Foreclosures kill the dream

Home ownership was once a dream come true for millions of workers. For many it is now becoming a nightmare.

It was reported Dec. 19 that “2.2 million households in the subprime market either have lost their homes to foreclosures or hold subprime mortgages that will fail over the next several years. These foreclosures will cost homeowners as much as $164 billion, primarily in lost home equity.” (Center for Responsible Lending—CRL)

Many homeowners are trapped, especially those with adjustable mortgage rates and interest-only down payments. As home values fall, the equity they were counting on dries up, along with the homeowner’s ability to borrow and spend that has stimulated the economy in recent years.

Renters with poor credit, many of them workers from the oppressed Black and Latin@ nationalities, have been manipulated into taking subprime loans—interest-only mortgage payments and adjustable rate mortgages—to buy a longed-for home of their own and forego paying a landlord. But one of every five of these mortgages that originated in the last two years will end in foreclosure, says the CRL.

This rate is nearly double the projected rate of similar loans made in 2002 and “exceeds the worst foreclosure experience in the modern mortgage market,” which occurred during the 1980s. That’s when the savings and loan banks collapsed under similar lending practices. They were bailed out at a cost to the workers/taxpayers of about $200 billion.

Foreclosure means losing the equity in their homes and having to go back to paying exorbitant rents and facing potential eviction. Lenders will no longer make loans to applicants who do not earn enough to make payments at the highest interest rates possible under the terms of the loan.

The greed-driven financial and corporate institutions—snake oil profiteers, bankers, financial investors and real-estate brokers—garner huge fees and commissions from subprime mortgages.

Wheeling and dealing with people’s lives is considered routine under capitalism. “Mortgage companies, banks and investors have been aggressively marketing and trading the loans because their higher interest rates make them far more profitable than prime loans, even after taking into account greater default rates,” wrote the New York Times on Dec. 6.

Michael W. Perry, CEO of a California lender, said at a recent mortgage bankers’ convention: “We should all be proud as an industry. We have created an enormous amount of wealth for Americans.” Which ones? Themselves?

They didn’t mention the devastating impact on those who will be bankrupted by a dramatic increase in foreclosures.

High-cost, high-interest subprime loans are disproportionate in Black and Latin@ communities, as are predatory lending practices. Fifty percent of loans to African Americans and 40 percent to Latin@s are high-cost, according to a recent Home Mortgage Disclosure Act report. It had analyzed more than 6 million subprime mortgages from 1998 through 2004.

“For most people, owning a home is their best chance to achieve sustainable economic security. Losing that home, in many cases, means losing life savings,” said CRL President Michael D. Calhoun in December. “Given the size of the subprime market today—nearly a quarter of all loans made this year—this epidemic of foreclosures will have a negative impact on the economy as a whole. ... Low-income home buyers have been at risk even when prices of housing are up. Thirteen percent of subprime home loans ended in foreclosure within five years. Prepayment penalties make them more risky.”

Another vicious form of racism is the housing crisis/foreclosure epidemic in the Gulf Coast region following Katrina. In New Orleans, out of 97,000 homeowners who applied for Louisiana’s “road home” Federal Emergency Management Assistance for rebuilding, only 8,300 received award letters.

As of December 2006 less than 100 had received checks. “Not a dime has gone to rebuild rental housing, although about one-half of the displaced population had lived in rentals. Protestors stormed through New Orleans to protest Housing and Urban Development plans to demolish 7,500 units of public housing—many hardly scathed by the storm—in favor of ‘mixed’ more expensive housing.” (Facing South blog)

Housing is a multiplier industry. It impacts on banks and financial institutions, construction corporations and a myriad of related industries. The housing market—a $10 trillion bubble that represents almost 80 percent of the $13 trillion gross domestic product—is weakening fast. A hard landing—code word for a crash—could be in sight.

Home sales fell nearly 13 percent in August 2006 compared to the year before; home mortgage debt since 1987 has skyrocketed from $1.8 trillion to $8.2 trillion.

Caught in this maelstrom are a wide array of banks, private equity funds, real-estate investors and speculators who wheel and deal in the bond market that sets long-term interest rates—the leading cause of the rise in mortgage rates.

Over two-fifths of all private jobs created since 2001 have been in housing-related sectors. As the housing market slows, more layoffs will occur and wages and benefits will be downsized.

Compounding this debacle is the slowdown in the manufacturing sector and the auto industry.

The housing crisis contains the seeds of a general capitalist crisis. The $10 trillion bubble can have a domino effect upon the multinational workers and the oppressed nationalities. Further social convulsions due to preemptive wars and debt will pit them against the predatory rulers of the empire.

Pigging out

Fringe-economy corporations lend or sell at exorbitant interest rates, like the subprime mortgage lenders mentioned above. But their CEOs earned big bucks in 2004. Sterling Brinkley, chair of EZ Corp, earned $1.26 million; ACE’s Jay Shipowitz received $2.1 million on top of $2.38 million in stocks; Jeffrey Weiss of Dollar Financial Group earned $1.83 million; Mark Speese of Rent-A-Center made $820,000 with total stock options of $10 million; and Cash America’s Daniel Feehan was paid almost $2.2 million in 2003 plus $9 million in stock options. (Forbes magazine)