They say that when your neighbor loses his or her job, that’s a recession, but when you lose your job, that’s a depression. I guess when the bank sold my daughter’s home on the county courthouse steps last week, I likewise learned the difference between a sub-prime mortgage crisis and a teaser-rate flim-flam gone bad. Here’s what happened. Daughter is a school teacher, a good one. Husband is a skilled air-conditioning engineer, works on big commercial installations. His business runs into cash flow problems, so he shuts it down and takes a job in another city. Daughter, husband, three kids move to the new city, put home up for sale. Housing market tanks, home doesn’t sell, adjustable interest rate balloons, payments get later and later. Despite ongoing discussions about restructuring, bank calls one morning and says, “We’re selling your house today at noon.”
You can expect to hear this story several million times over the next few years as families from all over discover the truth behind the tall tales told to them by unregulated mortgage lending firms. And now economists from all over are predicting a recession sure to impact everyone from everywhere.
After a flurry of hurry-up negotiations dominated by the mortgage industry and big investment firms, President Bush last week announced a plan which, according to the Washington Post (For Bush, a Political Calculus in Forging Ahead on Mortgage Aid 08/12/07) “opens the way for hundreds of thousands of homeowners to have their sub-prime loan rates frozen as long as they are not behind in their mortgage payments and continue to live in their homes.” Under the Bush plan, borrowers who’ve been able to make their mortgage payments, and who live in their homes, have at least three percent in equity, and a good credit rating may apply for a 5-year rate freeze. In other words, the slimeballs who tricked millions of families into “adjustable” rates in the first place will now be able to skim the most desirable customers from the distressed subprime market. The Post reported “several industry experts” voicing concern that the Bush plan will help only about 400,000 families, but noted that “more lawmakers applauded the president for addressing the issue than criticized him at a hearing this week of the House Financial Services.” The Post failed to mention that a much more far-reaching, sensible plan was put before the committee by the AFL-CIO and it got even bigger applause.
Rather than freezing interest rates for a relatively small number of people, the AFL-CIO plan freezes foreclosures on subprime mortgages, any mortgage with a “teaser” rate structure (one that keeps rates low for a first couple of years before raising them as much as 30 percent for the duration of the loan). The AFL-CIO plan calls for restructuring subprime loans for 30 years at the original teaser rate, rewarding restructuring instead of rewarding foreclosures, requiring mortgage servicers to disclose information about their subprime loan portfolio, and mandating the federal government to help subprime borrowers learn how they can keep their homes.
Testifying before the committee, AFL-CIO Associate General Counsel Damon Silvers exposed the twisted roots of a giant financial scam that may well plunge our economy into a recession:
The U.S. mortgage market is the financial market most closely linked to the lives of American working families. The lack of effective regulation of mortgage markets has allowed these markets to be flooded with products that are misleading and exploitative, products marketed to tens of millions of Americans who work at low wage jobs or who have inadequate retirement income, so they are desperate for a financial short cut to either home ownership or adequate income. Unless the government acts with urgency, hundreds of thousands of workers will lose their homes, millions of workers will suffer pension losses and further millions will lose their jobs.
Silvers concluded his testimony:
Some say, let working people suffer; markets left alone will get it right in the end. Yet somehow there is always help for the well-connected — cheap money for the banks, severance packages for their failed executives, billions in bonuses for the investment bankers who structured the mortgage deals. Workers, single women who are heads of households, people of color, the retired are just collateral damage. But not this time. This time we must act to help the people who really need the help. The alternative is genuine economic crisis.
Did my daughter and her husband stretch too far? Perhaps. Were they led astray by an industry that circles the path to the American Dream dipping and diving constantly at convenient roadkill? Probably. Is that path pitted with potholes created by mindless deregulation, and wage stagnation? Most certainly. Who knows, maybe there’s help out there for someone else’s daughter. As for mine, she and her family will make it back and someday own their own home again. But probably not before suffering more at the hands of an economy and a society that keep taking away from those who have too little, and giving more and more to those already have enough.
