Mortgage fraud, bank bailouts continue
Published Oct 29, 2010 12:07 AM
The lifting of the major banks’ “foreclosure moratoriums”
— which had been instituted to stem the outcry over massive fraud in the
processing of foreclosure documents — demonstrates the necessity for the
working class to launch a struggle to win a genuine two-year moratorium on
foreclosures and evictions predicated on the premise that housing is a
fundamental human right.
With the federal government having essentially nationalized the mortgage
industry, the president has the authority to implement such a moratorium
through executive action.
Bank of America on Oct. 18 announced its intent to resume foreclosures in the
23 states which have judicial foreclosures. BOA had suspended foreclosures in
those states on Oct. 1 due to revelations of fraud in the processing of
foreclosure documents. BOA also announced it would resume foreclosures in a few
weeks in the remaining 27 states. This move will likely encourage JP Morgan
Chase and GMAC, who had similarly suspended foreclosures in the 23 judicial
foreclosure states, to resume taking people’s homes. (New York Times,
Barbara J. Desoer, president of Bank of America Home Loans, stated, “We
did a thorough review of the process and we found the facts underlying the
decision to foreclose have been accurate. We paused while we were doing that,
and now we’re moving forward.”
While even bourgeois commentators treated this announcement with the cynicism
and derision it deserved, Bank of America was emboldened to make this move with
the backing of the federal government.
From the onset of the exposure of massive bank fraud, the Obama administration
has opposed any calls for a national moratorium on foreclosures. When David
Axlerod, President Barack Obama’s chief advisor, appeared on CBS’s
“Face the Nation” Oct. 10, he came out against a national
moratorium. He was followed by Housing and Urban Development Secretary Shaun
Donovan, who published an article Oct. 17 in the Huffington Post that also
rejected calls for a national moratorium, saying it would hurt the
Billions for banks
Bank of America noted that the major holders of its mortgages, Fannie Mae and
Freddie Mac, had been consulted during the review and had signed off on the
decision to resume foreclosures. Of 14 million mortgages BOA services, one-half
of them — worth $2.1 trillion — are owned by Fannie Mae and Freddie
Mac, the giant mortgage holding companies controlled by the U.S. Treasury.
(NYT, Oct. 18)
Fannie Mae and Freddie Mac were formerly government-sponsored enterprises,
private corporations chartered by the federal government to give them enhanced
standing to buy or back up mortgage loans.
However, in July 2008 Fannie Mae and Freddie Mac were taken over by the federal
government due to massive losses they incurred as a result of the record rise
in foreclosures caused by the fraudulent and predatory lending practices of the
banks. The federal government placed Fannie Mae and Freddie Mac in trusteeship
under the Federal Housing Finance Administration, guaranteeing up to $200
billion in federal tax dollars to back up their loans. That figure was raised
to $400 billion, and is now uncapped.
According to a June 3, 2009, statement by FHFA Director James Lockhart, Fannie
Mae and Freddie Mac own or guarantee 56 percent of single-family mortgages
worth $5.4 trillion in the U.S. When combined with the Federal Housing
Administration, the federal government backs or issues a whopping 75 percent of
the country’s mortgages. (Associated Press, Sept. 9, 2008)
What this means is that when a borrower goes into foreclosure, the bank which
made the loan gets paid off at the loan’s full value by Fannie Mae or
Freddie Mac. In addition, the government pays the bank to process the
foreclosure. Then the government takes over the home, evicts the homeowner and
any tenants, places the home on the market, and sells it at a fraction of the
The difference in what the government paid the bank for the loan, and what the
home sells for after foreclosure and eviction, is paid for by taxpayers. That
arrangement amounts to a silent bailout of the banks.
