When the foreclosure hurricane first hit, subprime borrowers absorbed the brunt of it. Homeowners who had been fooled with teaser rates suddenly faced balloon payments they couldn’t afford. Others couldn’t refinance because of prepayment penalties they hadn’t been aware of. And some people had made bad decisions and were now paying for it with their homes.
The crisis has now morphed—it’s hitting everyone with an equal-opportunity kind of vengeance—the prime, subprime, underwater and unemployed. And that makes passing the Right to Rent Act introduced by Democratic Representatives Raúl Grijalva and Marcy Kaptur, and cosponsored by House Judiciary Committee Chairman John Conyers among others, all the more critical. It would give homeowners who would otherwise by kicked out of their homes the right to rent for five years.
From the outset of this crisis, little relief has been in sight for foreclosure victims. In contrast, the big banks were on the receiving end of a $700 billion bailout and have been given the right to decide which homeowners sink or swim ever since.
Early on, community activists and too few elected officials argued that the bailout funds should be contingent on banks’ participation in mortgage modifications programs, among other remedies, to help regular folks. After all, there was ample evidence that banks had steered borrowers who should have qualified for prime loans into exotic subprime products with higher yields—that the big banks had indeed engaged in a kind of reverse redlining.
In fact, back in January, Illinois Attorney General Lisa Madigan testified to the Financial Crisis Inquiry Commission about rate sheets that revealed Wall Street had paid mortgage brokers and loan officers more for risky mortgages—with low teaser rates, pre-payment penalties, low- or no documentation of borrower income—because those loans charged higher interest rates. Wall Street wasn’t the victim of bad underwriting as it claimed, it had incentivized it.
Nevertheless, opponents to forced modifications cried "moral hazard," and—without even a hint of irony—said that bailing out the homeowners would reward them for bad behavior.
We now see where their umbrage has gotten us.
There were 367,056 foreclosure filings this March—a new monthly record. May was also a record-setting month, with 94,000 homeowners losing their homes to foreclosure. In the first three months of the year, the safest borrowers with fixed, prime mortgages accounted for nearly 37 percent of new foreclosures and now represent the fastest growing group facing foreclosure. One in seven homeowners are either in foreclosure or seriously delinquent. The Obama administration may tout jobs numbers as a sign that the Great Recession is behind us, but foreclosure filings tell the story of real pain that hasn’t abated.