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.
Today, ACCE and the New Bottom Line released a report detailing a solution to the foreclosure crisis. "The Win-Win Solution: How Fixing The Housing Crisis Will Create 1 Million Jobs" details how we can fix the housing crisis and revitalize our communities and economy if the banks were to lower the principal balance on all underwater mortgages to current market value.
One in five Americans owe more on their mortgage than their home is actually worth. Collectively, underwater homeowners will have to pay down $709 billion in principal before they can start building equity in their homes. Every effort to reboot the housing market to date has failed because it has not done the most essential thing: reduce the massive debt load carried by underwater homeowners.
The report reveals that if the banks stepped up and provided principal reduction on all underwater mortgages to current market value, we could:
• Create 1 million jobs every year -- This includes over 300,000 jobs in California, the state hit hardest by the financial crisis. • Pump over $70 billion per year back into communities-- This includes $12 billion dollars per year in Florida, the second of the two states hit hardest by the foreclosure crisis. • Save the average family over $500 per month on mortgage payment • Solve the foreclosure crisis once and for all
“Homeowners across the nation are struggling to pay their boom-era mortgages with their recession-era salaries and the economy is suffering for it," notes the report. "Writing down the principals and interest rates on all underwater mortgages to market value would serve as the second stimulus that America so desperately needs, only without added costs to taxpayers.”
As the banks have been able to profit from millions of people losing their homes,"The Win/Win Solution" demonstrates that the banks can afford to execute this plan. Last year, the nation’s top six banks paid out more than twice the cost of the plan ($71 billion per year) in bonuses and compensation alone ($146 billion in 2010). Currently, the nation’s banks are sitting on a historically high level of cash reserves of $1.64 trillion.
This is an opportunity for California Attorney General Kamala Harris to step up and be a hero to Californians. Standing up to Wall Street Banks is good policy and good politics.To help us prioritize our communities and our families and start rebuilding a working economy, join our call to Attorney General Harris to make principal reduction on underwater mortgages a key part of any foreclosure settlement with banks.
It's hard to believe that it's been 46 years since August 11, 1965, the day the Watts uprising began. I'll never forget the fear that I felt watching the chaos unfold. I was shocked but not surprised: you could feel the anger and frustration building up during that hot summer. The booming California economy was providing little opportunity for people of color. Public policy was benefiting the already fortunate and was leaving behind those who were already disadvantaged. In California, as in the rest of the country, African American and Latino families were reaching a boiling point that could not be contained any longer. Over the following two years there were a number of additional riots in Chicago, Newark, Detroit and elsewhere.
Today in Watts and across California people are feeling that familiar angry bubbling stirring up as the gap between rich and poor grows ever wider. During this time it is important that we recall the lessons from that turbulent period in our nation's past.
Two years after the riots broke out, President Lyndon Johnson established The Kerner Commission to try to understand what happened and what could be done to prevent further occurrences.
The resulting document, known as the Kerner Report, recommended that people from all walks of life have more equal access in four major areas: jobs, education, housing and services. Unfortunately, the inequality of 46 years ago is all too familiar today.
To be sure, there have been areas of progress. The Community Reinvestment Act of 1977 outlawed discriminatory banking practices and redlining. This helped give millions of minority families like mine the opportunity to fulfill the American Dream through homeownership.
I knew something was wrong a decade ago when my mailbox began to get filled on a daily basis with offers that seemed too good to be true. The pamphlets were from realtors, brokers and lenders that were selling predatory loans. These subprime loans were designed to be more expensive products for high risk borrowers, but turned out to be a chance for loan sharks to make a buck by pushing them on my elderly and minority neighbors, whether they needed them or not. One Wells Fargo loan officer recently testified publicly to the widespread practice of steering subprime loans, cynically referred to as "ghetto loans," to borrowers with good credit.
Wall Street securitized these loans and packaged them as good investments until the market's inevitable collapse. According to a recent report, "Homewreckers," the loss to homeowners, the property tax base, and local governments amounts to at least $650 billion. Meanwhile, bank CEOs continue to be absurdly compensated, with Chase's Jamie Dimon earning $20.7 million and Wells Fargo's John Stumpf earning $17.5 million in 2010.
Of course, African American and Latino families have not fared nearly as well. A new report from the Pew Research Center finds that median household wealth in African American households declined 53% between 2005 and 2009 from $12,124 to $5,677. Wealth among Latinos fell even more dramatically during the period, from $18,359 to $6,325, a 66% decline.[4]
Many of us feel as frustrated today as we did in 1965. Yet, as was the case 46 years ago, there is an opportunity for elected officials and Wall Street to address the problems. Key among them is the growing number of mortgage holders who now owe more than their houses are worth. Today, 23% of homeowners are underwater, including as many as 35% of African American homeowners and 41% of Hispanic homeowners.
