Up against the banks

The effort to halt foreclosures grows

They came to the microphone, one after another, each bearing witness to a disaster that continues to unfold.

As eight Wayne County commissioners and two Detroit City Council members listened, a stream of people spent nearly three hours at the Coleman A. Young Municipal Center in early June talking about the issue of home foreclosures.

Some wondered why such a hearing was needed at all, given the extent of the crisis.

"If you aren't already aware of what's going on, you are not in touch with the pulse of the people. You are not in touch with reality," said Charles Williams, a Baptist minister. "Michigan is in a state of emergency."

And some did more than talk: They demanded immediate action.

"We're not asking you," one woman shouted. "We are telling you."

What they were calling for is something many would consider a radical reaction to the foreclosure problem: a moratorium that would put a halt to sales and evictions for one year.

The problem is clear enough: Far too many people are losing their homes to foreclosure, and that is having a devastating effect not just on the families being evicted but also on the property values of their neighbors, the well-being of communities and on the budgets of local governments.

Detroit may be one of the epicenters of this crisis, but it has long since spread across Michigan and throughout the country.

More than 2.8 million properties nationwide were in some stage of the foreclosure process in 2010, according to RealtyTrac, a California company that monitors foreclosure activity. Another 197,112 properties were added to the list during the first three months of this year.

In Michigan, about 200,000 homes have been repossessed since 2009. The Center for Responsible Lending, a nonprofit research and policy organization, predicts another 140,000 homes will be foreclosed on in the coming 18 months.

"The reality is that we have a way to go before we hit bottom," says Steve Tobocman, a former state legislator who is now co-chair of the Michigan Foreclosure Prevention Task Force, a collaborative statewide project involving several legal services programs.

Since 2006, what began as a small group of activists has been calling for a moratorium on home foreclosures. For much of that time, their voice has been largely ignored.

But as the crisis has deepened and spread, the movement has gained support. Though still facing a difficult battle, this much has happened:

At the end of that June public hearing, the eight county commissioners who attended — representing a majority of the 15-member body — pledged to support the Homeowner Protection and Neighborhood Preservation Act, a measure introduced by Highland Park's Martha G. Scott in April.

If approved, the act would call upon the Wayne County sheriff to implement a one-year moratorium on foreclosure sales of occupied residences.

State law dictates that foreclosed properties in Michigan be sold at auctions conducted by county sheriffs, who are elected officials. As such, the Wayne County Board of Commissioners lacks the authority to order Sheriff Benny Napoleon to do anything.

The purpose of passing Scott's measure, activists say, would be to amp up political pressure on Napoleon to halt the sale of foreclosed homes.

Asked to comment on the proposal, Napoleon's director of communications Paula Bridges responded via an e-mail that said, in part:

"As a life-long resident of Detroit and Wayne County, Wayne County Sheriff Benny Napoleon joins countless others in their concern and dismay over economic conditions ravaging what were once strong and vibrant neighborhoods in the form of mortgage foreclosures. As a homeowner who also faces the declining value of neighboring properties, Sheriff Napoleon empathizes greatly with those struggling to maintain ownership of their property. However, due to his position, Sheriff Napoleon is obligated to honor his oath of office which requires him to adhere to state statutes governing the foreclosures."

In other words, the sheriff isn't on board with the plan.

But the legalities aren't that clear-cut, the activists say. For starters, they point out that in early 2009, then-Sheriff Warren Evans — who was also campaigning in what turned out to be an unsuccessful attempt to be elected mayor of Detroit — did briefly impose a unilateral moratorium on the foreclosure auctions.

He claimed his actions were legal and justified because homeowners needed time to take advantage of the federal Troubled Asset Relief Program (TARP), passed by Congress in October 2008 as part of the bank bailout. That federal legislation superseded Michigan law, Evans claimed.

"Federal law pre-empts state law, which means that the TARP provision prevents Michigan's foreclosure law," Evans said during a press conference. "That in turn means that foreclosures cannot move forward until efforts to modify the mortgages of homes covered by TARP have been exhausted. As a result, I have determined that there are sufficient legal grounds for me and for other sheriffs in Michigan to halt mortgage foreclosure sales."

An area lender filed a lawsuit almost immediately, and Evans quickly reversed course. (Attempts to reach Evans for comment were unsuccessful.)

In addition to his own action, Evans also asked then-Governor Jennifer Granholm to declare a state of emergency and impose a statewide moratorium. Granholm responded that she didn't have the authority to do that.

Advocates of a moratorium, however, say there is ample precedent for such an action.

Between 1932 and 1934, during the height of the Great Depression, 25 states passed moratoriums on foreclosure of mortgages. The issue made it all the way to the U.S. Supreme Court. In a 5-4 decision, the court upheld the legality of such measures, saying that they were a justified response by government during a time of economic crisis.

In a 2008 analysis of the issue by the nonpartisan Congressional Research Service, the Depression-era moratorium legislation produced mixed reviews.

As the report pointed out, "economists might argue that interference with lender's ability to recover loan collateral will tend to either reduce the amount of lending or raise interest rates on new loans."

It is certainly an unpopular idea on the right.

Peter J. Wallison, a fellow in financial policy studies at the conservative American Enterprise Institute think tank, contends that the "first victims" of a moratorium will be the nation's banks.

