Christian Science Monitor:
What’s next for Occupy Wall Street? Activists target foreclosure crisis.
The Occupy Wall Street movement, which cut its teeth last fall by occupying streets and parks across the country, is moving into a new phase as it gears up for spring: occupying homes.
The movement that claimed to speak for “the 99 percent” and made income inequality part of the national discussion now is organizing protests at housing auctions to support those affected by the foreclosure crisis.
“At first, we were occupying parks, then homes,” says Sofia Teona, an organizer with Occupy Atlanta, of the movement’s evolution. “We are starting locally, but it’s a national movement.”
On Thursday, dozens were arrested when a group in New York interrupted a foreclosure auction in a courtroom, and Occupy organizers say more events are planned nationally in coming weeks.
According to Michael Premo, an organizer for “Occupy Our Homes” in New York, the movement has carried out 50 similar actions nationally in the past month, including foreclosure disruptions, eviction defense actions, and home re-occupations.
This article was offered in a comment thread at JWS as proof of what wonderful things OWS was doing. In a fairy tale world where everything is black and white it would be. The problem is the real world is a bit more nuanced.
Here is an example given in the story:
Another case in Atlanta illustrates both the wrenching nature, and the complexity, of the foreclosure process.
The Pittman family thought they were going to inherit the house that their grandmother had lived in since 1953. Instead, they are now occupying it.
Eloise Pittman’s house in Atlanta was foreclosed on early last fall, but her family didn’t find out until shortly before she died in November.
In 2006, Pittman, a retired school secretary whose only source of income was her retirement checks, refinanced her house and got a loan of $300,000, according to her granddaughter. Pittman couldn’t keep up with the high payments and she avoided telling her family.
For the past 51 days, the Pittman family and members of the Occupy Atlanta movement have camped in a tent outside the house and stayed in the house to protest what they call Chase’s policy of predatory lending.
A spokesman for Chase has a different story, saying the bank did not originate the loan.
“We worked with Ms. Eloise Pittman in 2009 to modify her loan, and when her payments stopped in mid-2010, the foreclosure process started,” says Greg Hassell, a spokesman for Chase. According to Mr. Hassell, Chase is offering to let the family buy the house back for the market rate.
According to the Pittmans, the bank offered the family two options. Either they pay $100,000 to keep the house, or else accept $2,500 to leave.
They are choosing a third option – joining Occupy Atlanta to march to the bank to demand the deed back.
“We are going to march to Chase to demand that they give back the deed,” says Carmen Pittman, Eloise Pittman’s granddaughter. “We won’t stop fighting until justice is served.”
A sad story that tugs at the heartstrings, isn’t it? But I have a few questions.
Why did Ms. Pittman borrow the money? Was it a home improvement loan? Where did the money go? What kind of loan was it? Was it a re-fi or a second mortgage? Why did she default?
How much is the home worth right now? How much is still owed? Is there any specific allegations of fraud or wrong-doing by the bank or loan originator?
Think about this – if she owed $300,000 on the home and the bank is willing to let the family take it for only $100,000, that doesn’t sound like they are trying to rip anyone off. Even if Ms. Pittman bought the house brand new in 1953 it’s now almost 60 years old.
Let’s back up a little bit.
Owning your own home has always been part of the American Dream. Once upon a time 3 and 5 year mortgages were commonplace. 15 and 20 year mortgages were the result of the New Deal:
In 1934 the federal banking system was restructured. The National Housing Act of 1934 was passed and the Federal Housing Administration was created. Its intent was to regulate the rate of interest and the terms of mortgages that it insured. These new lending practices increased the number of people who could afford a down payment on a house and monthly debt service payments on a mortgage, thereby also increasing the size of the market for single-family homes.
FDR believed that encouraging private home ownership was good public policy. Later the tax code was modified to provide a mortgage interest deduction. Land was fairly cheap and construction costs low, making it relatively easy for most Americans to become homeowners.
At first the idea was simple – buy a home when you were fairly young, pay it off before you retire, and then you would only need to worry about taxes and upkeep in your golden years. (Back then property taxes were fairly low.)
Somewhere in the Fifties people started thinking about “starter homes” and “keeping up with the Jones.” But the basic idea didn’t change much – buy a first home, later move to a bigger home, pay it off and stay there until you die.
I should stop here and point out that you don’t really own a home until you finish paying for it. The bank owns it until you retire the mortgage. Oh, they are nice enough to let you live in it (and they expect you to take good care of it) but until they give you back the deed of trust you signed it’s THEIR house.
This semantic difference causes problems for some people. But in the inflationary Sixties and Seventies it wasn’t a regular problem. If you managed to make your house payments for a few years you would see your fixed house payment become relatively cheaper as your pay went up each year. You might even be paying less to buy your house than your neighbors were paying in rent.
