Debt Peonage Update: Making Home Unaffordable

“Making Home Affordable” is the name of the Obama Administration program to help underwater and delinquent homeowners avoid foreclosure. The government offers financial incentives to loan servicers that will cut deals with borrowers to reduce monthly payments. Recently the terms of the program were liberalized to allow more borrowers to qualify, and this week the White House made a big show of questioning mortgage company execs about the extremely small number of loans that have actually been modified to date.

What we’ve all been hearing is that the pace of refinancing is slow because the companies have been too slow to hire and train the necessary staff to get the job done. It turns out that understaffing and the alleged technical challenges in getting it done is nothing but a cover story that both the mortgage companies and the administration have been pleased to propagate. The real story, reported in today’s New York Times by the indispensable Peter Goodman, is that the companies make a huge amount of money by keeping borrowers in delinquency. They collect this rich revenue from fees for insurance, appraisals, title services, and legal services. Goodman illustrates the scandal in a sidebar about an African American borrower in Los Angeles who actually went out himself and brought three qualified buyers to his lender, Bank of America. The bank preferred to block the sales and keep the bad loan alive in order to be able to extract more fees.

It bears noting that Bank of America, a huge recipient of bailout dollars, has been running splashy full-page ads in newspapers across the country that tout its commitment to investing in minority communities. Given the degree of B of A’s hypocrisy, I’m surprised those ads aren’t causing copies of the papers to auto-incinerate. B of A, like other banks, targeted minorities for subprime loans in the first place and is exploiting them a second time now. This, not “Gates-gate,” is the racial profiling the country should be talking about.

In April I wrote a longer commentary here on Tom Geoghegan’s apt observation that today’s bankers aren’t like the bankers of old who actually wanted to see loans repaid.

Peter Goodman’s report today confirms yet again that we are in a bold new era of usury that no amount of windowdressing can fully conceal.

The business pages this week have been filled with silly stories on tiny signs of life in the housing market, whereas the big story—the millions of delinquencies and possible foreclosures waiting in the wings as people continue to lose jobs and take pay cuts—hardly gets mentioned at all. If the whole economic recovery hinges on avoiding this new catastrophe, you might think that Congress and the Administration would absolutely put a stop to the banks’ dirty dealing as reported by Goodman.

Don’t count on it. The Democrats—the party of the “little guy”—may be officially in charge of Washington. But the banks are still in charge of everybody.