We Told You So

Yesterday President Obama signed into law the economic recovery package that is a firm first step forward in getting America back on its feet in the midst of the economic devastation we are experiencing.

Today, President Obama announced his Administration’s $75 billion plan for addressing the foreclosure crisis engulfing the country. This is a welcome initiative, especially in the wake of the 2 years of inactivity and neglect from the Bush Administration.

I would argue that in terms of addressing the specific genesis of our present crisis – the toxic assets crippling the financial sector – the announcement today is of greater magnitude. For without a plan to address the predicted 8-9 million foreclosures over the next 4 years, that’s in addition to the 2.3 million that occurred in 2008 with a total estimated cost to the economy of over $850 billion, attempts to spur an economic recovery will fail. There can be no long-term solution without addressing the immediate foreclosure crisis.

How do I know? Well, ACORN has been fighting the problem at the core of the foreclosure crisis since 1999. Called “predatory lending”, it is a series of practices concentrated in the subprime mortgage market that enriched brokers and investors while setting up borrowers to fail, principally in the refinance market. But the problem, despite its heart-breaking effects on families, was concentrated in communities of color or low- and moderate-income communities so it ran below the radar.

And I hate to say “I told you so”, but in 2006, as the problem raced towards a crescendo and the predatory practices of the subprime industry grew nationwide, ACORN issued a report called The Impending Rate Shock (PDF) that said these practices “pose a huge threat to the security of individual homeowners and entire neighborhoods.”

What can I say? We told you so. Of course, we did make a fantastic mistake of scale: predatory practices posed a threat not just to neighborhoods, but to the entirety of the world’s economy. Call it a failure of imagination. Or more accurately, call it a failure of the almost entirely unregulated investment banking system and its exotic financial instruments like credit default swaps and collateralized debt obligations. All of which were based on loans that were explicitly designed and sold to set homeowners up to fail.

This was an entire investment scheme worth trillions built on the backs of people like Denise Parker, highlighted in today’s New York Times. A mother of three who works as a housekeeper at two Midtown Manhattan hotels, she bought a home in Springfield Gardens, Queens, in 2005 with an adjustable interest rate that, after two years, went up every six months. Her payments started at $3,500 and now are $5,050 a month. She fell behind last year and her house is scheduled to be auctioned off on Friday.

These folks are just some of the families facing the heart-breaking reality of foreclosure – and it is happening to one additional family every 13 seconds.

A problem of this magnitude, which affects all homeowners and the value of most Americans’ single greatest asset: the equity accumulated from homeownership, demands a solution the size of which can only be addressed by the Federal government. That solution must include the following three key issues or it will not succeed and four families a minute will continue to lose their homes.

In the words of Mike Shea, the Executive Director of ACORN Housing Corporation, a sister organization to ACORN, a plan must:

Establish standardized loan modification guidelines and federally subsidized economic incentives that will provide investors and the mortgage servicing industry with an ability to objectively evaluate the economics of the modification;

Carve out protections for renters who, despite being current on their rent, would otherwise be in jeopardy of eviction due to the mortgage default of their landlord; and

Grant bankruptcy court judges the ability to restructure homeowner debt and reduce monthly payments via interest rate reductions and principal balance forgiveness.

ACORN’s Foreclosure Campaign will continue until the crisis has passed. We will continue to work to save individual families who are caught up in the mess through the ACORN Home Defenders. And we will fight for the principles outlined above against the fteh resistance that is sure to occur in Congress so that we can take another step on the road to economic recovery.

This campaign fundamentally about saving the American Dream, about living up to our best visions of ourselves as Americans, about reaching out to stand in solidarity with each other, and, inch by inch, making this a stronger nation.