It is a problem we can solve if we have the will to do so. We can actually fix the foreclosure crisis in California by writing down all underwater mortgages (2.1 million in the state) to market value. This would pump an annual $19.9 billion into the state economy and create 295,000 new jobs annually for 30 years. It would save Californians an average of $790 a month on mortgage payments and would dramatically reverse the loss of wealth in minority communities.
I still believe in the American Dream. That's why Bank CEOs and elected officials owe a solution to devastated black and Latino families in Watts and everywhere who believe we all deserve a fair chance to pursue our dreams.
Lyneva Mottley grew up in Watts and has lived there for over 50 years. A homeowner, she is retired from a career in factory work and home health care. She is the acting chair of the Watts chapter of the Alliance of Californians for Community Empowerment (ACCE). For more information about ACCE, visit www.calorganize.org
The race in CA-10 for the seat vacated by Ellen Tauscher features three lawmakers with long resumes at the state level. And then there's Anthony Woods, a young man with no prior history in elected office, but festooned with what Benjy Sarlin of The Daily Beast called the best political resume ever. Woods is an African-American product of a single mother who found his way to West Point and Harvard's Kennedy School of Government. He is a two-time Iraq war platoon leader who returned all of his men home safely and received the Bronze Star. He is someone who, after returning home, was dismissed from the Army for challenging its Don't Ask Don't Tell policy. But politicians don't vote with their resumes. They must have the conviction to vote with their principles. I actually conducted the first interview with Woods back in April, and since then others havetaken notice. So I thought I'd return to Woods and ask him about some of the key issues facing the Congress in the coming months. A paraphrased transcript of the conversation, executed last Wednesday, is below.
Peter Schrag is one of the few columnists left in this state who consistently makes sense, and today he attacks that silly NYTimes article about California, in particular the elements of conventional wisdom:
In his passing references to California's serious issues, many of which have major implications for the nation as a whole, Leibovich collects pieces of the conventional wisdom, even when, as in his facile summary of the causes of gridlock in Sacramento, it's wrong. Since Democrats have again and again agreed to multi-billion dollar cuts, it is not, as he thinks, just a matter of "'no more taxes' (Republicans) and 'no more cuts' (Democrats)."
And while Jerry Brown, in his prior tenure as governor was indeed labeled "Governor Moonbeam" (by a Chicago columnist) for his space proposals, as Leibovich says, the label applied much more broadly to his inattention to the daily duties of his office and, most particularly to his dithering while the forces that produced Proposition 13 began to roll.
Brown later acknowledged that he didn't have the attention span to focus on the property tax reforms that were then so urgently needed to avert the revolt of 1978. But to this day, almost no one has said much of Brown's role in creating the anti-government climate and resentments that helped fuel the Proposition 13 drive.
It was the Brown, echoing much of the 1970s counter-culture, who, as much as anyone, was poor-mouthing the schools and universities as failing their students and who threatened to cut their funding if they didn't shape up. It is Brown who spent most of his political career savaging politics and politicians, even as he ran for yet another office. Now this is the guy who wants to be governor again. But Leibovich doesn't tell his readers that long history. Maybe he doesn't know it.
The line about how those who fail to learn from history are doomed to repeat it can be inserted here. But Schrag hits on the most important failing of the article, and indeed of a good chunk of the political media here in California - they airbrush out the people who suffer for the failures of the politicians.
Where are California and the people who are feeling the pain - the school kids and teachers in hopelessly underfunded schools, the children who are losing their health care, the minimum-wage working mothers struggling to pay their child care, the students who are losing their university grants? Is all this really about nothing?
To far too many, the answer is yes. It's politics as theater, as a sporting event, where winners and losers are checked on a board, and whether or not a leader will keep their position is made the story rather than the principles he or she represents. And yet it's not Governor Hot Tubs and Stogies who will feel the pain of an economic downturn and massive budget cuts, nor well-heeled consultants or columnists who make up the scorecards. It's people.
People like the students in the Cal State system who may see their fees raised 20%, just months after a 10% hike approved in May. This will effectively block higher education for a non-trivial number of students, as will proposed enrollment reductions of 32,000 students.
People like LA County homeowners who have defaulted at twice the rate in May as they have in the previous month, as a foreclosure backlog builds up due to various moratoriums and an increase in repossessed homes entering the market.
People like IOU holders who may have to turn to check-cashing stores to get less-than-full value for their registered warrants after Friday, when most major banks (who have all been bailed out by the federal government, by the way) stop the exchange of the notes.
