When I was growing up in
Part of America's continuing economic woes is that we are ignoring the wisdom of good mothers. Powerful banks have been bailed out, but nothing has been done for millions of homeowners in trouble. The result is weakening the entire economy. Without action to address the continuing housing crisis, America will truly face a lost decade.
The numbers are sobering. On average, home values have fallen almost a third since the popping of the housing bubble. Millions have lost their homes; about 6.4 million mortgages are delinquent, with many headed to foreclosure. Almost one in four homeowners with a mortgage is underwater, owing more than the property is worth. That means they can't refinance to take advantage of lower interest rates.
African-Americans and Latinos are disproportionately caught in this bind. The vast majority are hard-working achievers. They come from families with no accumulated wealth. They got an education, worked hard, and saved money. When they could afford a down payment, they often stretched to buy a home in the suburbs, providing their families with safer neighborhoods and better schools.
When the bubble burst, they got hit the hardest. The value of their homes plummeted. Foreclosures dotted their neighborhoods, driving prices down even further. Some were laid off. They had no family wealth to fall back on. The very people who had lifted themselves up with their hard work found their savings erased. And too often, with homes underwater, they could not refinance to avoid crippling hikes in payments under their mortgages.
Virtually nothing has been done to aid American homeowners. This isn't an accident. Fearing that collapse of the global financial system would trigger a global depression, the Bush administration and the Obama administration followed essentially the same course. They bailed out the banks without reorganizing them. They allowed the banks to pretend the toxic mortgage-backed securities that they held were still worth something. This enabled the banks to recognize losses only when foreclosures actually occurred. With time to write down their bad debts, the theory went, the banks could survive, confidence in them would be restored, and the economy would recover.
Distressed homeowners were what the military calls "collateral damage" of the strategy. Some thought this justified. Why should people who gambled on risky mortgages or bought homes that they couldn't afford be helped? The tea party dates its start in part to a televised screed by a business reporter railing against helping homeowners.
But it isn't just the irresponsible who are being hurt. Falling home prices, underwater mortgages, and forced foreclosures hit the innocent, as well. And the scope of the crisis feeds the economic troubles that affect everyone.
It is long past time for action. A sensible first step should be to allow judges in bankruptcy courts to modify mortgages, adjusting the debt to the value of the home. (A power they already have for the vacation homes of the affluent). The judges could divide the innocent victims from the reckless. The banks would have to write down the value of the loans. The smaller loans could be refinanced at lower rates. With reduced debt and payments, more homeowners would be able to keep their homes. That would reduce the foreclosures that are driving down home prices and destroying neighborhoods. It would also give banks and servicers an incentive to negotiate across the board.
In urging this,
Bailing out the banks without helping write down the debts of distressed homeowners continues to get in the way of any recovery. It's time to remember the lesson taught by those wise mothers in
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