[NYTr] Booming Economy: The Coming Foreclosure Tsunami

[All the News That Doesn't Fit]

The Nation - Nov 13, 2007 ("Web only")
http://www.thenation.com/doc/20071126/hayes

The Coming Foreclosure Tsunami

by Christopher Hayes

Unlike most hearings on the Hill, last week's meeting of the Joint
Economic Committee actually got more interesting the longer it went on.
While the first half-hour featured Federal Reserve chairman Ben
Bernanke offering his modest, softly downbeat but not panicked
predictions about how the unfolding subprime mess would affect the
broader economy, the last hour provided an opportunity to hear
committee members give their own often eccentric diagnoses and
predictions.

Kansas Republican Senator Sam Brownback opined that tax cuts,
shockingly, were probably the best way to deal with the current crisis.
New Hampshire Republican Senator John Sununu spent much of his allotted
time pointing out that he'd done a better job of predicting future
trends of housing inventories in March than the chairman. "I was
right," he told Bernanke with a smirk, "and you were wrong." ("Well,
Senator, you were right and I was wrong," Bernanke intoned back into
the mic with a deadpan expression that basically said, "Satisfied,
dick?") And Senator Robert Bennett, a Republican from Utah, offered a
refreshingly honest articulation of the conservative view of the
unfolding debacle: "Markets make better decisions than governments do,
and the market will punish, the market will reward and the market will
ultimately stabilize. For the market is a just and wrathful God!" (OK,
I made up that last sentence.)

But amid the grandstanding, Maryland Congressman Elijah Cummings
injected some welcome perspective. "Many members of Congress now,
Chairman, are holding forums in their districts, as I will be doing
very shortly, to help people who are coming to our doors literally with
tears in their eyes and trying to figure out how they're going to
manage a foreclosure that's right around the corner.... It seems like
you have painted a very rosy picture, but if you came and walked
through my district, I think people would be very...surprised that you
seem so calm." 

Bernanke was defensive: "Congressman, first, I don't know how you got
the impression that I was unconcerned about foreclosures."

"I didn't say you were unconcerned," Cummings shot back. "I just said
you seem to be pretty calm about it." Foreclosures in Maryland were up
more than 400 percent in the third quarter, compared with the first.
Minority homeowners, like those in Cummings's inner-city Baltimore
district, are getting hit particularly hard. "I know that so often what
happens is that when we're making decisions in the suites, we forget
about the people who actually have to go through this," Cummings said.
But "we're becoming a bit alarmed."

In past financial implosions, of S&Ls in the '80s or Long Term Capital
Management in the '90s, it was easy to name the villains but far
trickier to find the victims. Not so here. They're everywhere, not just
in inner-city Baltimore. There are subdivisions in the exurbs that are
beginning to resemble ghost towns.

So what is to be done? The long-term challenge is to regulate an
industry that, left to its own devices, seems to have eaten its young.
Last week the Mortgage Reform and Anti Predatory Lending Act of 2007
passed out of Barney Frank's House Financial Services Committee with
the support of nine Republicans. It's far from perfect, but it
represents a small step in the right direction. The mortgage industry
is fighting it tooth and nail.

The more immediate issue, though, is what to do about the millions of
people who live in homes that are in danger of going under in the
coming tidal wave of foreclosure. North Carolina Democratic
Representative Brad Miller has proposed one common-sense solution. He
has sponsored a bill that would allow bankruptcy judges to amend the
terms of home mortgages. As the law currently stands, the terms of a
mortgage on a yacht or a vacation home can be adjusted during
bankruptcy, but the primary residence is off-limits. "This makes no
sense," said Eric Stein of the Center for Responsible Lending in
testimony before the House Judiciary Committee Subcommittee on
Commercial and Administrative Law. "The current bankruptcy law deprives
mostly low-wealth and middle-class families of protections available to
all other debtors and grants lenders on home mortgages a special
protection not available to any other type of lender."

Correcting this quirk of bankruptcy law seems like the kind of fairly
straightforward modification you might want your Democratic Congress to
make in the midst of a massively disruptive financial crisis. But if
you've been following the Democratic Congress, you've probably already
predicted that some in the caucus are circling the wagons to defend the
mortgage industry. A few weeks ago, sixteen "Blue Dog" Democrats from
conservative districts sent a letter to House Judiciary Committee
chairman John Conyers, asking him to delay considering Miller's bill
because it might undermine the provisions of the bankruptcy bill that
President Bush signed into law in 2005. That bill, which made it harder
for the broke and desperate to declare bankruptcy, stands as one of the
most egregious examples of legislative malpractice of the last five
years.

"Guns are one thing," wrote blogger Matt Stoller on OpenLeft in
response to the letter, "but there is no strong grassroots movement in
conservative districts on behalf of big banks. These people are simply
whores for credit card companies and banking interests building
profitable de facto debtors prisons."

If the Blue Dogs think that standing with lenders against borrowers
makes for good politics or good policy, perhaps they should go take a
walk through Representative Cummings's district.