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Saturday, September 30, 2023
BOSTON, Oct 28 2008 (IPS) - Bank crashes in Iceland, an International Monetary Fund (IMF) bailout of Ukraine and volatile stock markets the world over – it all links back to the U.S. communities where hundreds of thousands of families are losing their homes with no let up in sight, those on the frontlines say.
“Foreclosure has been a huge issue, a ballooning, mushrooming issue for at least two years. We’ve been inundated with phone calls for help,” said Tracy Garrett, a housing advocate with Community Action House, a non-profit in Michigan.
Recent reports point to a global economy that is tumbling downward. On Sunday, Ukraine negotiated a 16.5-billion-dollar bailout from the IMF, and Hungary is next in line for help. On Monday, more U.S. banks lined up for a slice of a 125-billion-dollar handout from the government, while the U.S. stock market slid further.
Many experts and advocates agree that foreclosures are at the root of the global financial mess, but so far Congress and the George W. Bush administration have focused attention and dollars on banks and Wall Street.
“If the foreclosures of these past four years can drive the U.S. economy to the brink of a depression, what can we expect from a dramatic increase in those numbers?” said John Taylor, president of the National Community Reinvestment Coalition, an organisation of housing advocates.
Today, foreclosures are happening at an alarming rate.
U.S. officials estimate that 2.5 million more households will face foreclosure in the next 12 months.
Many of the foreclosures are the result of questionable loan terms, made by financial institutions at a time when housing prices were rising and interest rates were low. These sub-prime mortgages were made into investments by the financial institutions and traded as highly risky packages around the globe. Millions of families are now proving unable to meet the mortgage terms and are defaulting on their loans, and the value of the houses has plummeted to far below what they paid for them.
Banks and financial institutions worldwide own the credit default swaps and other unregulated investments that were fashioned from the mortgages, and are unable to sell them due to fear on the market that they are worthless.
Former Treasury Secretary Alan Greenspan has faced criticism for embracing an extreme free-market ideology that allowed the mortgage and financial industries to lead the world into a global financial mess.
Speaking to a Congressional panel last week, Greenspan took no responsibility for the crisis and instead reported his observations of what has happened and what is likely to happen.
Sub-prime mortgage loans were “undeniably the original source of the crisis,” Greenspan said. “Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment.”
“A necessary condition for this crisis to end is a stabilisation of home prices in the U.S.,” he said.
The government has some programmes in place to assist struggling homeowners, including a 350-billion-dollar plan that got underway Oct. 1, which has strict eligibility requirements. So far the Bush administration has encouraged, but not required banks to re-negotiate unfair mortgages with homeowners, even banks that have received billions of dollars through a 700-billion-dollar Wall Street bailout programme approved by Congress.
“We expect all participating banks to continue to strengthen their efforts to help struggling homeowners who can afford their homes [to] avoid foreclosure. Foreclosures not only hurt the families who lose their homes, they hurt neighborhoods, communities and our economy as a whole,” said Treasury Secretary Henry Paulson on Oct. 20.
Sheila Bair, a top administration official as the chair of the Federal Deposit Insurance Corporation, told a Senate panel last week that the government should do more to help homeowners.
“Some of the voluntary efforts have helped but we are falling badly behind,” Bair said.
Some interpreted her comments to mean that the Bush administration will soon put forth a plan to further encourage or mandate that banks modify loans for struggling homeowners, something Taylor and other housing advocates have recommended.
“Assisting homeowners to stay in their homes would have been a more effective and equitable way to prevent the collapse of financial institutions and seizure of the credit markets,” Taylor said.
Banks are not voluntarily modifying problematic mortgages, experts and advocates say. In Massachusetts, virtually no lenders have voluntarily modified mortgages, according to Massachusetts Attorney General Martha Coakley.
“In the last three months, lenders issued 4,721 new foreclosure notices in Massachusetts. During that time, only 144 loan modifications were filed,” said Coakley in a letter to the Boston Globe.
“We have reviewed those 144 modified mortgages and found that virtually none reduced the monthly payment owed by the homeowner,” Coakley said. Unless payments are lowered, most homeowners in trouble will default, she said.
“Many families struggling to hold onto their homes and savings are not looking for charity or a bailout, and that is not what loan modifications are about,” Coakley said.
In U.S. neighbourhoods, non-profit groups say they are scrambling to help people facing foreclosure.
The mortgage bureaucracy is “a tangle” and extraordinarily challenging to navigate, Emily Rosenbaum, executive director of A Coalition for a Better Acre, told IPS.
Typically a mortgage has been bought and sold many times, and it may no longer be obvious which bank is the owner. If a homeowner wants to negotiate a loan, many phone calls must be made just to reach the current holder of the mortgage, Rosenbaum said.
“It might be someone in Ohio and they don’t even know the value of the property. It’s quite a nightmare,” Rosenbaum said.
And if finding the bank that owns the mortgage isn’t enough, “Getting to the right person at the bank is a problem,” she said. “In America you don’t get a person on the phone anymore,” she said. Instead, calls are directed to a recorded message.
Once reached, and asked about re-negotiating the mortgage, the bank takes time to consider the request, Rosenbaum said.
“No one makes a decision. We wait three to four weeks for the case to be assigned in the bank, then another six weeks about the decision,” she said. “This hurts the homeowner because they get further and further behind. It’s essentially hurting the whole lending system that’s breaking down.”
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