Third World America - Arianna Huffington [26]
Barry Bosworth and Rosanna Smart of the Brookings Institution found that the catastrophic collapse of the 2008 subprime mortgage market resulted in the disappearance of $13 trillion in American household wealth between mid-2007 and March 2009.78 Bosworth and Smart also found that “on average, U.S. households lost one quarter of their wealth in that period.”
The abrupt meltdown of the subprime mortgage and financial markets dramatically changed the lives of millions. Once-attainable goals like owning a home, achieving financial security, and being able to retire were suddenly out of reach. And, as we have not yet hit bottom, millions more may soon find their standard of living lowered—and their dreams of a brighter future dashed.
We are facing nothing less than a national emergency: 2.8 million homes faced foreclosure in 2009, and an estimated 3 million more are expected to be foreclosed on in 2010.79, 80 If there was ever a middle-class Katrina, this is it. Yet even modest attempts to loosen the trap that snapped shut on so many have had a hard time getting traction in special interest–dominated D.C.
Take Senator Dick Durbin’s attempt to allow homeowners in bankruptcy a so-called cramdown, a means to renegotiate their mortgage with the bank under the guidance of a bankruptcy judge. Currently, mortgages are exempt from bankruptcy proceedings.81 Until 1978, allowing cramdowns was standard practice. Subsequent court battles eventually eliminated their use.82 The mortgage industry, not surprisingly, has been vehemently opposed to bringing the cramdown back. The banks scored a lopsided victory in late April 2009 when the Senate rejected Durbin’s measure, which would have helped 1.7 million homeowners keep their homes and preserved an additional $300 billion in home equity.83
Given the tidal wave of foreclosures that so destabilized our economy, this seemed like a no-brainer. There had already been more than eight hundred thousand foreclosures in the first three months of 2009.84 But even after major concessions that diluted the bill, the Mortgage Bankers Association (whose members’ subprime schemes helped bring our economy to the brink), the Financial Services Roundtable, and the American Bankers Association fought tooth and nail against it.85, 86 And won.
Making matters worse is the fact that America’s banks and mortgage lenders are often so disorganized that people are being erroneously foreclosed on.
As ProPublica’s Paul Kiel reported: “Sometimes the communication breakdown within the banks is so complete that it leads to premature or mistaken foreclosures.87 Some homeowners, with the help of an attorney or housing counselor, have eventually been able to reverse a foreclosure. Others have lost their homes.” Kevin Stein, associate director of the California Reinvestment Coalition, told Kiel, “We believe in many cases people are losing their homes when they should not have.”
You want an economic nightmare? How about a foreclosure bear trap that snaps shut on your leg even when you haven’t stepped in it?
YOU HAVE THE RIGHT TO AN ATTORNEY … UNLESS YOU’RE ABOUT TO LOSE YOUR HOUSE
America’s foreclosure crisis is being made even worse by the shortage of legal assistance available to beleaguered homeowners. According to a study by the Brennan Center for Justice, “the nation’s massive foreclosure crisis is also, at its heart, a legal crisis.”88 The vast majority of homeowners face foreclosure without legal counsel.
In New York’s Nassau County, in foreclosures involving subprime or nontraditional