I have been wanting to write about the issue of people being evicted from their homes as a result of foreclosure for some time. However, every time I start to explore it, I get overcome with the realization that it is a very complicated mess. It's not hard to dig up lots of stories about people caught in terrible binds. There is no shortage of outrageous practices by the financial overlords. The difficulty arises when you start to search for possible solutions. It quickly becomes apparent that there is almost no agreement as to the nature of the problem.
In recessions past there have always been people who lose their jobs, fall behind in their mortgage payments and get evicted. The difference this time is that real estate was the core of the crisis that brought about the recession. This resulted in plunging market prices for property that have not really stabilized three years later. Large numbers of people find themselves holding mortgages with an outstanding balance greater than the market value of the property. That state of affairs has become known as being underwater. That is a new experience for most American property owners.
Economic history offers a long trail of financial bubbles that have produced huge piles of unmanageable debt. The bubbles burst leading to a financial crisis that puts sand in the gears of the economy. It is usually necessary to find a means of disposing of the debt before the wheels can begin to turn smoothly again. The US savings and loan crisis of the 1980s was an American example of that situation. The regulations that had restricted the practices of S&Ls were relaxed. They went on a lending binge for commercial property instead of the modest family homes that they originally designed to fund. The market values of the commercial property took a dive in the recession. Owners went into default. S&Ls failed and the government was on the hook because the FDIC insured the deposits. Eventually the properties were sold off for what the market would pay and the government absorbed the losses. Only a handful of people saw the inside of a cell.
The present housing crisis has many similarities. One big difference is that this time instead of real estate developers walking away from a shopping center or office park that didn't work out the way that they had planned, it is families of ordinary working class Americans who are being turned out on the street. In a very rough manner of speaking we can sort the various approaches to the situation into two piles.
The first pile wants to view this as being similar to past recessions and the housing issues that have been connected to them. The task has been to keep the ball in the air with things like payment extensions, refinancing, etc. The economy begins to recover and distressed borrowers are able to get back on their feet. This seems to be the approach being followed by the Obama administration with their loan modification programs that attempt to put off the day of reckoning without writing of any of the principal balance.
The second pile sees this as a problem where kicking the can down the road is not going to work. It is anticipated that it will take a number of years for the market value of housing to return to its pre-crash level. The people who are underwater are going to stay that way for a long time to come. The complete absence of equity makes traditional refinancing impossible so the historically low interest rates on mortgages are no help. The people with that perspective, in which I would include myself, think that the problem will only start to be resolved when the outstanding balances on loans are written down to realistic market value. This is known as mortgage cramdown. This article provides some background on the subject.
Why a Mortgage Cramdown Bill Is Still the Best Bet to Save the Economy
There are also a bunch of issues about the chaotic and often illegal practices followed by lenders that make it difficult to establish who has the legal right to foreclose on a property. The Obama administration is attempting to negotiate a settlement that will makes those annoying problems disappear. However that campaign is not going smoothly.
Mortgage fraud: State a holdout in bank settlement
So, that long winded but still superficial introduction gets us to the title of the diary. The housing crisis is a central feature of the collection of concerns that have given rise to the Occupy Movement. It is most certainly a result of the excesses of the financial sector. The Occupy Movement has no formal platform of policy positions, so all we can do is look at the actions of some groups and individuals. Rallies and marches around banks have been a common feature of these protests. Complaints about foreclosure are a major recurring theme. At least one local Occupy group is calling for a moratorium on all foreclosures.
'Occupy' group wants foreclosure moratorium
There have been several instances where people who are participants in Occupy groups have participated in demonstrations intended to block the eviction of an individual family. So far this appears to have been on a sporadic ad hoc basis without any coordinated plan for such events.
To my mind there are two different objectives involved here. One is trying to offer help and support to individual families. The other is a political movement to push the government to take more effective corrective policy action.
In terms of individual families a demonstration blocking eviction is not likely to provide a solution to the problem in and of itself. I came across a group in Boston that has developed an interesting three pronged approach to helping families facing foreclosure.
City Life/Vida Urbana
Here is a magazine article that provides a good description of their program.
Foreclose This!
They combine legal aid, refinancing through a non-profit foundation and eviction blocking protest to buy time and get stubborn banks to see reason. This does not turn out to be a solution for every family but it is a useful approach that merits consideration.
In terms of protests that focus on broader political action, the most basic question is what kind of policy position are you trying to promote. Are you seeking a systematic approach to cramdown of principal balances? Some of the issues that the Occupy Movement is addressing really do require focusing public attention on the problem. I think that the housing crisis is pretty clearly in the public consciousness and people can regularly see its impact on ordinary people. What is lacking is a grasp of some fairly complex issues and a thrust in the direction for solutions.
I think that the Occupy Movement has and continues to provide a badly need stimulus of political energy. It is giving many Americans a sense that they are not as helpless and powerless as they thought they were. That is in turn opening up useful conversations. There are open questions about where this is leading. Some people think that the occupations and conversations need to continue to build up steam before focusing on specific solutions. Other people see the immediacy of problems and the lack of progress toward solutions.
I think it is likely that the Occupy Movement will be a stimulus for some other related movements that focus more closely on particular issues. Housing problems seem to me to be a likely place for this to happen. There are already various organizations addressing the problems of housing and the homeless. They seem to lack any kind of coherent national program. I don't know what the interaction between them and the Occupy Movement will be like, but I expect it to be a boiling pot.