by Art Pulaski, California Labor Federation
This week, the U.S. Department of Housing and Development (HUD) and the Big Banks teamed up to propose a multi-state settlement to address the foreclosure crisis. But based on the terms described in numerous media reports, the deal appears to be a settlement for the banks, not a settlement for the middle class. The people of California need real relief, not a quick settlement that lets the banks off the hook.
California is home to nine of the ten cities that were hardest hit by the foreclosure freefall. The two million working families we represent have been at the epicenter of this crisis. Millions have been devastated by the loss of their homes. Many more have watched their home values plummet and now nearly one in three California borrowers are underwater, owing more to the banks than their homes are worth. California has the second highest foreclosure rate in the country, surpassed only by Nevada. For these reasons, our stake in the outcome of the settlement talks is great. Our families, our communities, our government and our economy depend upon a fair outcome.
Taxpayers revived the Big Banks from their self-inflicted crash with a $700 billion bailout in 2009. With the infusion, banks were directed to help homeowners recover from the mortgage crisis they created. Instead, bank executives took the money in big bonuses. The greed boggles one’s mind. Some should go to jail. Instead they again want to pay pennies on the dollars they took while foreclosing on millions of California homes.
On every level, the proposed settlement is inadequate: The total settlement amount is expected to be just $25 billion dollars, while the nation has $750 billion in negative equity. $25 billion would not even cover the loss of home equity to California families, let alone all homeowners across the country. The settlement is expected to help a million homeowners, when more than 10 million are underwater and millions more have been wrongfully foreclosed upon. The settlement needs to be in the range of $200 -$400 billion, not $25 billion.
Even worse, we are concerned that the settlement may not even come from the pockets of those who engaged in the misconduct. If the settlement gives servicers credit for writing down the value of investor-owned mortgage-backed securities without requiring them to write down the mortgages and liens they own, it will be our public pension plans, not the banks, that will take the hit. That means the same working families who have already seen their life savings go up in smoke will now face losses in their retirement funds. Not only is this a great injustice, but it fails to enact any real penalty against the bad actors.
It is difficult to overstate the harm that has been inflicted on our economy by the financial institutions now seeking to pay a relatively small sum and receive broad immunity. Foreclosures destroy families financially and emotionally, and blighted, abandoned properties destroy our communities. Cities, counties, and the state are unable to meet the needs of our most vulnerable, while banks sit on record reserves.
Any settlement must provide meaningful relief to homeowners and to the economy. We urge the Deptartment of Housing and Urban Development to ensure that the rush for quick relief does not overshadow the need for an equitable settlement that provides:
- Widespread principal reduction for California homeowners and fair redress for those who wrongfully lost their homes.
- Reform of lending and servicing practices and penalties on those who broke the law to deter such wrongdoing in the future.
- Real enforcement to ensure compliance.
- Limited liability waivers for only those issues that have been fully investigated.
We stand behind California’s Attorney General, Kamala Harris, who has firmly and vigorously refused a settlement that falls far short of recovery for the state’s homeowners who have been forced into distress by the banks. And she wants to reserve the right to investigate wrongdoing in the mortgage debacle. She’s right. And we should have it no other way.