I posted this two months ago and am reposting it in full because, given our worsening economy -- the horrendous news yesterday that 80,000 jobs disappeared in March confirms that the mortgage/credit/financial crisis is spreading fast through the system, and lots of folks may up shit's creek unless the federal government steps in to help save them from losing their homes -- and drastically lowering the values of the homes of their solvent neighbors.
Arizona is one of the states most affected by the imploding housing disaster. Many homeowners in the East Valley have learned it's possible to be underwater in the desert.
Senate leaders are patting themselves on the back for passing a bipartisan bill that they claim will help solve the current mortgage nightmare. But because Senators of both parties, like Rep. Jeff Flake, are beholden to the banking and construction industries for their campaign funds, they've avoided a real solution. The Washington Post headline got it right: "Housing Accord Puts Builders First; Strapped Homeowners Offered Little Aid":
After working through Tuesday night to flesh out a bipartisan agreement, lawmakers unveiled a bill that rejects the most ambitious plans for aiding distressed homeowners, including a Democratic proposal to permit bankruptcy judges to modify the mortgage on a person's primary residence.
Instead, lawmakers settled on a sharply scaled-back array of measures that would provide $4 billion in grants for cities to buy foreclosed properties, temporary tax breaks worth up to $7,000 for home buyers who purchase foreclosed properties, and new tax deductions for almost every American who owns a home.
This bill will do little to help the estimated 8,000 families a day who are facing foreclosure.
What would help them? Here's my February post:
The subprime mortgage crisis that triggered this recession is spreading.
As a front-page story in today's New York Times indicates, now people with good, or prime, credit histories are falling behind on their payments for home loans, auto loans and credit cards. Many will be facing foreclosure and bankruptcy:
An example of the spreading credit crisis is seen in Don Doyle, a computer engineer at Lockheed Martin who makes a six-figure income and had a stellar credit score in 2004, when he refinanced his home in Northern California to take cash out to pay for his daughter’s college tuition.
Mr. Doyle, 52, is now worried that he will have to file for bankruptcy, because he cannot afford to make the higher variable payments on his mortgage, and he cannot sell his home for more than his $740,000 mortgage.
“The whole plan was to get out” before his rate reset, he said. “Now I am caught. I can’t sell my house. I’m having a hard time refinancing. I’ve avoided bankruptcy for months trying to pull this out of my savings" . . .
“You don’t mind making a $2,000 payment when the house is going up” in value, said Steve Walsh, a mortgage broker in Scottsdale, Arizona, who has seen several clients walk away from their homes because they couldn’t refinance or sell. “When it’s going down, it becomes a weight around your neck, it becomes an anchor.”
Several years ago, Rep. Jeff Flake did the credit card industry's bidding and voted for a bill that made personal bankruptcy much harder and more punishing. To their shame, so did many Democrats (including Sen. Hillary Clinton) because they're as hooked on banking industry contributions and as beholden to them as Jeff Flake is.
On October 26, 1997, I published an op-ed column in The Orlando Sentinel opposing an earlier version of this bad law that Jeff Flake supported, one introduced by another right-wing Republican, Rep. Bill McCollum of Florida:
The legislation is cynically designed to make bankruptcy more costly and
intimidating to already frightened and confused consumers. It would drive up the
cost of bankruptcy for most debtors who can't afford to pay attorney fees to
defend against the complicated motions proposed. It would remove the discretion
of bankruptcy judges to rule on who is abusing the system and have numerous
social costs as a result of increased debt.
Moreover, the bill ignores a major cause of bankruptcy: the lack of accountability by credit-card companies. Indeed, it would encourage them to extend even more credit to people who are shaky risks, in the belief that bankruptcy would no longer permit the discharge of those debts.
Inexpensive and effective bankruptcy relief is more necessary than ever because of the unprecedented amount of consumer debt that creditors have extended by bombing American families with enticements to go further and further into debt on more and more credit cards. It is hypocritical for those same creditors...to turn around and blame these same families when they become unable to pay for all of the debt that was pushed on them.
Similarly, in our present crisis, corrupt lenders played on the naivete of homeowners and homebuyers.
A few changes to the U.S. bankruptcy code could save many troubled homeowners from foreclosure as the recession and credit crisis worsens over the next year.
A proposal in Congress, backed by consumer groups but opposed by the lending industry, would give bankruptcy judges new authority to modify mortgage terms for homeowners deemed to be insolvent. It would let bankruptcy judges extend the life of a home loan, change the interest rate or simply mark down the loan amount. (Currently, judges have authority to modify other types of debt, including money owed on credit cards or auto payments, but not home loans.)
The House and Senate must pass this measure that would allow bankrupt homeowners to modify their mortgages under bankruptcy court protection. It would help more homeowners keep the roof over their heads, as well as be an incentive to lenders to work more diligently to modify loans before they wind up in bankruptcy court.
Other bankruptcy reforms, such as those proposed by Sen. Chris Dodd (D-CT), are also needed, but this bill must pass right away. It could save 600,000 Americans from foreclosure.
Yet Rep. Jeff Flake, with his naive faith in the free market and his distaste for helping struggling middle class families -- not to mention his big campaign contributions from those forces opposed to bankruptcy refrom -- will oppose this bill.
I believe Jeff Flake is as wrong on this as he is on many other issues.
All around the East Valley and the rest of metropolitan Phoenix, signs of the credit crisis are -- literally -- evident. Families are suffering. They need help.
But Rep. Jeff Flake will say they're on their own.