And people like the elderly, disabled and blind, who rely on the in-home support services that the Governor is trying to illegally cut in contravention of a contempt-of-court citation, at least in Fresno.
These are the great unmentioned in this California crisis, the people who Dan Walters tries to smear in his column today by turning every Democratic concern for the impacts of policy as a sellout to "public employee unions." Behind those unions are workers, and the people they serve need the help the provide, in many cases, simply to survive. But it would be too dangerous to Walters' beautiful mind to consider those faces, so he chooses to make political hay out of the violation of people.
Mr. Schrag's latest screed is a good example of why politics in Sacramento is so dis-functional. Instead of trying to find the truth in the Leibovich article, he mocks both the writer and each of the subjects. In recent years, Schrag has become increasingly bitter. That's very sad because he once was an open-minded person with real insight into the predicaments of modern society. Finally, his memory is not serving him well regarding Propistion 13 and the factors that constituted the ethos of that period. In fact, there was a long and hard fought battle to get property tax relief that got all the way to the state Senate but foundered just short of the necessary two thirds vote. There is much to say about government, schools and taxation in California. But to get anywhere it requires a degree of empathy and engagement with opposing perspectives that no longer seems congenial to Mr. Schrag.
California's economy can't really stabilize until the foreclosure crisis is resolved.
Yesterday I was honored to be on a call with America's leading mayors and the US Conference of Mayors to talk about a huge problem affecting cities from coast to coast: the foreclosure crisis.
I've been talking about how a family is losing their home every 13 seconds for awhile now and the recent failure by Congress to enact bankruptcy reform to protect homeowners because of industry pressure was a real blow to stopping that clock.
But the failure in Washington isn't going to stand in the way of ACORN's push to address the crisis at the heart of the economic meltdown and teaming up with some of the leading mayors in the United States is a major way we're moving forward to help families stay in their homes.
If you aren't depressed enough by the coming collapse of social programs for Californians as the budget nightmare drags on, consider that there will soon be more need for social services and less revenue available, as we segue into the rarely-remarked upon second wave of foreclosures in the Alt-A market.
A new wave of foreclosures is building in Sonoma County, one that echoes the subprime crisis that flooded the region's housing market with distressed properties.
The tide of troubled loans, which first struck high-risk borrowers who did not qualify for conventional mortgages, is now spreading to people with good credit who purchased more expensive homes.
This time, it involves borrowers who took out mortgages known as Alt-A loans. Like the subprime loans that began imploding in 2006, these loans offered seductively low introductory payments that enabled many borrowers to buy or refinance homes that were pricier than they could otherwise afford.
Now, those borrowers increasingly are discovering the true cost of their loans. When the introductory period ends, monthly payments can jump 50 percent or more on the typical Alt-A loan, far higher than many borrowers can afford.
There are hundreds of thousands of these loans in California just waiting to recast. In the context of Sonoma County, 18% of all housing loans are Alt-A, most of them purchased between 2004 and 2006. Two-thirds of them will see rapid jumps in their payments in the next two years.
I spoke with Asm. Ted Lieu this weekend, who didn't even want to describe these as foreclosure waves. "It feels like they never stop." He hopes that the latest government program to try and fix the foreclosure crisis, which can allow new mortgages to be issued at 96.5% of current value, will actually make an impact, but we're talking about a whole new class of borrowers getting into trouble because of these rate recasts. This of course adds to the properties on the market, bringing down prices, adding to a whole new wave of tax reassessments, and on, and on, and on.
You can almost set aside the unemployment crisis, and the feedback loop of decreased government spending leading to reduced consumer spending and more unemployment. Just this continuing housing crisis is enough to permanently disable any solutions to economic recovery.
...I should note that AB260 passed the Assembly today, forward-looking legislation which would prohibit lenders from steering borrowers into bad loans, prohibit lenders from reaping financial advantages (called yield spread premiums) from that steerage, ban negative amortization loans and regulate subprime lending. The Governor vetoed similar legislation last year. This is an impressive reform, but too late. The crisis has spread into prime loans by now.
I think the general consensus on the economy from the grand poohbahs of the establishment is that we're contracting less slowly, that we're easing toward the bottom and will be able to improve as the year goes on. This optimism depends on no further "unforeseen" downturns in key economic sectors. But that just doesn't seem plausible. Zillow.com's estimates show that over 20% of all homeowners owe more on their mortgages than their homes are worth, as prices continue to decline. Considering that 24,000 homes and apartments are vacant in Sacramento, for example, up 40% year over year, the glut of supply suggests that those prices have further to fall. And thus we will not see much of a rebound in equity in the short term. Keep in mind that many of these homeowners who are underwater will experience recasts to their mortgage rates in the coming year, further straining their ability to make payments.
