Foreclosures continue unabated…making it obvious that the home-ownership part of the American Dream has been written off for many middle-class families as ‘collateral damage’ in the bank-induced and government-condoned Great Recession. In addition to the human consequences of those who must leave their homes, these foreclosures are destroying thousands of neighborhoods with increasing rates of house abandonment and decay. Sadly, the barriers to foreclosure reform appear to be nearly insurmountable politically…at least until the public demands action.
Many of us are scratching our heads, wondering who benefits from what appears to be on the surface a continuing policy of passive neglect. Most of us probably dismiss the problem as being so complex that no one could possibly be able to find a solution. But…it’s obvious that some people have no interest in finding a solution as one Presidential candidate said not long ago, “It’s best to just let it run its course.”
During December 2011 according to RealtyTrac data, 1 in every 634 housing units in America received a foreclosure notice. In California, the rate is a staggering 1 in every 177 housing units…and these are just statistics for one month. As foreclosures in neighborhoods continue to force the value of other homes lower, more and more homeowners go ‘underwater’ with their mortgages. By allowing a steady ‘flow’ of value out of American communities, the foreclosure rate is sustained as a long-term economic force, benefitting corporate finance and the politicians who serve them.
The bank crisis and Great Recession aren’t really over…even though profits and bonuses have returned to normal, and the recession has ended statistically. The health of the big banks is being directly supported by a steady ‘foreclosure flow.’ On corporate balance sheets, assets must exceed liabilities to show equity and profit. On the books, foreclosures return the full ‘paper value’ of the house to the bank. The banks then use these increased assets to counter-balance the huge derivative debt they are still trying to unwind in a controlled way. Because they need more time and much more money to do this, they also need to keep the ‘flow’ moving. Sadly, the banks actually benefit by leaving foreclosed homes vacant and abandoned, so their neglect can continue to decrease the value of other homes nearby…reducing community-wide housing values to the point where more mortgages go ‘underwater,’ and into foreclosure. For the banks, these mortgages are just numbers-on-paper…for families, they represent their only hope to keep their home.
Tragically…really effective foreclosure reform is not in the self-interest of our national politicians. Republicans seem to believe free markets can do no wrong, so they have no incentive to intervene…especially when many of their supporters are benefitting significantly from the controlled exploitation of our fragile mortgage environment. In addition, the continued erosion of housing value and ‘flow’ of houses into foreclosure provides evidence that the Obama Administration has failed the American public.
Democrats…including the Obama Administration…have an incentive to NOT solve the foreclosure crisis also. If they exert much force to slow the ‘foreclosure flow’ for banks, they are likely to slow the statistical economic recovery they’re depending on to have a favorable outcome in the 2012 election. If they forced the banks to mark down ‘underwater’ mortgages, the banks’ balance sheets would quickly show that the recovery was only an illusion. Foreclosure reform has been off-the-table for the whole recovery…because it could destabilize our systemic financial house-of-cards.
Why aren’t we discussing foreclosure reform…when we can easily see that our neighborhoods will continue to decrease in value, and we can read the trend that will keep the ‘flow’ of foreclosures moving through the next several years? Are we so personally fearful that reform would further damage our own financial stability that we don’t want to face it? Are we secretly so partisan that we’re willing to continue the ‘collateral damage’ of the ‘foreclosure flow’ in order to protect our political positions for the 2012 election? Or…are we so overwhelmed by the issue that we simply don’t know where to start? We probably have a myriad of reasons for NOT bringing the foreclosure crisis into focus for deliberative scrutiny. The consequences of our long-term silence on foreclosure reform, however, will be far more damaging to our communities and to our society than any short-term political discomfort.