Stephanie and her husband, a young couple with a family in Napa Valley, CA, took out loans to buy their first house in 2003. After making payments for two years, they refinanced to one loan, then their bank sold the loan to a subprime mortgage lender--and they quickly plunged into a financial vortex. Accused of a late payment, then allegedly swindled by a loss mitigation group, Stephanie and her husband ultimately sold their house, with nothing but stress to show for it.
Gertrude Robertson, 89, lives in Seattle. When an independent mortgage broker convinced her to refinance three years ago, she obliged--and two years later, her payments rose by over $1000 and she's now terrified of being evicted.
"I just wanted to be able to eat and sleep in my house and have a roof over my head," says Ms. Robertson.... "Every day at midnight when I go to sleep, I think maybe when I wake in the morning, they'll tell me to get out."
U.S. foreclosures rose 42% last year; 1.2 million homes are in jeopardy. Each one has a story, like Stephanie's and Gertrude's.
The questions are: Why are foreclosures rising? What will that mean?
And what could we have done to stop it sooner?
One simple reason for the rise in foreclosures is the recent flourishing of subprime loans in the last decade. As lending changed and it became lenders, not banks, who commonly made home loans, many new mortgage products appeared, and more and more consumers were aggressively steered to refinance their homes using subprime loans. A typical version has a fixed low rate for a few years, then the rate can rise quickly. And most applicants are measured on whether they can afford the low "teaser" rate, not the later, higher rate; when they can't pay it, like Gertrude Robinson, they may face foreclosure.
What does this mean? The rash of foreclosures means a buildup in the supply of housing, which drives prices down--in other words, it generally weakens the housing market. The larger concern is that a substantial weakening of the housing market could hurt the larger economy as a whole.
Why didn't we stop it?
Some crucial answers lie in a new report by Common Cause, titled, "Ask Yourself Why... Mortgage Foreclosure Rates Are So High." Several experts testified before Congress in 2000 to warn of lending abuses, persuasion of families to take out loans beyond their means, steering minority homeowners into subprime loans unnecessarily, and more. Yet Congress didn't act.
Over the next seven years, the mortgage lending industry spent $210 million in Washington lobbying and in campaign contributions as they worked to stave off regulation. Here's a few selections of how the report describes what happened:
Since 1999, ten of the nation’s largest subprime mortgage lenders, their trade groups and their corporate parents have given more than $22 million in political contributions to federal candidates: $14 million to Republicans and more than $8 million to Democrats, according to Federal Election Commission reports. These special interests also have spent more than $187 million lobbying Washington over the same period, according to data from the Center for Responsive Politics and the Senate Office of Public Records.
As consumer and housing advocates successfully pushed for more state regulation of mortgage lenders, the industry went on the offensive. The industry backed legislation championed by former Congressman Bob Ney (R-OH). The Ney bill, reintroduced in 2005 with the sponsorship of Democratic Rep. Paul Kanjorski (PA), would have pre-empted many state restrictions in exchange for looser federal regulation. Since 1996, Ney and Kanjorski received more than $300,000 from the mortgage lending industry, more than $173,000 going to Ney and $140,500 to Kanjorski.
Throwing in with Bob Ney? Not exactly a compelling case for the industry. There's more:
According to congressional testimony and news accounts, millions of homeowners who took out subprime loans over the past several years to buy or refinance their homes did not understand the terms of those loans. As the interest rates on their mortgage loans increased over time, they found it impossible to keep up with their rising house payments. And in a housing market where home values are beginning to fall, they are not able to sell their homes for as much as they paid for them. As a consequence, millions of families now are facing foreclosure, and thousands more have already lost their homes.
And it continues today:
Even in 2007, faced with nearly daily headlines about abuses in subprime lending and growing worries about foreclosures, the mortgage lending industry is underplaying its responsibility for the problem.
We're faced, again, with the problem of one wealthy special interest making a profit on the backs of average Americans, turning around and spending that profit on campaign contributions and heavy lobbying, and blocking policy that would protect individual citizens. They won't change their practices unless we change it for them, which is why we need to change our system and pass public financing for congressional elections.
In such a system, where candidates who swear off private contributions and agree to spending limits can qualify to earn public funds to run their campaigns, we can elect lawmakers who respond first to voters, not to big money donors.
Or we can continue to watch special interests dominate in Washington, as foreclosures continue to increase around the country, and the Gertrude Robinsons of the world go to sleep thinking, "maybe when I wake up in the morning, they'll tell me to get out." What kind of system do we want?
