The Fannie Mae and Freddie Mac conservator, since the crash of 2008, the Federal Home Finance Administration (FHFA) took action on September 2 and filed a lawsuit against the big banks and named individuals for billions of dollars in alleged securities fraud. This appeals to my sense of justice for the economic meltdown and financial pain spread throughout our land, and it appeals to plenty of people’s sense of justice, or not – some are downright skeptical, as in the #8 thing you should know about this suit from the linked Alternet article. Nevertheless, there is optimism that the FHFA could actually win the suit if it went to court. Still, it is essentially a full employment lawyers act and not really in the best interests of the economy: “Whatever the lawsuit’s merit, it will erode banks’ profits and capital and their capacity to lend.”
On the other hand, there is a modest proposal out there to put U.S. homeowners, the housing industry, and by extension, the American economy back on stable footing. It is a simple, elegant, straightforward plan expressed in a nine-page document, which you can download easily.
The New Bottom Line is a national campaign to persuade the banks to write down, or modify, all underwater mortgages to current market value, that’s principal and interest.
Here are some facts & figures from the plan: By writing down all underwater mortgages to market value, the nation’s banks could:
- Pump $71 billion into the economy every year: in New York state the annual stimulus would equal $1.25 billion; in Ohio, $1.64 billion; in Florida, a staggering $12 billion [where the most foreclosures are]
- Create more than one million jobs annually: In Massachusetts this would create over 35,000 jobs; in Illinois nearly 43,000 jobs; in California, over 300,000 jobs
- Save families an average $543 per month on their mortgage payments;
- Help investors come out ahead compared with the negative financial impact of foreclosures
- Fix the foreclosure crisis once and for all.
If you think the New Bottom Line is overestimating the impact on the economy of fixing the home foreclosure crisis, consider that in 2005, according to The Economist, “over the past four years, [that’s 2001 -2005] consumer spending and residential construction have together accounted for 90% of the total growth in GDP. And over two-fifths of all private-sector jobs created since 2001 have been in housing-related sectors, such as construction, real estate and mortgage broking.”
The New Bottom Line is a coalition of community organizations, faith-based congregations, labor unions, and individuals from across the country. Coalition members are rallying their people to participate in planned direct actions in cities across the country. Under the Press Room tab on their web site there is a schedule of actions at the bottom of the Media Advisory dated for Sept. 20. Actions that target primarily JPMorgan Chase, Bank of America and Wells Fargo, are planned beginning Sept. 20 in Seattle to Nov. 5 in Honolulu. During this time frame actions are planned in San Francisco, Boston, Los Angeles, Chicago, New York City, Minneapolis, and Denver.
The banks can afford to write down all underwater mortgages. “US banks are currently sitting on a historically high level of case reserves of $1.64 trillion. Under this proposal they would only be forgoing $71 billion in payments annually… In 2010, the nation’s top six banks alone paid out more than twice that figure in bonuses and compensation ($146 billion),” according to the New Bottom Line’s nine-page plan.
The plan is not getting any attention in the mainstream media, of course, but even the blogosphere is somewhat sparse on it. In a google search of “new bottom line” I found it mentioned on only a few occasions back in August on major blogs – on Firedoglake (in two posts), rortybomb, and Daily Kos here, here, and here, and here, respectively. On Daily Kos the plan was included in a more general post by Mike Lux titled The Church of Progress. Another Daily Kos blog linked to the plan as it was mentioned indirectly by Emptywheel in a blog about how the Obama administration is thwarting New York AG Eric Schneiderman’s attempts to hold banks accountable for mortgage fraud. An article on Alternet in late August also mentions the New Bottom Line, and provides a link to the plan, in an article titled: Longer Weekends and Higher Wages? 5 Surprising Ways That Would Help Improve the Economy – mortgage write-downs is one of the five ways we could help the economy and make our lives better. In a May 4 article, Foreclosed Homeowners Vent Anger at Wells Fargo, Alternet documented the launch of the New Bottom Line campaign in San Francisco, but does not provide a link to the New Bottom Line web site or the plan. The nine-page plan is also posted at Showdown in America.org.
If this movement succeeds in organizing enough people and making an impact it could finally put into play a Tarp for Main Street – something our elected officials have been unable and unwilling to do. So there is the question – Why do we need to generate a movement to put the New Bottom Line’s ideas into action? Well, I guess we know the answer to that – a solution that benefits the people doesn’t play in the oligarchy.
Cramdown legislation that would have allowed bankruptcy judges to modify mortgages by reducing principal, lowering interest rates and/or extending loan terms passed the House in early March 2009, but was defeated in the Senate. The legislation was opposed by the financial services industry because it would “destabilize home prices” and “raise mortgage borrowing costs for everyone.” Right…more likely, the legislation threatened their expected profit margins, but they didn’t and won’t say that.
HARP (Home Affordable Refinance Program) is the federal government’s so far not very successful two-year old program at Fannie Mae and Freddie Mac. According to Bloomberg news, the HARP program launched in March 2009 was extended twice and is now set to expire in June 2012. The Obama administration predicted it would help up to five million homeowners. As of June, there are fewer than 840,000 homeowners enrolled in the program. HARP has been limited to borrowers who are underwater in homes worth up to 125 percent of their value, meaning eligibility is limited to homes worth 25 percent less than market value. Homeowners who owe more on their mortgages than their homes are worth are “underwater,” and this is the major reason people default on their mortgages.
I couldn’t find online an average of how many homeowners might be over 25 percent underwater, but as of June nationwide 10.9 million people or “22.7 percent of all residential properties with a mortgage were in negative equity at the end of the first quarter of 2011.” In an article August 16, Bloomberg says, “Banks have avoided participating [in HARP] because such loans are more likely to default.” Now they’re worried about lending to homeowners who went “underwater” due to the boom years when investors and the banks weren’t concerned and approved mortgage loans for just about anybody – borrowers with no down payments and questionable sources of income (the subprime lenders and borrowers).
Now we have a lawsuit by Fannie and Freddie because taxpayers, meaning you and me – not the investors and bankers – are footing the bill. According to Bloomberg news June 2010, “Fannie and Freddie, now 80 percent owned by U.S. taxpayers, already have drawn $145 billion from an unlimited line of government credit granted to ensure that home buyers can get loans while the private housing-finance industry is moribund. That surpasses the amount spent on rescues of American
International Group Inc., General Motors Co. or Citigroup Inc., which have begun repaying their debts. ‘It is the mother of all bailouts,’ said Edward Pinto, a former chief credit officer at Fannie Mae, who is now a consultant to the mortgage-finance
So, Obama proposed, quite timidly and briefly in his much heralded “jobs speech” on Sept. 8: “We’re going to work with federal housing agencies to help more people refinance their mortgages at interest rates that are now near 4 percent. … That’s a step that can put more than $2,000 a year in a family’s pocket, and give a lift to an economy still burdened by the drop in housing prices.”
Keeping in mind that Fannie & Freddie, created by Congress in 1938 and 1970, respectively, are independent companies that use the full faith and credit of the federal government to guarantee mortgages and mortgage backed securities, Bloomberg news had this to say following Obama’s speech: “Some staff members of Fannie Mae and Freddie Mac have expressed concerns about easing rules to make refinancing more accessible because a wave of repayments of the old, high-interest loans would reduce the value of the securities into which they are bundled. Investors would be forced to reinvest the cash that gets returned into lower-yielding securities, according to a person briefed on the discussions within the mortgage firms.
That would harm the big institutional investors who own most of the securities and make up the most important customers of Fannie Mae and Freddie Mac, the person said.”
Well, we wouldn’t want to harm the big institutional investors, would we?