Back to Work - Bill Clinton [50]
The second problem is that there’s no single authority with the power to institute and accelerate this process. The states’ attorneys general are trying to reach a comprehensive settlement over the mistakes made by mortgage issuers. Even if they do, the foreclosure process is different from state to state. If a delinquent homeowner decides to fight foreclosure with every available option, the process can take from two to eight years. And as yet, the bankers that service the mortgages and the entities that own them haven’t reached agreement on clear standards for mortgage modifications or workable foreclosures.
The U.S. Treasury Department is trying to broker a comprehensive settlement covering all the states and all the mortgage servicers and owners. In the Bank of America case, the investors who sued the bank to recover their investments in overvalued mortgages agreed, in return for $8.5 billion in compensation from Bank of America, to allow a court to resolve all the questions regarding individual cases in a transparent process. Any settlement involving the states, the mortgage owners, and the servicers needs to have a similar effective, open, and timely process to resolve these questions. Prolonged delays might help some homeowners, but they won’t eliminate the serious drag of all the debt on the entire economy soon enough.
The third problem is that many Americans who didn’t take out risky mortgages and are making their payments every month don’t think it’s fair to modify the mortgages of people who shouldn’t have taken them out in the first place and should face the consequences of their mistakes.
That’s a defensible position that in normal times should govern our policy. But it shouldn’t control our actions today. Why? Because the housing market collapse has hurt the entire economy so much that a lot of people who can’t make mortgage payments today were reasonable in thinking they’d never default when they signed the mortgage papers. Because every foreclosure punishes more people than the imprudent borrower, it drives down the prices of all the houses in the neighborhood. And because now so many homes have been foreclosed on, or are about to be, the total impact has depressed overall housing values, shrinking the biggest source of family wealth for millions of innocent bystanders. The over 25 percent of mortgages now worth more than their homes’ value include many on which payments are not delinquent. And if they’re written down on terms that require the owner to share future profits with the lender if the house rises in value, the so-called moral hazard argument has much less force.
We can’t put people back to work in an economy where consumers spend less, banks don’t lend, businesses don’t borrow, state and local governments reduce employment and support for schools, and the federal government is cutting back too. The mortgage problem is freezing us in place.
Under these circumstances, opposing mortgage modifications because some people don’t deserve them is cutting off our nose to spite our face. It reminds me of the old Cajun story of Ramon, who liked to carry expensive cigars in the front pocket of his coat. One day his friend Pierre noticed that he had replaced the cigars with sticks of dynamite. When he asked why, Ramon replied, “You know that no-good Jacques? Every time I see him, he says hello, then slaps me in the chest and destroys my good cigars. I’ll show him.” Pierre said, “But, Ramon, if the dynamite explodes, it’ll kill you.” Ramon said, “I know that, but I’ll blow his damn hand off too!” Requiring all delinquent homeowners to face the full consequences of their mortgages is a luxury we can’t afford. All the rest of us are getting hurt too.
While all the ideas that follow will create