Now we have compelling evidence that a second foreclousre wave is starting to rumble through California once again, which could trigger the very same spiral that brought the nation's economy to its knees last year.
Here's another sign that California's foreclosures could jump in 2009: Delinquencies on dues owed to homeowner associations have risen sharply.
The homeowner association delinquency rate can serve as a leading indicator of sorts because homeowners usually stop paying dues before they stop paying their mortgage. The 90-day delinquency rate on dues for the 260 homeowner associations in California managed by Merit Property Management jumped to 5.3% in March from 2.8% last June. Delinquencies first spiked to 2.6% in December 2007 from 0.8% in March 2007.
The Journal looked at how banks were beginning to ramp up foreclosures after holding off for several months. Pre-foreclosure notices in California spiked in March after a state law had suppressed foreclosures at the beginning of the year.
Pre-foreclosure notices are where this begins, and those notices rose by 80% in the first quarter of 2009 from the previous quarter. As the article notes, the moratorium on foreclosures has been lifted, which will put more pressure on homeowners. We all understand that bad loans caused this crisis in the first place, right? Well, a lot of bad loans are still out there. At particular risk are those mortgages purchased at the height of the bubble in 2005 and 2006. Loans made in 2006 have an 8.5% default rate statewide. These are the worst liar loans, NINJA loans, many of them due to recast to higher interest rates. And this includes jumbo loans.
The number of U.S. homes valued at more than $729,750, the jumbo-loan limit in the most affluent areas, entering the foreclosure process jumped 127 percent during the first 10 weeks of this year from the same period of 2008, data compiled by RealtyTrac Inc. of Irvine, Calif., show. The rate rose 72 percent for homes valued at less than $417,000 and 78 percent for all homes, RealtyTrac said.
If you think this is over, particularly in California, duck.
When the Obama Administration's plan to mitigate foreclosures came out, it was clear that it would be insufficient to deal with the particular challenges faced in California. Initially, the plan would only modify loans where the amount owed was 105% of the home's true value. Given that home prices have collapsed here, this would have helped almost nobody in California. State lawmakers, in particular the Democratic point person on mortgages and foreclosures Asm. Ted Lieu, went to Washington to lobby for changes. And today, faced with a sluggish mortgage rescue program attracting few lenders or homeowners, the Administration expanded the plan.
The Obama administration said Tuesday it is expanding its foreclosure prevention program to cover second mortgages and to direct more troubled borrowers to the Hope for Homeowners program.
Under the administration's new program, the interest rate on second mortgages will be reduced to 1% on loans where payments cover interest and principal and to 2% for interest-only loans. The government will subsidize the rate reduction, with the money going to the mortgage investor [...]
Also Tuesday, the administration said it is now requiring servicers to offer troubled borrowers access to Hope for Homeowners as a modification option if they qualify.
Expanding Hope for Homeowners would address one of the major holes in the original Obama foreclosure prevention plan. It helps homeowners whose homes are now worth far less than their mortgages.
Servicers had balked at participating in the Hope program because it required they reduce the mortgage principal balance to 90% of a home's current value.
Hope for Homeowners, which began in October, is being revamped in Congress. Servicers would have to reduce the principal to 93% of the home's value. The change would also reduce the program's high fees, which turned off many troubled borrowers.
Loan servicers get a fair bit of cash incentives for participating in the program, which I don't totally support, but if we have to bribe lenders in order to keep people in their homes, that makes more sense than spending the same amount of money on the fallout from a foreclosure. And lenders do take a haircut in the Hope for Homeowners program, the first loss to my knowledge that lenders have been forced to take.
The CA-32 race to replace Labor Secretary has less than six weeks to go until the primary. We know about the two major candidates; Board of Equalization member Judy Chu (not to be confused with Betty Chu, who will appear directly above her on the ballot and surely cause some errors among voters) and State Senator Gil Cedillo, whose extreme spending of campaign contributions on shopping, meals and lavish hotels made the LA Times this weekend and caused a stir.
Somewhat less remarked-upon has been the candidacy of Emanuel Pleitez, a product of East Los Angeles and Woodrow Wilson High School, who matriculated at Stanford, joined the advisory board of Voto Latino (a group that encourages voter registration and engagement for the Latino community), worked for Democratic lawmakers like Antonio Villaraigosa, Tom Daschle and Hillary Clinton, and worked on the Obama transition team at the Treasury Department. On Friday I had the opportunity to chat with Pleitez about his life experiences, the financial crisis, housing policy and a host of other issues. A paraphrase of that conversation follows.
(As a side note, this story about one of the volunteers on the campaign, who traveled all the way from Santiago, Chile to work on it, is pretty amazing.)