They say that when your neighbor loses his or her job, that’s a recession, but when you lose your job, that’s a depression. I guess when the bank sold my daughter’s home on the county courthouse steps last week, I likewise learned the difference between a sub-prime mortgage crisis and a teaser-rate flim-flam gone bad. Here’s what happened. Daughter is a school teacher, a good one. Husband is a skilled air-conditioning engineer, works on big commercial installations. His business runs into cash flow problems, so he shuts it down and takes a job in another city. Daughter, husband, three kids move to the new city, put home up for sale. Housing market tanks, home doesn’t sell, adjustable interest rate balloons, payments get later and later. Despite ongoing discussions about restructuring, bank calls one morning and says, “We’re selling your house today at noon.”
You can expect to hear this story several million times over the next few years as families from all over discover the truth behind the tall tales told to them by unregulated mortgage lending firms. And now economists from all over are predicting a recession sure to impact everyone from everywhere.
After a flurry of hurry-up negotiations dominated by the mortgage industry and big investment firms, President Bush last week announced a plan which, according to the Washington Post (For Bush, a Political Calculus in Forging Ahead on Mortgage Aid 08/12/07) “opens the way for hundreds of thousands of homeowners to have their sub-prime loan rates frozen as long as they are not behind in their mortgage payments and continue to live in their homes.” Under the Bush plan, borrowers who’ve been able to make their mortgage payments, and who live in their homes, have at least three percent in equity, and a good credit rating may apply for a 5-year rate freeze. In other words, the slimeballs who tricked millions of families into “adjustable” rates in the first place will now be able to skim the most desirable customers from the distressed subprime market. The Post reported “several industry experts” voicing concern that the Bush plan will help only about 400,000 families, but noted that “more lawmakers applauded the president for addressing the issue than criticized him at a hearing this week of the House Financial Services.” The Post failed to mention that a much more far-reaching, sensible plan was put before the committee by the AFL-CIO and it got even bigger applause.
Rather than freezing interest rates for a relatively small number of people, the AFL-CIO plan freezes foreclosures on subprime mortgages, any mortgage with a “teaser” rate structure (one that keeps rates low for a first couple of years before raising them as much as 30 percent for the duration of the loan). The AFL-CIO plan calls for restructuring subprime loans for 30 years at the original teaser rate, rewarding restructuring instead of rewarding foreclosures, requiring mortgage servicers to disclose information about their subprime loan portfolio, and mandating the federal government to help subprime borrowers learn how they can keep their homes.
Testifying before the committee, AFL-CIO Associate General Counsel Damon Silvers exposed the twisted roots of a giant financial scam that may well plunge our economy into a recession:
The U.S. mortgage market is the financial market most closely linked to the lives of American working families. The lack of effective regulation of mortgage markets has allowed these markets to be flooded with products that are misleading and exploitative, products marketed to tens of millions of Americans who work at low wage jobs or who have inadequate retirement income, so they are desperate for a financial short cut to either home ownership or adequate income. Unless the government acts with urgency, hundreds of thousands of workers will lose their homes, millions of workers will suffer pension losses and further millions will lose their jobs.
Silvers concluded his testimony:
Some say, let working people suffer; markets left alone will get it right in the end. Yet somehow there is always help for the well-connected — cheap money for the banks, severance packages for their failed executives, billions in bonuses for the investment bankers who structured the mortgage deals. Workers, single women who are heads of households, people of color, the retired are just collateral damage. But not this time. This time we must act to help the people who really need the help. The alternative is genuine economic crisis.
Did my daughter and her husband stretch too far? Perhaps. Were they led astray by an industry that circles the path to the American Dream dipping and diving constantly at convenient roadkill? Probably. Is that path pitted with potholes created by mindless deregulation, and wage stagnation? Most certainly. Who knows, maybe there’s help out there for someone else’s daughter. As for mine, she and her family will make it back and someday own their own home again. But probably not before suffering more at the hands of an economy and a society that keep taking away from those who have too little, and giving more and more to those already have enough.