest mortgage lenders, are anticipating significant fines, penalties, and legal costs to come from the many current investigations into questionable mortgage lending and foreclosure practices.  This news comes as the "Homeowner's Bottom Line" campaign has been meeting with states' attorneys general across the country to press for justice in the foreclosure crisis.

Of course, the devil is in the details.  What will and will not be addressed in the results of the foreclosure investigation has yet to be seen.  However, these big banks see enough significant impact coming that they felt the need to inform the public in a recent report filed with the Securities and Exchange Commission.

Push the Reset Button on Housing

That's what Gerald Taylor of North Carolina United Power keeps saying:  "We need to push the reset button on the housing market."  The economy got thoroughly messed up by the speculative, reckless practices of the mortgage industry.  The government responded by bailing them out.  They got their derivative market reset.  They get to borrow money for virtually zero per cent interest.  AIG got to push the reset button.  GM got to push the reset button.

But the banks don't want to give the rest of us a chance.  In a mess they willingly helped to make, they got off the hook.  The winners got to buy up their competitors for cents on the dollar.  They were allowed to voluntarily find ways to help homeowners, unemployed workers, pensioners whose incomes evaporated, and other victims of the economic crisis.  But they don't want to do it.

They string families along with delays and lost paperwork, offering loan modifications while simultaneously working full steam, even fraudulently, to move the foreclosure process forward.  Attorney General Tom Miller of Iowa says that this dual-track process of promising modifications while fast-tracking foreclosure is "insane."  What sense does it make for a family to get a loan modification proposal from the bank on the same day that the bank sold their house?

Give homeowners the same chance.  Reduce mortgage principal across the board to current market values.  That's right--we need across-the-board principal reductions for homeowners underwater, whether they are behind in their payments or not.  Push the reset button.  Make a market correction.  Why?

1.  Unemployed and laid-off workers, retirees depending on pensions, and many homeowners who bought market-rate homes with the assurance that the market was operating in a rational manner (when almost no one--not even the revered Alan Greenspan--recognized the housing bubble) did not come into financial misfortune because of carelessness, greed, or risky behavior.  They were overwhelmed by the economic tsunami from the collapse of the derivative house of cards.  Getting them on their feet and keeping them in their homes will help stabilize the economy.

2.  Foreclosing on one family, then selling the same house for half-price to another family is pure stupidity.  Without all the human trauma and with less paperwork and financial loss, banks could renegotiate reasonable mortgages for the people who are at risk of foreclosure. 

3.  Neighborhoods and communities where many foreclosures have happened become depressed, forcing down the value of other homes.  This puts more homeowners underwater and creates new risks for foreclosures.  Stabilizing neighborhoods by keeping families in their homes and paying modified mortgages is good for all of us.

4.  The so-called moral hazard of adjusting loans in a way that is beneficial to the borrower is a smoke screen.  If banks were being swindled into letting people off the hook who never intended to pay their mortgages, that would be a moral hazard.  But the true moral hazard came when the mortgage industry turned into the anything-goes-mortgage-derivatives orgy.  Even admitting that some homeowners took stupid risks or failed to do due diligence before borrowing, the risks and benefits of mortgage finance have to be shared.  Letting the banks off the hook for their bad debts while holding small borrowers accountable for their debts is an unjust financial system.

So set the reset button for homeowners.

Economic Recovery for All 7: Faith Perspectives, Pt 3

THEOLOGICAL REFLECTION ON THE ECONOMY
A Working Paper for North Carolina United Power
from an Interchange Among Theological Educators
July 2009

III. Faith Perspectives on Responding to the Crisis

B. Biblical, Theological, and Ethical Principles Guiding NCUP Actions and Campaigns in Response to the Economic Crisis

5. Economic value tied to real, material goods and services, not ephemeral financial machinations

The practice of making money off of money was strictly limited and often prohibited throughout the history of the Christian church. Citing Exodus 22:25, which states, "If you lend money to my people, to the poor among you, you shall not deal with them as a creditor; you shall not exact interest from them, " Thomas Aquinas, wrote that "To take usury for money lent is unjust in itself, because this is to sell what does not exist, and this evidently leads to inequality which is contrary to justice" (Summa Theologica, IIa IIae. Art. 1, Q. 78). One of the critical problems that created the economic recession was the fact that mortgage-backed securities and other financial products were sold and resold for values that had lost touch with the actual homes and real estate that stood behind them. Credit default swaps were another form of betting on the paper assets of others, using more money than anyone can afford to risk. Playing this imaginary game of finance puts the entire economy at risk.

6. Transparency and honesty in exchanges and business dealings

The current practices of consumer credit and the recent "creative financing" of mortgages fall under the condemnation of the biblical view of usury. High-powered marketing campaigns promise easy access to money, with the details of excessive interest rates, charges, and penalties often relegated to the fine print. Offering low "minimum payments" and changing the terms of a credit agreement are deceptive practices that often saddle the unsuspecting borrower with accruing debt accompanied by unforeseen and undisclosed rate hikes.

These practices strongly parallel the devious ways of Zacchaeus, the tax collector mentioned in Luke 19, whom Jesus admonished to rethink his business tactics. Zacchaeus' repentance leads him to repay those he has cheated fourfold, an act of obedience to Jesus that comes into full view when contrasted to a story from the previous chapter of Luke. There one sees the failure of the rich young ruler who could not bring himself to sell what he had and distribute it to the poor in order to follow Christ. There is a clear message here that Jesus' followers must turn from lives of economic exploitation toward lives of generosity and just and honest business activity.

7. The dignity of work and the opportunity to contribute to the material and spiritual common good

In a biblical economics, work has dignity as the creative activity of those made in the image of God. Thus, human beings work as for the Lord and not for human masters (Col. 3:23). Even so, this work done unto God also serves the divine purpose of doing good for all. Paul encouraged the Philippian Christians to emulate the ways of Christ when he wrote, "Let each of you look not to your own interests, but to the interests of others" (Phlp. 2:4).

All work which serves the common good has dignity as part of God's purpose for creation. When market economies become distorted by wealth, greed, and inequity, the work of some earns status and wealth, while other essential work receives disdain and very low compensation. Although financial institutions are resisting limits on wages of executives because they fear a "talent drain," they consistently oppose better wages and benefits for the average worker. The shocking fact is that many of these so-called “talented” executives played games with other people's wealth, took undue risks, promoted questionable mortgages and remained blind to the housing bubble.

Why aren't average workers considered "talent?" Workers are the assets that make careers for executives possible. A long-range view of business and the economy aims to reward and keep talented, hard-working people. Only shortsighted greed leads some members of a corporation to pursue their own self-interest at the expense of the interests of those responsible for creating the value, through goods and services, that sustains the corporations and the common good. "The laborer deserves to be paid" (1 Tim. 5:18).