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'The banks . . . are still the most powerful lobby on Capitol Hill. And they frankly own the place." So Senate Majority Whip Richard Durbin (D-Ill.) expressed his disgust as the Senate gutted his effort to give bankruptcy courts the power to modify mortgages so homeowners could stay in their homes.
"The tides are changing in favor of the people, and it is about time!" said Travis Munnerly, a leader of the Orlando ACORN Foreclosure Fighters who saved his home from foreclosure. The Association of Community Organizations for Reform Now has been organizing a "home-staying campaign," encouraging those facing foreclosure simply to refuse to move out. They've built teams of Home Defenders, volunteers who mobilize to defend home stayers against eviction. They've also been pushing cities and states to pass moratoriums on foreclosures.
Homeowners have found that simply threatening legal resistance can make a servicer back off eviction. The reason may be that the servicer can't prove who originated the loan, which has been sliced and diced and sold off to investors across the world.
The four biggest banks--Bank of America, Citigroup, Wells Fargo and JP Morgan Chase--service more than half of all first mortgages. They lose big if they have to deal with resisting homeowners. Cause a fuss and many times they'll simply put that case at the bottom of an ever-increasing pile.
An estimated 20 percent of the 50 million homes with mortgages are underwater today, worth less than the mortgage. Foreclosures are soaring; housing prices keep sinking.
Foreclosure doesn't serve anyone's interest. Homeowners lose their home and their hopes. The investors who hold the mortgage--or pieces of it--generally lose more if the house goes to foreclosure than if they renegotiate the mortgage and keep the original homeowner in the house. Neighbors lose big-time, as housing values plummet. Cities and towns lose tax revenue, and pay extra to keep neighborhoods safe.
So why are foreclosures going ahead? Because the big loan servicers have a direct incentive to push foreclosure. If the mortgage is still alive, they have to pay the investors an advance on the income flow. If the mortgage is foreclosed, they get added fees for the foreclosure and the payments stop.
The same big banks at the center of our current crisis are at the center of the foreclosure mess. They have the nerve--and the power--to stop the one element of President Obama's plan that would give homeowners a bit more clout: the threat that a bankruptcy judge could cut the mortgage to keep people in their homes.
Giving this power to judges isn't a complete answer, but it should be the least controversial. The judge can determine, on a case-by-case basis, who can afford to stay in the home and who cannot --and protect the interest of both homeowner and mortgage holder.
Banks claim they are willing to renegotiate mortgages, but voluntary plans by both the Bush and Obama administrations have been dismal failures.
Obama proposes to bribe the servicers to renegotiate loans. The banks are always happy to take government subsidies while blocking other reforms. But more and more homeowners are going to stop paying on mortgage debt that is much greater than the value of the house. More are going to resist foreclosure, demanding that the servicers prove they have papers on the loans.
The housing debacle is laying waste to the hard-earned wealth of many working families, particularly African Americans and other minorities. The Senate may be bought and sold, but people desperate to keep their homes may just discover that resistance works. The very size that makes the banks so powerful in Washington may hobble them in the neighborhood.Â