In an interesting article in the Chronicle this morning, Carolyn Said points out that there is now a looming inventory of unsold inventory in foreclosed homes:
A vast "shadow inventory" of foreclosed homes that banks are holding off the market could wreak havoc with the already battered real estate sector, industry observers say.
***
"We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market," said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. "California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You'd have further depreciation and carnage."(SF Chronicle 4/8/09)
In recent months we've seen some upswing in the absolute number of houses being sold, but the mean and median prices have continue to fall? Why, people are just snapping up homes at firesale foreclosure prices. Banks cannot afford to hold onto these homes, they need the cash now. They price them accordingly. This makes it difficult for anybody else to sell a home, and non-foreclosures are just sitting on the market. Take a gander at some of the housing sites, say Redfin, and do a search. You'll find that the homes have either been sitting on the market for months, or they are foreclosures or short sales (the bank lets the owners sell the houses without the foreclosure process).
As more of this "shadow inventory" gets put on the market, prices will face increasing downward stress. This means, among other things, continued downward slides in property taxes as some newer owners may look to get the values readjusted. Oh, and the general overall impact on the economy ain't such a good thing either.
But, if you are looking for a house and can get a mortgage, it's a great time to buy.
Next Tuesday morning, Asm. Ted Lieu (D-Torrance) will be dropping by to take some of your questions. In addition to being a friend of Calitics, Lieu has been focusing on fighting the housing and banking crisis. You can find his assembly site here to get more information on his legislative agenda.
Obviously, as ground zero for the foreclosure boom, this is a very important issue to California, one where there has been spirited debate. Asm. Lieu, who is also one of the many candidates for California Attorney General, will be here on Tuesday morning at 11:30 to answer your questions about the housing crisis and anything else you have on your mind. Feel free to post your questions here or just ask them on Tuesday.
For several months, I have noticed a lack of context from the press when discussing California's housing situation. Sales of new and existing homes were rising, yes, but for a very good reason - all the bargains created by a spate of foreclosures. In fact, the correlation matches up perfectly - the regions with the highest sales also have the lowest prices. An example is the High Desert region, with a 203.1% increase in sales year-over-year, but a median price of $121,970, the lowest in the state. The latest data on home sales shows a 41% decline in price year-over-year. Bloomberg's story reinforces the theory that only foreclosures are selling. Does this mean that property values have decreased by a concurrent amount? Not necessarily. But it does mean that a non-foreclosed home in this distressed market has virtually no chance of selling, making it impossible to find the bottom of the market. The price of foreclosures does affect the price of all homes, which is why stopping foreclosures is so important.
California unemployment will peak at just over 12 percent late this year, setting a modern record, according to the latest forecast from the University of the Pacific.
Recovery will come slowly. Unemployment won't sink back into single digits until late 2011, or some two years after the recession is expected to officially end, according to a forecast released Tuesday by UOP.
There's typically a considerable lag between the beginning of an economic recovery and a drop in the unemployment rate, as companies are slow to re-hire even after business perks up.
We're talking about two more years, at least, of significantly reduced revenue collection rates. All the homes selling for pennies reduce the overall property tax revenue. No projection of future revenues can reasonably be believed in this environment. And so we'll continue to see yawning gaps, with a governmental structure woefully equipped to deal with them. The so-called "reform" of Prop. 1A, to hoard revenue in positive economic years to use in down years, will be inoperative for the foreseeable future, and even when the economy retains balance, the revenue forecasts for any spending cap will be increasingly based on these horrible years, leading to a disaster without end.
In years when revenues fall short, the state could use the reserve to cover spending up to the prior year's level, plus an adjustment for growth in population and the Consumer Price Index.
But increases in the state's senior population and health care costs have been outpacing both those measures, said Jean Ross, executive director of the California Budget Project, a nonprofit organization that focuses on the effect of budget policies on low-and middle-income Californians.
Moreover, Ross noted that under Proposition 58, the 2004 ballot measure, the state will continue to send 3 percent of revenues to the reserve, which would be subject to the tighter controls of Proposition 1A.
"It takes 3 percent off the top of the budget, and we don't have that," Ross said.
Ross and Michael Cohen, a deputy legislative analyst who studied the measure in depth, both said Proposition 1A could force revenue into the reserve even in years in which the state faced deficits.
My guess is that this is why the AFSCME local 2620 voted to support the measure and others on the ballot, while the overall union called for rejection. The lure of easy money might sound nice for the locals, but unions with experience with spending caps in other states know that they accompany disaster.
Simply put, the state's in an enormous amount of trouble and has no structures to deal with it. This argues strongly for blowing up the boxes, for real this time, and starting over, by repealing the rules that subject the budget to tyranny and building a new vehicle for reform.
