Congress is dancing as fast as it can to prevent the mortgage meltdown from taking the rest of the economy down the drain. On Tuesday, Marcy Kaptur (D-OH) addressed the House and called on the Federal Reserve to help by requiring the largest mortgage lenders to renegotiate with borrowers (Congressional Record, 5/6/08, p. H3059).
Indeed, the Foreclosure Prevention Act of 2008 is an attempt to help homeowners in dire straits. The bill faces opposition from Republican leaders and the president, who has called the measure a “bailout” and threatened to veto it. Critics complain that the bill exposes taxpayers to extraordinary risk by federally insuring the loans lenders would be required to renegotiate in amounts related to the actual value of the property.
There is no doubt that there is a considerable amount of fraud going on; the question is who is committing it. It is unclear why a bill designed to allow ordinary people to keep their homes is a bailout, when guaranteeing the Bear Stearns buyout was something else. Republicans seem to consider all homeowners facing foreclosure to have committed mortgage fraud, and they have no intention of allowing the big lenders to suffer losses, even if the lenders themselves helped perpetrate the fraud by failing to verify borrowers’ financial statements.
Very clear, however, is the president’s intention to allow the largest lenders in the country to strip as much wealth out of the residential real estate market as they can get. His budget-office statement claimed that the bill would "force FHA and taxpayers to take on excessive risk, and jeopardize FHA's financial solvency." The Federal Reserve agreed to back $30 billion worth of securities so JP Morgan Chase would not lose money on the Bear Stearns deal. Could the Republican position for big business and against ordinary people be clearer?
Mortgage fraud is already a federal crime. The FBI proclaims publicly that “it investigates matters relating to fraud, theft, or embezzlement occurring within or against the national or international financial community“ (FBI, “Financial Crimes Report to the Public”). The financial community is already adequately protected, unlike the victims of predatory lending practices.
On the other hand, foreclosure fraud does not get much press. The bill does nothing to address wrongdoing by the legions of lawyers and default servicing operations that have sprung up to make money from homeowners’ misery, nor the mortgage brokers who shoe-horned unqualified buyers into loans they could not afford.
Default servicing firms use assembly-line techniques to prepare and file documents related to home foreclosure. They help lenders begin foreclosure proceedings on thousands of homeowners each month. Their bills are passed on as fees to the homeowner, who may discover a raft of legal charges and fees added to his bill. If the homeowner manages to make enough payments to stop foreclosure, the fees are still assessed. These fees may or may not accurately reflect the borrower’s liability, and the amount the lender shows as being owed on the property may not reflect any amounts of principal paid.
There are also numerous foreclosure-prevention scams operating across the country to further rob people who are already in trouble. The government is beginning to prosecute individuals involved in these scams but apparently not often enough to discourage the practice.
Whether or not the bill in question becomes law, it is clear that the current financial upheaval is being used to impoverish millions of families, with the support of the Bush administration. Disaster capitalism is alive and well in the United States.