For example, a home several doors from where this writer lives in Detroit sold
for $137,000 in 2001. The home was then foreclosed and the loan was taken over
by Fannie Mae. The home is now being listed by Fannie Mae for $31,000. The
$99,000 difference between the $130,000 still owed on the home for which the
bank received full value, and the $31,000 for which Fannie Mae is selling the
home, is paid for out of taxpayer funds.
This bailout to the banks, which occurs with virtually every foreclosure, has
already amounted to $145 billion.
While the FHFA estimated that the total cost of this bailout will be $221 to
$363 billion, in 2009 the Congressional Budget Office estimated that Fannie Mae
and Freddie Mac would require $389 billion in federal subsidies through 2019.
(Bloomberg News, Oct. 21)
Barclays Capital Inc. analysts put the price tag as high as $500 billion, and
Sean Egan, president of Egan-Jones Ratings Co., estimated that the total
taxpayer bailout to the banks through Fannie Mae and Freddie Mac will total $1
trillion. (BN, June 13)
These figures do not include the additional hundreds of millions of dollars in
federal subsidies on FHA-backed loans.
Still-soaring foreclosures, no relief for homeowners
The Obama administration has announced modest loan modification programs to
help homeowners, such as the Home Affordable Modification Program, in exchange
for this continued massive bailout.
HAMP and other programs are supposed to be mandatory for the banks. But the
banks do not comply to help homeowners in any significant way. The government
relies on the banks themselves to carry out these modifications, and the
federal government and most courts have refused to enforce any sanctions for
refusal to perform them.
With the banks knowing they will be getting paid full value on the loans after
foreclosure, the banks have little incentive to modify loans and have sabotaged
HAMP and led to the program’s virtual collapse. As of August less than
one-sixth of the 3 million homeowners who were supposed to be helped have
received loan modifications, and the number of borrowers being offered trial
modifications has drastically declined. (NYT, Aug. 20)
It was recently exposed that Fannie Mae and Freddie Mac are using the same law
firms that prepared the fraudulent documents for the major banks in their
processing of foreclosures and evictions. Fannie Mae and Freddie Mac are
sanctioning loan servicers if they do not toss people out of their homes within
a short period of time. (NYT, Aug. 22)
Obama: Issue moratorium now!
Today the foreclosure crisis continues to intensify. An estimated 2.8 million
foreclosures are projected across the U.S. during 2010, with foreclosures
totaling 9 million for the years 2009 to 2012. The total lost home-equity
wealth due to foreclosures is expected to be $1.9 trillion for the years 2009
to 2012. (Center for Responsible Lending, Aug. 20)
Foreclosures and evictions are a direct product of persistent high
unemployment. Of the 1 million homeowners who received foreclosure counseling
through the National Foreclosure Mitigation Counseling Program, 58 percent
listed unemployment as the main reason for default. (HousingWire, June 1)
With the federal government controlling or backing the vast majority of
mortgage loans, President Obama has the clear authority to implement a two-year
moratorium on foreclosures and foreclosure-related evictions through an
A moratorium would let homeowners and tenants remain in their homes, stabilize
communities and allow time to develop a long-term solution to this crisis. Then
home loans could be restored to their proper value and housing for all
We must fight each foreclosure and eviction and begin implementing such a
moratorium through direct action. During the Depression of the 1930s, move-ins
reversed many evictions and led to foreclosure moratoriums being enacted in 25
states, which were upheld as constitutional by the U.S. Supreme Court.
What is needed is for the working class to launch a mass struggle to win this
demand. It’s time to fight to reverse the government policies which place
the well-being of the financial institutions ahead of the welfare of the
Goldberg is an anti-foreclosure attorney and a leader in the Detroit-based
Moratorium NOW! Coalition to Stop Foreclosures, Evictions and Utility
Articles copyright 1995-2012 Workers World.
Verbatim copying and distribution of this entire article is permitted in any medium without royalty provided this notice is preserved.
Workers World, 55 W. 17 St., NY, NY 10011
Email: [email protected]
Subscribe [email protected]
Support independent news DONATE