Last week I took a look at the growing Bushville on the American River in Sacramento, which has been garnering national attention as a powerful symbol for these troubled economic times. It was clear at that time that the city government led by Mayor Kevin Johnson needed to do something to ameliorate the situation. The decision has been made.
Sacramento Mayor Kevin Johnson promised to first make alternative shelter space available for the estimated 150 men and women who inhabit the squalid encampment near the American River, at the edge of the city's downtown.
Johnson, who toured the area with California Governor Arnold Schwarzenegger a day earlier, said he hoped to have the ramshackle settlement cleared of tents and debris in the next two to three weeks.
"We want to move as quickly as we can," he told a news conference, insisting the city was determined to treat the tent dwellers with compassion.
"They are people out there. We have to do whatever we can do," he said. "We as a city are not going to shy away from it. We're going to tackle it head-on."
Advocates for the homeless applauded the mayor's action. Municipal authorities in Sacramento have been debating the fate of the tent city for weeks.
150 seems like a very low number, when news outlets have reported as many as 1,200 homeless staying in the encampment. Of course, that could simply be a matter of media overhype (local shelter organizers apparently fed this as well). However, even if the numbers are correct, finding shelter space for 150 deals with those made homeless as of today. With unemployment skyrocketing, there will be more left homeless tomorrow. And next week. And next month. While most in the encampment did not fit the profile of the "recession homeless" (a closer look reveals that the tent city grew out of multiple closures of other shelters, which is probably because of the recession anyway, so we can go around and around on this), such a group does exist and will need help over the next year as the state struggles. The fact that so many homes lie vacant and are owned by Fannie Mae and Freddie Mac, i.e. the US taxpayer, suggests there are solutions to this problem beyond the short term if creative solutions are made.
I first wrote about an Ontario-area Bushville, a tent city of foreclosed Americans, almost a year ago. At that time, it became too big to sustain itself, as people from across the country moved to the tent city to live. The city required that only residents of Ontario be allowed to stay.
A tent city is burgeoning in Sacramento, Calif., prompting local officials to consider whether such an encampment should be made permanent, with plumbing and all.
The primitive settlement sits in the shadow of the state capitol and is home to about 300 people who have no toilets or running water, creating unsanitary conditions that advocacy groups worry could promote diseases like cholera. With the downturn in the economy and more working-class people losing their jobs and their homes, the tent city is expanding [...]
This tent city is in a place of great natural beauty, between two rivers, with birds and open sky and a relatively mild climate. Homeless people have lived there for years, largely unseen, but as more working class people move in, the tents are multiplying and becoming harder to ignore.
The official count of homeless people in Sacramento is 1,226 people, and they are spilling out to the tent city because the housing shelters are full; one of the shelters is turning away more than 200 women and children a day.
Perhaps the most unbelievable part of this is that 10% of rental housing units in Sacramento, and almost 5% of owned units, are VACANT. We have nobody in the houses and people living in the tents by the river. And yet the housing owned by the Sacramento Housing and Redevelopment Agency is maxed out. It's very upside-down.
I agree with Charles Lemos that this is a test of our humanity and values as a people. Fortunately, the generosity of ordinary people is extending beyond the policymakers. Since a story on the tent city appeared on Oprah and the Today show, donations have been pouring in. Portable toilets and a dumpster have been installed.
But that's a temporary solution. While $2.3 million is coming into Sacramento to deal with homelessness through the federal stimulus package, that's not going to be enough if foreclosures continue to rise. In February, the number of homes threatened went up 30% year-over-year and up 6% since January, despite several large banks agreeing to a temporary moratorium. Five of the top seven areas for foreclosures are in California - Stockton, Modesto, Merced, Riverside-San Bernardino and Bakersfield. While the first wave of subprime failures has already occurred, with unemployment still soaring we are starting to see unemployment-based foreclosures as a second wave. So I don't see any letup anytime soon, and Sacramento is going to have to meet this challenge of dealing with the wreckage of the Bush regime.
This week, Barack Obama announced the details of his plan to save up to 9 million homeowners facing foreclosure from losing their residences. The goal is to place a floor on foreclosures and help people whose rates have reset to work out loan modifications with their lenders. The federal legislation that passed the House which would allow bankruptcy judges to modify the terms of loans, which gives homeowners a powerful stick to force the lenders to pre-empt a cramdown from the judge, will also help this.
Unfortunately, the class of homeowners who would be left behind in this plan are those who are "underwater" on their homes; that is, they owe more on the principal of the home than the current value. And that's an accurate depiction of a very large segment of California homeowners.
The Obama administration's plan to stave off foreclosures could fall flat in California, where nearly one-third of mortgage holders are underwater on their loans -- many of them by amounts that would disqualify them for government-sponsored refinancing.
