As someone lucky enough not to have an underwater home, I have had the luxury of not needing to learn the all the gory details of our broken housing finance system—full of undecipherable acronyms and the minutiae of regulation and arcane policy. So, I admit that I have only loosely been following the situation since the $25 billion fraud settlement between the big banks and the state attorney generals was announced.
But my curiosity was piqued again this week when I got an e-mail from CREDO Action protesting new information that the task force established to investigate what went wrong never received the staff that it was promised. And while the source of the hold up is unclear as is exactly how many staffers have been assigned, what is becoming clear is that even the promised fifty-five investigators would be ill-equipped to achieve its goals. That news got me wondering where things stand more generally with task force, lauded by progressives and homeowners alike when it was announced back in January.
In a recent NPR interview, William Black—the former litigation director for the Federal Home Loan Bank Board—pointed out that a hundred investigators were employed to get to the bottom of the Enron scandal ten years ago. That was a single company, and now we’re talking about delving into multiple business sectors to determine accountability and criminal wrongdoing in this crisis. For a more apples-to-apples comparison, the thousand-strong force investigating the Savings and Loans crisis in the 1980s returned a thousand felony convictions. The economic impact of the mortgage crisis is estimated to be forty times worse than the S&L debacle, and yet this under-staffed investigation has only been able to uncover enough evidence for ten convictions.
CREDO’s petition asking President Obama to staff up the task force well beyond the original promise has already yielded over 100,000 signers and over 1,100 calls to Obama For America headquarters, and I’m told CREDO has not even contacted all their members yet. This level of engagement is an indication that others like me who tune back in to find expectations unmet will have a strong response. Notably, a response that has the potential to trump queasiness progressives have about criticizing a Democratic president in an election year. But also a responding audience that clearly wants to use the instruments at hand to create a win for all involved.
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One unintended consequence of the establishment of the task force is that many Americans felt like they could rest easy that justice was underway. Part of this feeling stemmed from the clear engagement of President Obama in his State of the Union address and part stemmed from the reputation of strength and integrity of the chair of the body, New York Attorney General Eric Schneiderman. Given the massive entrenched interests of the banks and the hyper-partisan political landscape, though, it appears that allies in government will need a strong outside consituency to make progress on this issue. Not doing so would be a huge missed opportunity for our economy and millions of Americans still waiting for relief.
The Campaign for Fair Settlement, of which CREDO is a part, was formed to do just that—keep pressure on the various enforcement mechanisms for resolution and to make sure this issue doesn’t fade from view. The loose coalition is showing signs of ramping up activities in the coming weeks, including planned direct actions at bank shareholder meetings. It appears that the CREDO petition was just a shot across the bow.
The reasons for acting with speed and strength are clear and compelling:
1. The Moral Imperative: Americans are sick of seeing bankers go free while they foot the bill. The underwater mortgage holders are the living example of a values system out of whack. They live in limbo, or worse, while the banks that partnered with them on these mortgages and then forged documents to illegally foreclose get bailed out with homeowners’ tax money and let off with a small fine. And justice is an hourglass with the sand running out. The statute of limitations on most of these cases is up soon, so swift action is required if criminal penalties are forthcoming. Claims that the taskforce is itself running out the clock will certainly have more resonance as time goes on.
2. The Economic Imperative: Unresolved mortgages are a huge drag on economic recovery. The International Monetary Fund, hardly a bastion of progressive economic policy, just released a report demonstrating the positive economic benefits of mortgage write-downs. Simply put, when American homeowners are not trapped in debt, they buy more things from American businesses, who then hire more American workers. In the 1930’s the Roosevelt Administration faced a similar crisis. It formed the Home Owner’s Loan Corporation (HOLC) to buy distressed mortgages from banks and then worked with homeowners to prevent default and eviction. The report cites this move as contributing to getting the economy back on track, not to mention keeping people in their homes. In the end, the HOLC even turned a profit. We still have time to learn from the successful models of history. If even just Fannie and Freddie committed to real principal reduction, some experts say this would be enough to tip the entire housing market towards recovery and have a positive domino effect on the economy at large.
3. The Political Imperative: If none of those reasons are enough, a glance at the politics of the situation should motivate even the most hard-hearted political operative to action. As Mike Lux put it in his excellent Daily Kos piece last week, there are 11 million underwater homeowners. This is an important constituency in a close election. Many of these folks were already among the swing voters hungrily pursued by each campaign, and if they were not before, they are now mad as hell and looking for some answers from their elected officials. If the situation remains stagnant, some of these homeowners will certainly vote for the other guy, desperately hoping for anything but the status quo. Some disillusioned Democrats may just not vote. Add to this the clear signs that the base is deeply invested this issue, and you can see how effective action could be a political game changer.
It’s not accurate to say that nothing has happened. Right after the task force was formed, Eric Schneidermann unleashed a flurry of subpoenas, and shortly thereafter, the small initial settlement was announced. Last month, I attended a press conference on the Hill as a representative for Rebuild The Dream, on whose board I serve. The event brought together advocacy groups and members of Congress to ask that Ed DeMarco be removed as head of FHFA, where he continues to block settlements and write downs for mortgages held by Fannie Mae and Freddie Mac. The administration has not moved to replace him, but has shown signs of pressuring DeMarco to take action. This is good and should be lauded.
Actions to date still fall short of the huge opportunity to do right by homeowners, help the economy and win the hearts and minds of a depressed electorate in a critical year. Many Americans felt like the formation of the task force was a genuine beginning of a new era of much-needed accountability in this country, not a one-off gesture to quell frustration. I believe that there are people inside the administration and the task force that really want to fight this fight. Let’s hope that the Campaign for a Fair Settlement gives them the fire they need to make the task force’s investigation, and principal reduction, the priority it should be. The political and economic alternative is unacceptable.