Cross posted at CommonBlog.
__________________________
Right analysis - wrong therapy
"They won't change their practices unless we change it for them, which is why we need to change our system and pass public financing for congressional elections."
I, too, am appalled at what is happening in the housing industry. Stagnate wages and ARMs are a perfect storm for foreclosures. You are right to expose this tragedy and draw attention to those who have profited from this terrible turn of events. That has nothing to do, however, with campaign funding.
The problem is not with the giving of money to support a campaign but with what goes on in the head of the politician. Fairness cannot be legislated and the politician who wants to be fair can find all the funds in the world from BOTH SIDES if he plays his cards right. [A politican can run on a platform of having decided what is his position on an issue and get money from those who support that position or he can run on a "fairness" platform and get money from all sides who want to be at the table when what is "fair" is decided.] If you want to outlaw something, outlaw branding of conservatives and liberals as though there was only one meaning of those terms.
Campaign financing reform will not change the attitude of those politicians who believe that the public interest is served by trickle-down economic policies and tax relief for the wealthy. Those are all political judgments that can only be rooted out of Washington by INTELLIGENT VOTING...besides the SCOTUS has decided that "money is speech" and a conservative court is not likely to reverse itself any time soon. That horse is dead. Stop beating it unless your goal is to just enhance voter frustration. :-(
I think you're overlooking the obvious
"A politician who wants to be fair can find all the funds in the world from BOTH SIDES." Really? So while the mortgage lenders spend millions on one side--blocking regulation of their practices--are the people with foreclosed homes and spiraling debts also willing to spend millions of dollars to support political candidates who will fight for their side? I don't think so. More than 99% of Americans never give a contribution over $200, and their voices are not heard in this process. That's how the system works.
Your theory fails on another level, which is that once in office, lawmakers immediately must begin fundraising for their reelection. At that point, they also have to cast votes and make policy decisions, so if they oppose a special interest-backed bill (or support a regulation of, say, subprime lenders), then they are likely to lose a significant chunk of campaign cash and hurt their own chance at reelection.
Our lawmakers shouldn't have to make such calculations based on fundraising and special interest support. And while you're right that "intelligent voting" can help, and does, it's not the only issue: plenty of potential candidates with great ideas but little wealth and few wealthy friends will never have a chance to run for office, period, under our system, because you need to raise a ton of money to be able to run.
Under a public financing system, candidates can seek support in the form of $5 contributions from any and all voters--not just wealthy ones--and qualify for public funds to run a campaign. And then they're responsible first to voters, not major donors.
And this has been upheld by the Supreme Court. These systems are voluntary--like the systems in Maine and Arizona, and the model in the Fair Elections Now Act in the Senate--so they don't violate the first amendment. And it's very popular, because voters like the idea. Over 80% of the Maine legislature ran with public funds last cycle, for instance.
So, thankfully, the "horse" is very much alive.
Politics is not Disneyland
What part of "money is speech" do you not understand? The issue is not what the law can ENABLE people to do with their money it is what it PREVENTS people from doing with their money, which is precisely where your public financing plans (desirable as they might be - I'm on your side)all end up being irrelevant.
And as for finding support, "on balance" thanks to the internet and 527 groups there is all kinds of support for politicians who are on the right side of issues. Lobbyist are in the access business: access to the politician to sell their point of view and access to the public through ads. If a politician puts forth a rule at his office of never sitting down with a lobbyist who does not bring his antithesis with him to the sit-down, suddenly the politicans gets a balanced picture and the clout any lobbyist has is lessened. Congressmen are not so dumb as to think that a lobbyist has more than one vote, that, in fact, public advocate groups have more votes at hand than any industry, things return to some sense of proportionality.
You are assuming that there is some causal relationship between money spent on lobbyists and legislation. There is none except that created by politicians who are willing to risk being voted out of office by ignoring the public's wellbeing...and there are a never-ending stream of those like there is a never-ending stream of illegal immigrants from Mexico willing to work in fields for $4.00 an hour. So, if you want the public to be served and not the special interests you elect good people up front and get rid of the bad guys at the next election. [You see, I suspect behind most every person wanting public campaign financing is a person who does not regularly donate to a "good guy" and does not involve themselves in the campaign of "good guys." There is no free lunch or easy way to good politics.
So long as groups such as MoveOn.org, Campaing for America's Future, et.al., continue to gain strength there will be groups with access to the airwaves to counter "enemy" ads...or, at least, you will have a better change of changing things than in beating your head against the wall with some new version of public campaign financing restrictions that will never see the light of day.