Posted on 03/29/2008 2:16:01 PM PDT by neverdem
Last year, forty-three states reported increased home foreclosure rates. Nevada led the way for eleven consecutive months; in Clark County, which includes Las Vegas, nearly one in twenty homes is in foreclosure. Whole blocks have been foreclosed in Chicago. Nationwide, rates are nearing Depression-era highs--ravaging working- and middle-class neighborhoods that fell prey to the soft sell and outright chicanery of predatory lenders in the heyday of the housing boom. These lenders have targeted the most vulnerable--black and Latino borrowers have been twice as likely to receive subprime loans as whites; female homeowners, 30 percent more likely than male; black women, five times more likely than white men.
As the subprime mortgage debacle drives a recession that threatens financial markets around the world, the Democratic presidential candidates are pushing plans to address the crisis. John Edwards and Hillary Clinton are pledging substantial federal resources to stabilize the mortgage market and intervene on behalf of borrowers. Barack Obama's proposal is tepid by comparison, short on aggressive government involvement and infused with conservative rhetoric about fiscal responsibility. As he has done on domestic issues like healthcare, job creation and energy policy, Obama is staking out a position to the right of not only populist Edwards but Clinton as well.
Edwards's plan includes a mandatory moratorium on foreclosures, a freeze on rising interest rates for at least seven years, federal subsidies to help homeowners keep up with payments and restructure loans, and explicit measures to rein in predatory lenders and regulate the financial sector. Clinton's plan is weaker--a voluntary moratorium, a shorter freeze, less commitment to new regulations--but she has promised $30 billion in federal aid to help reeling homeowners and communities.
Only Obama has not called for a moratorium and interest-rate freeze. Though he has been a proponent of mortgage fraud legislation in the Senate, he has remained silent on further financial regulations. And much like his broader economic stimulus package, Obama's foreclosure plan mostly avoids direct government spending in favor of a tax credit for homeowners, which amounts to about $500 on average, beyond which only certain borrowers would be eligible for help from an additional fund.
"One advantage to the tax credit is that there's no moral hazard involved," one of Obama's economic advisers explains. "There's no sense in which you're rewarding someone for taking too big a risk. If you lied about your income in order to get a bigger mortgage, then you're not qualified. Do you really want to give a subsidy to the guy who wasn't prudent?" Obama has used similar language on the campaign trail. "Innocent homeowners," he has promised, those "responsible" borrowers "facing foreclosure through no fault of their own," would get help restructuring their loans. But no such luck for those "claiming income they didn't have" or "lying to get mortgages."
"There's been less emphasis from the Obama campaign on the really dysfunctional role of the financial industry in the subprime mess," says Josh Bivens of the Economic Policy Institute. "Edwards and Clinton talk much more about regulation of the financial industry going forward, and to the extent that blame is placed, they tend to place it on the lenders for steering people into loans they couldn't afford."
Obama's disappointing foreclosure plan stems from the centrist politics of his three chief economic advisers and his campaign's ties to Wall Street institutions opposed to increased financial regulation. David Cutler and Jeffrey Liebman are both Harvard economists who served in the Clinton Administration, and they work on market-oriented solutions to social welfare issues. Cutler advocates improving healthcare through financial incentives; Liebman, the partial privatization of Social Security.
Austan Goolsbee, an economist at the University of Chicago who calls himself a "centrist market economist," has been most directly involved with crafting Obama's subprime agenda. In a column last March in the New York Times, Goolsbee disputed whether "subprime lending was the leading cause of foreclosure problems," touted its benefits for credit-poor minority borrowers and warned that "regulators should be mindful of the potential downside in tightening [the mortgage market] too much." In October, no less a conservative luminary than George Will devoted a whole column in the Washington Post to saluting Goolsbee's "nuanced understanding" of traditional Democratic issues like globalization and income inequality and concluded that he "seems to be the sort of fellow--amiable, empirical, and reasonable--you would want at the elbow of a Democratic president, if such there must be."
Robert Pollin, an economist at the University of Massachussets, believes "these three advisers generally reflect Obama's very moderate economic program, similar to Clintonism." Wall Street apparently has come to a similar conclusion. Obama had received nearly $10 million in contributions from the finance, insurance and real estate sector through October, and he's second among presidential candidates of either party in money raised from commercial banks, trailing only Clinton. Goldman Sachs, which made $6 billion from devalued mortgage securities in the first nine months of 2007, is Obama's top contributor. When asked if Obama would hold these financial institutions accountable for losses incurred by homeowners and investors, his campaign refused to comment.
