A small group of people gathered on Detroit's west side last week to celebrate what appeared to be a victory. It looked as if Marvin and Louise Morris, both in their late 70s, would be staying in the modest house they've lived in for 32 years.
The problem, says attorney Jerome Goldberg of the Moratorium NOW! Coalition, is that such victories are far too rare. And one of the reasons for that is the government programs intended to keep people in their homes are largely failing to stem a massive wave of foreclosures that has yet to crest.
The federal programs intended to keep people in their homes are largely ineffective, serving as a "silent bailout of the banks," says Goldberg. What's really needed, he says, is what his organization has long been advocating: a moratorium on foreclosures.
Goldberg and the attorney he shares a Detroit office with, Vanessa Fluker, are like foot soldiers on the frontlines of the foreclosure battle, seeing firsthand the devastating effects of America's mortgage crisis.
But you don't have to be at Ground Zero to know that the fight to help keep people in their homes is largely being lost. Last week, a day before Marvin Morris was passing around pizza as a way of thanking supporters, the New York Times was reporting this news regarding the Obama administration's program to help prevent foreclosures:
"Only 390,000 homeowners have seen their mortgage terms permanently modified since the $50 billion program was announced in March 2009. That is a small fraction of the three to four million borrowers who were supposed to receive assistance under the program, which is financed by money from the $700 billion Wall Street bailout authorized in late 2008."
That information comes from a report to Congress from the Special Inspector General for the Troubled Asset Relief Program.
Testifying before the Senate Finance Committee last week, Elizabeth Warren, chairwoman of the Congressional Oversight Panel for the bailout, pulled no punches: "Fifteen months into this program, for every one family that appears to have made it to a permanent modification that's likely to stabilize that family in that home, 10 more have been moved out through foreclosure."
Although the program provides incentive fees to lenders who renegotiate mortgage terms, Warren made this criticism of what's known as the Home Affordable Modification Program, or HAMP: "In many cases, the servicers can continue to make more money if the family goes through foreclosure. It's just not a program that's working for homeowners. It's not a program in some cases that's working for investors. And most importantly, it's not a program that's working for the economy overall."
That view is shared by the special inspector general serving as a watchdog of bailout funds. In a July report to Congress, he noted that the number of permanent loan modifications resulting from HAMP remains "anemic," and that the program has "not put an appreciable dent in foreclosure filings."
In fact, instead of decreasing, the number of foreclosures could hit a dubious record this year. The Associated Press reported earlier this month that "nearly 528,000 homes were taken over by lenders in the first six months of the year, a rate that is on track to eclipse the more than 900,000 homes repossessed in 2009."
More than 1 million homes will be lost to foreclosure this year if the current trend continues. One expert has called that number "unprecedented."
The news for Michigan is equally bleak. The California-based firm RealtyTrac, according to published reports, has said that during the first six months of this year Michigan's foreclosure rate jumped 29 percent when compared to the same time frame in 2009. For metro Detroit, foreclosures shot up 35 percent, with 47,000 homes being foreclosed on from June through January. Michigan Public Radio reported that's the highest level of foreclosures since the housing crisis erupted in 2007.
Goldberg, from his street-level vantage point, is seeing a couple of disturbing trends. One is the changing nature of homeowners facing foreclosure. At the outset, he says, it was primarily people who had fallen victim to predatory lending schemes that were losing their homes once the initial low rates that lured them in began to escalate.
What he's seeing now, though, are large numbers of people who are falling behind because they have lost their jobs. Beginning in the 1990s, as housing prices escalated and interest rates fell, many homeowners relied on refinancing mortgages to keep afloat financially. But now that the housing bubble has burst and lending has constricted, that's no longer an option for most. Making matters worse is the foreclosure crisis, which experts say is further depressing home prices because of the low prices foreclosed homes sell for.
So, as foreclosures continue to drive down the values of neighboring homes, more and more people are finding themselves "under water," meaning that they owe more than the property is worth. Which means that, if jobs are lost, they can neither afford to sell their home nor stay in it.
"I tend to look on the rosy side of almost everything," former Secretary of Labor Robert Reich told National Public Radio in April, "but when you look at the job situation, look closely at the number of jobs that have been lost so far in this Great Recession, acknowledge that consumers, who make up 70 percent of the economy, just are not going to have the ability to use their homes as cash machines any longer, because housing prices have fallen so much — unlike the so-called recovery between 2001 and 2007."
Looking to the future, Reich predicted that the road to recovery "is going to be a long slog."
What's not widely understood, says Goldberg, is the government's role in perpetuating the crisis. Fannie Mae and Freddie Mac use taxpayer money to guarantee more than 50 percent of the mortgages in the nation, and lenders are able to recover the full cost when those loans fail. The same is true of loans backed by the Department of Housing and Urban Development and the Veterans Administration.
When those foreclosed homes are re-sold — usually for a fraction of the amount that is owed on them — taxpayers are essentially covering the loss, says Goldberg.
The cruel irony, he says, is that the homeowners could often afford to stay in the homes at the bargain prices investors are scooping them up for. Instead, these former homeowners are being forced to become renters.
The solution, argues Goldberg and other activists, is a moratorium on foreclosures. It was a topic of much discussion among those attending the recent U.S. Social Forum in Detroit. But with powerful lenders opposed to that approach, and with politicians succumbing to the clout those lenders still wield, the idea of instituting a moratorium has yet to gain traction in the halls of power. Here in Michigan, state Sen. Hansen Clarke introduced moratorium legislation in 2008. His bill never made it out of committee.
Absent that, Goldberg and other members are relying on public pressure to help shame lenders into backing off of foreclosures in some of the most egregious cases, such as that of Marvin and Louise Morris.
The retired couple, who now live on about $1,000 a month, bought their home on Plainview in 1978 for $18,000 cash, took out a "predatory" loan for refinancing several years ago, and have been fighting to keep their place ever since. With the mortgage company attempting to collect less than $8,000, which the couple and their lawyer say isn't owed, the couple faced eviction. With the help of attorney Fluker, who took their case to the state Supreme Court, their lender appeared to be backing off last week as Moratorium NOW! members rallied to the support of the Morrises.
"The minute we start to mobilize, and [lenders] start feeling the heat, we get a response," Goldberg shouted into a bullhorn.
Change isn't going to come from the top down. To win this fight, Goldberg says, "people are going to have to mobilize, block by block."