The problem is likely to be especially acute in areas like the Inland Empire, where homes have lost more than 40% of their value in the last year and nearly half the homeowners owe more on their loans than the properties are worth.
"They're underwater by six figures in many cases," said Greg McBride, a senior analyst with Bankrate.com. "Many homeowners in Southern California are left to twist in the wind."
Under the Obama plan, people who are current on their mortgages could obtain new loans with lower rates for as much as 105% of the value of their homes. That means people could borrow $315,000 against a home worth $300,000.
The problem is that in California, many people owe far more than 105% on their homes, McBride said.
The thinking may be that stopping the worst foreclosures from occurring and lowering the overall rate will stop the dramatic slide in home prices and give those who are underwater a chance to make up the difference. But we may not have that kind of time, as so many are drowning in debt with seemingly no hope to dig out. In addition, the 10.1% jobless rate here (and rising in February, to be sure) will mean that a substantial number of honeowners will simply be unable to pay no matter what kind of modification can be worked out, and so the wave of foreclosures will continue.
Into this troubling situation has stepped Ted Lieu, the legislature's point person on the housing crisis. He is calling on the Obama Administration to do more.
"Many distressed homeowners in California are underwater by more than 5% on their home loan, which makes them ineligible to apply for refinance assistance," said Lieu, author of a state foreclosure moratorium law that Gov. Arnold Schwarzenegger signed last week.
Lieu said he would meet next week with administration officials to discuss his proposed changes [...]
Lieu said that whatever its flaws, the Obama plan addresses a root cause of the nation's economic woes by trying to help homeowners rather than "following the Bush administration policy of just throwing money at the banks."
Nonetheless, he said, the refinancing limit should be raised, perhaps to 115%, to help more people obtain cheaper loans.
"Otherwise, you're just going to end up helping a lot of people outside California," Lieu said.
It's just hard to put a single national standard on the plan when the circumstances are wildly different depending on the region.
Let's also note that Lieu's own housing legislation will begin to kick in shortly. This is from a press release:
My legislation, the California Foreclosure Prevention Act, will now compel a lender to modify a loan well before a homeowner should need to seek a solution from a bankruptcy court. Beginning in May, California will impose a 90 day foreclosure moratorium unless a lender offers a comprehensive loan modification program based, in part, on criteria set forth by the Federal Deposit Insurance Corporation. By adding a strong disincentive if a lender refuses to modify home loans, California's action not only compliments the President's plan, but gives him another stick to stabilize the real estate market and this economy.
It's worth praising those lawmakers who are taking the lead, especially on a problem of this magnitude which is such a major contributor to the overall economic meltdown in California.
Late last week, Democrats temporarily shelved a bill that would allow bankruptcy judges to modify the terms of mortgages on primary residences (also known as "cram-down"). Moderates who put the hold on this legislation, particularly former Wall Street investor Ellen Tauscher, crowed about it to the media.
This hardly amounts to a breakthrough win for party moderates - or a major concession by the speaker. But it was a consequential moment in the minds of moderate leaders who often find themselves marginalized in a caucus dominated by liberals.
"It shows we have bench strength, and it shows we can flex," said California Rep. Ellen O. Tauscher, who chairs the New Democrat Coalition and played a central role in negotiations over the bankruptcy bill [...]
Moderates worry Pelosi is routinely staking very liberal positions to push House versions of big bills as far to the left as possible to enhance their standing in negotiations with the historically centrist Senate. This might be a smart tactic, but it often hurts Democrats who rely on Republican votes to win reelection. Put bluntly, it makes them look too liberal [...]
That prompted lawmakers, like Tauscher, to limit the scope of the bankruptcy bill as much as possible, even though this measure is only loosely related to the president's broader proposal.
Tauscher's New Democrat Coalition teamed with their natural allies in the Blue Dog Coalition to impose 10 significant changes, including requirements that bankruptcy judges use federal guidelines to determine the fair market value of a home and that modified loans must be "unaffordable and not just underwater" to prevent wealthy homeowners from taking advantage of the process, according to a widely distributed e-mail from Adam Pase, executive director of the New Democrat Coalition.
This, of course, angered some liberals. "The New Dems' position is the banks' position," a senior Democratic aide involved in the bankruptcy negotiations complained on Friday. "New Democrats are shills for the banks."
It's confounding that any New Democrat thinks their constituents give a ring-a-ding about banking industry concerns, and are not in fact the very people struggling to keep their homes that this legislation would help.
More, including Tauscher staffers lying to bloggers, on the flip...
