The Obama administration needs to do more to fix the housing crisis.
Millions of Americans have lost their homes to foreclosure over the last three years. This has destroyed lives and distorted the shape of entire communities.
Motivated by a chance to make quick money, Wall Street sold the financial equivalent of toxic waste to millions of consumers. As New York Attorney General Eric Schneiderman recently put it, the crisis was “man-made,” created by “regulatory neglect” and by corporate “greed.”
The crisis also has a clear racial component. Banks sold these tricky, toxic, high-cost mortgages disproportionately to African-Americans and Hispanics.
Some of these banks are already in legal hot water.
Take Wells Fargo. The city of Baltimore and the city of Memphis have both sued Wells Fargo, alleging the targeting of African-Americans with default-prone mortgage products. The Pennsylvania Human Relations Commission filed a lawsuit in 2010 against Wells Fargo based upon racially suspect lending practices in Philadelphia, another predominantly African-American city. The state of Illinois has also filed a lawsuit against Wells Fargo that alleges discrimination in lending.
Or take Citigroup. It recently agreed to pay $285 million to settle charges it defrauded investors who bought some of the toxic housing-related investments the bank was peddling — and then betting against.
President Obama’s recent proposal to address the problem won’t fix it. He is trying to put out a raging forest fire with a bucket of water.
Here are four things he, Congress and the banks should do.
First, they should announce a foreclosure moratorium and put it into effect immediately. This would stop the fire from growing.
Second, Congress should pass a law authorizing judges to write down the mortgage principal when people file for bankruptcy. This is only fair, since folks' homes cost less than their mortgages in such instances. And it would also motivate banks to reduce the principals on the homes, which they should have done long ago.
Third, Congress should increase the funding for housing counseling services, which have been vital in preventing many foreclosures and assisting consumers in saving their homes or walking away responsibly.
Finally, the Justice Department should investigate the racial issues in the crisis, and it should join the lawsuits that are under way. The administration needs to send a message that this kind of predatory lending will not be tolerated.
The housing crisis has been raging since 2007, but the efforts to address the problem have simply dragged the crisis out longer and longer. It is time to stop the piecemeal approach and fix the problem once and for all.
Brian Gilmore is a poet and public interest lawyer who lives in Michigan. He can be reached at firstname.lastname@example.org.
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