Housing bill rewards lenders, ignores plight of workers

President Bush recently signed into law a $300-billion bailout plan for mortgage giants Fannie Mae and Freddie Mac. The Democratic leadership in the House and Senate tout the bipartisan bailout as a rescue package for homeowners struggling against foreclosure.

In reality the bill does little more than prop up Fannie Mae and Freddie Mac, which own or guarantee almost half of the nation’s mortgages. The bill essentially rewards Fannie Mae and Freddie Mac with hundreds of billions of dollars for their role in the subprime lending crisis that threatens the U.S. economy with worsening recession and even potential depression.

The bill also guarantees the continuation of the exorbitant salaries the two companies pay their top executives. The combined 2007 total compensation paid to both companies’ CEOs exceeded $31 million.

Meanwhile, the millions of workers whose dreams are being foreclosed along with their homes receive barely a pittance to help them survive the crisis.

The foreclosure crisis shows no signs of receding anytime soon. The current crisis in subprime loans is causing the foreclosure of more than 8,500 homes a day. A steadily increasing unemployment rate and skyrocketing gas prices will likely push that figure significantly higher in the months ahead.

The official U.S. unemployment rate climbed to 5.7 percent as 51,000 more workers lost their jobs in July. The average workweek dropped to its lowest point since November 2004 as employers cut back on the number of hours available to workers still employed.

Employment consulting firm Challenger, Gray & Christmas Inc. reported that planned layoffs for July jumped 26 percent over June to 103,312. The transportation, financial and retail industries were the hardest hit by the expected layoffs. The average price of gas continues to hover around $4 a gallon, taxing the limited resources of workers as they travel to and from work.

The daily struggle workers face to make ends meet is beginning to reverberate as housing lenders brace themselves for a larger wave of loan defaults. The current rate of foreclosures is mostly driven by workers who can no longer afford the subprime loans they were offered by predatory lenders.

Analysts are starting to see signs that segments of the mortgage market outside of subprime lending are increasingly at risk of dramatic increases in foreclosures. The percentage of Alternative-A mortgages in arrears quadrupled to 12 percent in April over the 2007 figure. Alternative-A mortgages are low- or no-documentation loans that are considered a step above subprime. Alternative-A mortgages are often targeted for workers who have no credit score or have high debt-to-income ratios only slightly better than those of subprime borrowers.

Delinquent payments also increased for prime loans, which doubled to 2.7 percent during the same period. Prime loans account for most of the $12 trillion mortgage market.

Thomas H. Atteberry, president of First Pacific Advisors, an investment firm that trades mortgage securities, warned: “Subprime was the tip of the iceberg. Prime will be far bigger in its impact.” (New York Times, Aug. 4) Prime and Alternative-A mortgage loan defaults have the potential to threaten the solvency of banks in a way that subprime loan defaults do not because banks hold many more of these loans compared with subprime loans.

The housing bill Bush signed into law in late July is an insult to the millions of workers struggling to keep their homes. The Congressional Budget Office optimistically estimates the bill will help 400,000 homeowners stave off foreclosure through a provision in the bill that allows lenders to bring failing mortgages to the Federal Housing Authority for a guaranteed new mortgage at 85 percent of the home’s current market value. The CBO admits that it will take three years for all 400,000 mortgages to be brought to the FHA and that 140,000 of these homes could go into foreclosure a second time on the new mortgage.

Even in the best-case scenario—that 400,000 homeowners could potentially keep their homes—the housing bill does not even dent the current crisis. At the current rate of 8,500 foreclosures a day, the housing bill would at best stave off less than seven weeks’ worth of foreclosures. Meanwhile, the bill says nothing about providing a moratorium on home foreclosures, providing housing for all as a right or any of the other measures that would actually help the vast majority of workers keep their homes. The current bill provides only a modicum of assistance to less than 5 percent of the workers at risk of home foreclosure.

The corporate media has consistently touted a provision in the bill that purports to provide a tax credit of $7,500, or 10 percent of the home’s purchase price, whichever is less, to first-time home buyers. This credit does nothing to provide relief to current homeowners. Furthermore, the $7,500 “credit” is not even really a tax credit—workers who choose to purchase a home in exchange for the credit are required to pay it back over the course of 15 years through their annual tax filings.

The $7,500 is actually an interest-free government loan designed to mislead potential buyers into believing they are receiving a tax credit for the purchase of a new home. Such tricks only add insult to the injury current and potential homeowners are experiencing due to the foreclosure crisis.

Arizona Democratic Rep. Raul Grijalva has proposed a bill known as the Saving Family Homes Act, HR 6116. This bill would allow many struggling homeowners facing foreclosure to at least stay in their homes as renters for up to 20 years by paying the fair market rent.

HR 6116 is flawed and inadequate. The bill does not provide a moratorium on foreclosures and potentially forces workers to trade the dream of owning their own home for a decades-long tenancy agreement. But by refusing to seriously consider even moderate measures such as HR 6116, the Democratic House leadership has clearly demonstrated that it is in the pockets of the big mortgage lenders that seduced workers with their predatory lending practices.