Chris Bowers advises that the House will be going ahead with housing legislation tomorrow that would allow bankruptcy judges to modify the terms of mortgages to reflect current home values and allow homeowners to avoid foreclosure (commonly known as "cram-down". As I discussed with Rep. John Conyers, the author of this bill, this would not encourage bankruptcy but help people avoid it, giving them a level playing field to get banks to follow through with loan modifications. While practically every other property someone owns can have the terms rewritten by a bankruptcy judge, primary residences are excluded. That is arbitrary and wrong, and changing it would reduce foreclosures and homelessness and bring some stability to the housing market. This legislation is supported by the President and included in his housing plan, but a change in the law like this should be passed by the Congress to make it a federal statute.
Bowers writes:
Tomorrow, the House will vote on Representative Conyer's bankruptcy cram down. The whip count is unclear right now, but some Blue Dogs and New Democrats, including Melissa Bean (D-IL), Dennis Moore (D-KS), and New Democratic chair Ellen Tauscher (D-CA), are working on behalf of the financial services industry to water down the legislation. Tauscher in particular is problematic, both because of her leadership role in one of the ideological caucuses, and also because rumors are that she has organized up to two dozen members thus far. It is about time that Tauscher, and the Representatives she is organizing, stop listening to industry lobbyists who do not have the public interest in mind.
So, let's make Representative Tauscher listen to someone else right now. Contact Ellen Tauscher, and urge her to stop organizing other Democrats to water down HR 200. She needs to listen to honewoners, not to the financial industry that got us into this economic disaster.
Here is the contact information:
Email form (California residents only)
D.C. office: 202.225.1880
Ellen Tauscher's New Democrat ways haven't surfaced much since the threatened primary challenge in 2007, but torpedoing this bill would bring that back all over again. She needs to know that people are watching her and want to be sure that she is protecting homeowners and not the big banks and lenders.
• Intel has plans to invest during the down-turn. They'll be retooling some of their facilities for the next generation of chips.
• Supervisors from across the state will be lobbying for a budget in Sacramento. Perhaps some of them can convince a few Republicans. If they did, it would be a greater contribution than Arnold Schwarzenegger has made to the process.
• And some leaders are heading to Washington. The Mayors of San Jose, San Diego, and LA will be pushing for aid to their cities in the stimulus package. Perhaps Mayor Sanders could prevail upon Brian Bilbray to vote yes for once?
• There's a very good investigative series going on by former UK Independent writer Andrew Gumbel at a new site called The Wrap. Gumbel has twostories up about the Motion Picture & Television Fund and their closing of a convalescent home for aging actors last month. Gumbel accuses the foundation of lying about the reasons for the closure, and he has the tax returns to prove it (their assets actually increased in 2006 and 2007). In the companion piece, Gumbel finds that the CEO of the MPTF took a $600,000 salary right before closing the home due to the "financial strain." Six former residents have died in the past month, so this isn't an abstract story. The MPTF will respond to the charges in a tele-conference tomorrow. This is a great example of online investigative journalism making a difference.
• Apparently there will actually be a bottom for the home prices in the Sacramento region, we just aren't close to it yet. While the crash just seems to continue, Moody's thinks much of the Sacramento market will hit bottom by Q4 2009, with the remaining coming around by Q1 2010.
• You know how the crisis has been lead by residential foreclosures? Well, economists issued a report in San Diego yesterday warning about commercial foreclosures. With rising vacancy rates, some commercial real estate interests might not be able to keep up with payments.
• We have a full-fledged water crisis in Los Angeles, despite the fact that it's rained almost every day for a week and another three-day storm is on the way. The word "unsustainable" leaps to mind...
According to Darrell Steinberg there'll be a budget vote next week. Thanks for leaving the cone of silence to let us know, pal! In the meantime:
• The judge who allowed furloughs for state workers to go through is saying that the order does not necessarily apply to employees of Constitutional officers. Jon Ortiz discusses the ramifications at The State Worker. The first furlough day, by the way, is set for tomorrow.
• The editorial board revolt in the Central Valley, hard-hit by the economic crisis, continues. The Merced Sun-Star is unusually blunt: "Why should Democrats negotiate if Republicans refuse to budge?" And the Stockton Record is actually calling on its readers to take action in a way I've rarely seen from a local newspaper. Something is different.
• The UC Board of Regents approved an overhaul of the admissions process. President Yudof hopes that the changes will increase socioeconomic diversity, thus increasing other sorts of diversity.
• This is an incredible story about ACORN saving a couple's home from foreclosure in Oakland. While the Feds do little to stop foreclosures, community organizing is making things happen. But they're destroying the fabric of our electoral system!!! /peak wingnut
• The May Day lawsuits, stemming from police brutality and tear gassing after a pro-immigration rally, have finally been settled, to the tune of $13 million dollars.