If you ever looked at the chart for an amortized loan you will see that the interest payments are front-loaded. That means for the first 10 years of a 20 year loan you are paying off more interest than principle. If the value of your home doesn’t decline the reduction in principle is one way to build equity. Equity is the portion of the home’s value that YOU own.
But there is another way to build equity. During the Sixties and Seventies real estate began to rapidly increase in value. My mom bought her house in 1973 for just under $20,000. Within a year or two it had increased 25% in value. By 1980 it had tripled. Assuming she didn’t refinance she would have still owed most of the original $20,000 but would have accumulated $40,000 in equity.
This is when real estate began to change from a place to live to a financial investment. I first heard about “leveraging” in the late Seventies. That is the idea of borrowing against your equity and using the money to buy additional homes as rental properties.
This was when the real estate bubble began to inflate. It popped in 2008 and property values dropped dramatically for the first time since . . . ever. Here where I live was one of the hardest hit areas.
All around me there are empty homes. Most weren’t evicted. People simply walked away from mortgages that were twice or more the value of the property. Some homes are just sitting there because the banks don’t want to foreclose. There are tens of thousands of people in this area who are underwater in their mortgages but are holding on, making the monthly payments and hoping the values will recover soon.
Nobody likes to hear about someone else losing their home. I used to work for a company that did evictions, and it wasn’t a fun job. In the fairy tale version of events it’s the evil, greedy, heartless Mister Potter versus George Bailey.
Here’s the problem. Banks are not inherently evil.
Yep, I said it.
I’m not saying there are no greedy bankers or that they are all without sin. I still don’t understand why none of them went to jail after the Wall Street meltdown. Well, I understand why, I just can’t believe they actually got away with it.
Banks are businesses. They provide a useful and necessary function in our society. But they are amoral – they exist to produce profits, not fluffy bunnies. They need to be watched and regulated, but they need to be allowed to make a profit too.
If it wasn’t for banks, most people would never be able to buy a home in the first place. So the bank lets you borrow $100,000 to buy a house, and in return you agree to repay the loan with interest. And to guarantee that you will repay them you pledge the property as security with a deed of trust. There are all kinds of laws and regulations controlling everything.
If you repay the loan on time, no problemo. In fact, that’s what the bank wants you to do. If you default they are very probably going to lose money.
If they wanted the house they would have simply bought it in the first place instead of loaning you the money to buy it. If they foreclose on it they will eventually sell it. They don’t want rental properties, but if they did there are plenty of others available.
Right now they will probably lose money on the sale because most foreclosed homes are worth less than what is owed on them. If you owe $100,000 and the house sells for $50,000, they lose $50,000. The bank can get a deficiency judgment for the difference, but they’re unlikely to collect on it, at least not anytime soon. They will also lose all the attorney’s fees and realtor costs incurred in the foreclosure and sale.
But let’s say your house is worth more than you owe. If they foreclose and sell your property for $200,000 what happens to the money left over after they pay off your loan? They have to give it to YOU (minus costs and fees).
I always ask why the mortgage is in default. Usually it has something to do with someone losing their job, or as the result of a death, disability or divorce. They took out the mortgage with the best of intentions but later on shit happened.
What is the bank supposed to do when someone quits paying their mortgage?
Go back up to the story of Ms. Pittman. She took out a loan in 2006. Apparently Chase later bought the loan from another bank. In 2009 Chase worked with Ms. Pittman to modify the loan. In 2010 she quit making payments. It wasn’t until the fall of 2011 that Chase finally foreclosed. That doesn’t sound like a bank that is acting outrageously.
I supported Hillary Clinton’s 2008 proposal for a new Home Owners’ Loan Corporation (HOLC) to help homeowners refinance their mortgages. Even without HOLC some homeowners can avoid foreclosure with the help of other government programs and/or bankruptcy court.
But the fact is some people don’t deserve help. Others need assistance with refinancing or extensions of time in order to get their shit together. But some people for various reasons will never be able to pay off their mortgages. No matter what we do they will lose their homes.
The bottom line is we can’t just tell the banks to fuck off. If we put a stop to all foreclosures the banks would stop making loans. They would have little or no choice.
So what is OWS doing to help?
Are they championing new legislation like HOLC?
Are they raising money to give homeowners advice and assistance in refinancing or other options? What about financial or relocation assistance?
Nope, nope and nope.
They are trying to disrupt legal proceedings and “occupy” foreclosed upon properties much like they tried to occupy public spaces. It worked so well last time.
I know I’m committing heresy, but reality is more nuanced and complex than depicted by OWS members.
Filed under: Economy, Housing Bubble, OWS | Tagged: #OWS, Financial Meltdown, Housing Bubble | 56 Comments »