Unfortunately, banks are not doing their part to help fix the problem. A study by the Federal Reserve Bank of Boston shows that banks are not modifying loans to help homeowners avoid foreclosure because "Loan modification is not profitable for lenders." According to the Boston Globe, the study found that "only 3 percent of seriously delinquent borrowers--those more than 60 days behind--had their loans modified to lower monthly payments."13
Industry insiders say that the reason banks are reluctant to modify loans is that delinquent loans allow the banks that service the loans to collect fees from the homeowner--late fees, fees for insurance, appraisals, title searches, and legal services.14 Because mortgages are typically sold off to third-party investors who absorb the losses when a house goes into foreclosure, the banks that service the loans often do not have a vested interest in avoiding foreclosure.15 In fact they are able to maximize their profits by charging fees as homeowners fall behind on their payments and slowly slip into foreclosure.
According to an attorney at the National Consumer Law Center quoted in the New York Times, "Servicers thus have an incentive to push homeowners into late payments and keep them there: if the loan pays late, the servicer is more likely to profit."16
According to the Treasury Department's first monthly report on loan modifications in August, Bank of America and Wells Fargo were the worst performers among the big banks when it came to loan modifications.17 Despite the fact that the two banks have taken $70 billion in direct TARP funds and posted over $13 billion in profits in the first half of this year,18 they still are not doing their part to help the very taxpayers who bailed them out to stay in their homes.
Rising Unemployment
Over 5.3 million Americans have lost their jobs since last September,19 and the national unemployment rate has climbed 56%, from 6.2% in September to 9.7% in August,20 its highest in 26 years.21 Additionally, another 291,000 Americans have been added to the ranks of "discouraged workers" who are no longer included in unemployment figures because they have stopped looking for work. The number of discouraged workers is up 62% since last September.22 Altogether, there are 25.8 million unemployed, underemployed, or discouraged workers in the US, 16.8% of the national workforce.23
Rising unemployment has taken a huge toll on our families: for the first time ever, the number of Americans receiving food stamps topped 34 million, or roughly one in nine Americans.24
Because unemployment reduces disposable income, it leads to decreased consumer spending, which serves to deepen the recession, leading to even more layoffs and unemployment. This leads to bankruptcies.
Rising Personal Bankruptcies
Personal bankruptcy filings have surged over the last year during the economic downturn. 1.25 million people filed for personal bankruptcy in the year ending in June, up 34% from the previous year.25 Experts predict filings this year will be reach levels not seen since 2005, when 2.04 million people rushed to file before a new law went into effect making it more difficult to file for bankruptcy.26 In July already, more than 126,000 people filed, the highest monthly figure since the 2005 law went into effect, thanks to Congressmen desperate for the big campaign contributions that will allow them to get re-elected.27
Lost Retirement Security
The turmoil in the stock markets caused by Wall Street's
missteps has had profound ramifications for
Main Street
American workers' pensions have taken a serious hit during the crisis, putting millions of hard working Americans' retirement security at risk. In the twelve months between October 2007 and September 2008, the top 1,000 pension funds in the country lost $1 trillion in value. In the three months following the Lehman Brothers collapse, the losses accelerated rapidly, and by December 2008, they had lost an additional $754 billion. The funds lost 23.3% of their value ($1.75 trillion) in just fifteen months, the worst losses in 30 years.28
Cuts to Services
Falling home values and rising unemployment have taken a toll on our state and local tax revenues. The $6.1 trillion in homeowner wealth that has been lost in the last three years has led to a $58 billion reduction in annual property tax revenues.29 The decline in tax receipts has contributed to budget crises all over the country. In a National League of Cities survey, 67% of cities reported hiring freezes or layoffs and 62% reported having to delay or cancel capital projects because of deterioration in the economy.30 According to the Center for Budget and Policy Priorities, "At least 48 states have addressed or still face shortfalls in their budgets for fiscal year 2010 totaling $165 billion or 24 percent of state budgets," and 34 states are already anticipating holes in their 2011 budgets totaling at least $180 billion.31