But tax credits and continued deregulation won't solve the mortgage crisis, which threatens to dispossess more than 2 million homeowners this year. "There's no evidence that an unregulated market is going to be a stable market," Pollin says. "The unstable mortgage market is one indication of that. This is not anything new. What is new is that you have a serious presidential candidate who isn't really talking about it and doesn't have advisers that are prepared to deal with it."
If Obama is serious about his community organizing roots, then he would do well to take a lesson from groups like the Rainbow/PUSH Coalition and ACORN, which are calling for a moratorium on foreclosures of a year or longer and for the creation of a massive government loan agency on the scale of the Reconstruction Finance Corporation of the 1930s. "We need some serious federal government intervention to restructure loans, not repossess homes," says the Rev. Jesse Jackson. "Because it's not just the borrowers anymore, it's the economy itself. We're in for a very difficult economic season."
What a pantload! Yeah, the “evil” mortgage brokers and loan officers caused this problem, did they? I’ve been to hundreds of loan closings, and I don’t ever remember putting a gun to someone’s head to make them sign. BTW, most people spend more time reading a label on a box of cornflakes than they do reading the mortgage documents at a closing! They’re always in a hurry to get to Junior’s Little League game or Sissy’s dance lesson. When I boorow money in the hundreds of thousands (or millions) you can bet I know every word that’s in the contract. But that’s just me, I guess!
Gee, I guess I should have taken out a liar’s loan to buy three times as much house as I can afford—then these clowns could bail me out. Stupidly, I have a modest house on a 15-year fixed.
These people make me sick.
“We need some serious federal government intervention to restructure loans, not repossess homes,” says the Rev. Jesse Jackson. “Because it’s not just the borrowers anymore, it’s the economy itself. We’re in for a very difficult economic season.”
No, we don’t .
The result of the above would be an unmitigated disaster of such scope and magnitude as to defy comprehension.
G_D dam America....
That "reform" was to insist that the major lenders create loans in "black and brown" areas of the urban maps. Not to do this would be "unfair." Now that many of those risky loans are going belly up, another "reform" to deal with the wreckage of the first "reform" is demanded.
Higher risk means the loan cost more. Haven't any of these economic numb skulls bothered to think about WHY insurance companies charge more money for life policies on people who smoke?
Congressman Billybob
This article drips of “victimhood”. Don’t you know that “blacks were targets”?
On the other hand, without stretching the rules, a lot of these people wouldn’t have been able to afford a house.
Thus, the financial community gets blamed for taking the chance that continued housing price increases would cover a spate of “fringe” mortgages.
Well, this makes me feel better about Obama. I’m shifting from “If he wins, I’ll die,” to “If he wins... I’ll wait till he actually destroys the country, then die.”
Or, everyone who has homes that are over 10,000 square feet turn over 1/2 of their assets to the banks to cover those behind on their payments.
Yeah and what about the thousands of loan officers who are now unemployed?
The irony is that much of the sub-prime mess was pushed by the gov’t so that minorities would own more homes. Classic case of damned if you do and damned if you don’t.
Every time they trot an actual victim. There is no way that
they should have been given a mortgage. What’s next- we pay their credit bills?
The Government-Created Subprime Mortgage Meltdown
Larry Kudlow's Saturday radio program was discussing Barack Obama's career as a community organizer, and how ACORN and groups of their ilk created this mess. I stumbled into that link.
Questions for “The Nation”:
Why did you not tell us the racial and gender statistics for the lenders who “targeted” the most vulnerable?
Are the lenders also disproportionately black, Latino, and female?
The lenders' INTENTIONS were good. That's all that should matter.(/sarc)
Talk about unintended consequences.
And you wouldn't believe how many on this very board say exactly what you just said.
Only CEOs and Wall Street are supposed to be greedy. Not Joe and Marry who make $70,000 and want a $500,000 house to compete with their sisters. These are not greedy, you see: they are victims of predatory lenders.
When the lenders share their profits with me, then I might agree to a bail out.....but not until then! This subprime fiasco smacks of a pro-minority (everyone has a RIGHT to be a homeowner) bias which any right minded person, black or white, would know would fail. Get your hands out of my pockets, Jesse (Hi)Jackson, Al Sharp(dull)ton and your ilk!!!!!
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