"If they are not going to receive any revenues from these mortgages, and they cannot foreclose, they will be weakened. If that happens, they cannot continue to make loans to small businesses, to consumers, or to those people who would like to take advantage of today's low interest rates to buy a home, whether or not it is a foreclosed property. So the foreclosure moratorium will further weaken local economies and produce yet more unemployment."

But it is not only the right that poses such criticism.

In October, amid growing evidence that there was widespread illegality in the way foreclosures were being handled, White House press secretary Robert Gibbs said that the administration opposes a blanket, nationwide moratorium because "unintended consequences" could damage the fragile economic recovery.


Activists in Michigan are saying the problems with foreclosures extends far beyond the so-called "robo-signings," which involve foreclosures being pursued without having been properly notarized and other irregularities. Those failings led to a temporary halt of foreclosures for a time last year in the 23 states that require judicial review at the start of the foreclosure process. (In Michigan and other states, all a lender must do is post notice in a newspaper that a house has gone into foreclosure.)

It's not that those issues are insignificant. As U.S. Rep. Marcy Kaptur (D-Ohio) began pointing out at least as early as 2009, in many instances those robo-signings weren't merely clerical contrivances; they were being done because those attempting to foreclose on a home didn't have the documentation necessary to prove they had a legal right to do so.

That's because, as mortgages were bundled and sold to investors, the "notes" proving a legal claim were spread far and wide.

Homeowners should demand that those attempting to foreclose produce the note, and people should "squat" in their homes until that happens, Kaptur advised. "Possession is nine-tenths of the law," she told Amy Goodman of the Democracy Now syndicated radio program. "Therefore, stay in your property. Get proper legal representation. ... [If] Wall Street cannot produce the deed nor the mortgage audit trail ... you should stay in your home. It is your castle. It's more than a piece of property. ... Most people don't even think about getting representation, because they get a piece of paper from the bank, and they go, 'Oh, it's the bank,' and they become fearful, rather than saying: 'This is contract law. The mortgage is a contract. I am one party. There is another party. What are my legal rights under the law as a property owner?'

"If you look at the bad paper, if you look at where there's trouble, 95 to 98 percent of the paper really has moved to five institutions: JPMorgan Chase, Bank of America, Wachovia, Citigroup and HSBC. They have this country held by the neck."

Recent reports indicate that Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co. and other financial institutions accused of malfeasance by the 50 attorneys general and federal regulators in the robo-signing scandal are close to agreeing to a $20 billion settlement.

Even that is controversial.

"Though this figure sounds like a large settlement to those unfamiliar with the scale of the foreclosure crisis, we must remember that over 3 million homes have been lost to foreclosure since 2006," U.S. Rep. Maxine Waters (D-Calif.) was quoted saying. "This settlement is too small, and will likely have one of two results: Either borrowers will receive insignificant principal reductions, or reductions will only be available to a small subset of troubled borrowers."

The issue, however, goes much deeper than that.

Detroit attorney Vanessa Fluker, one of the leaders of the Moratorium Now! coalition, spelled out the issue clearly when she testified before the U.S. House Judiciary Committee in December.

It has to do with the issue of so-called subprime or "predatory" loans, where low introductory rates were used to lure people into buying or refinancing their homes at levels lenders knew couldn't be sustained once the higher, often hidden, rates kicked in.

"Contrary to media hype and popular belief, the average individuals affected by subprime lending are the poor, minorities and elderly," noted Fluker in a written submission co-authored by Detroit attorney Jerome Goldberg, another leader of the local moratorium movement. "In my practice, which unfortunately now consists almost solely of predatory lending cases and foreclosure matters — the vast majority of my clients are the working-class, poor, minorities and senior citizens over the age of 75 years old, who initially owned their home outright until steered into ARMs [adjustable rate mortgages], despite the fact they were on a fixed income, and now face foreclosure and homelessness.

"Several associates and myself have committed our practices to attempting to help these people and bring some sense of justice back into the legal process. I would like someone to truly address the foreclosure issues, and look at the front-line stories that we see every day. My client who works every day, with a mother suffering from pancreatic cancer who is still fighting to stop an eviction after being denied a modification from Countrywide/Bank of America, which just received an additional $7 billion for modifications in January of 2010. The senior citizen with dementia since 2000, who was placed in a pay option ARM by Washington Mutual in 2007, and is now fighting in litigation with Chase for some type of resolution. The 79-year-old man whose home is worth $12,500, but the predatory mortgage is almost $200,000, and Citimortgage refuses to modify or let him purchase the home at fair market value, but would rather foreclose and evict him and collect full mortgage value from Fannie Mae. This is just a very small example of the instances I encounter every day resulting from the unjust and unreal rollercoaster of predatory lending, and of everyone getting assistance except for people defrauded."

What she and Goldberg and others in Moratorium Now!, as well as the group People Before Banks — a coalition of faith-based organizations, organized labor, and local groups — are saying is that the whole situation is such an incredible mess, time is needed to sort it all out.


While the issue of using a moratorium to address the crisis is the subject of a legitimate debate, the fact that some lenders made a conscious decision to entice homeowners into taking out loans that the lenders knew couldn't be sustained is a matter of record.

U.S. Sen. Carl Levin, a Michigan Democrat, helped establish that as chair of the permanent subcommittee on investigations.

In November 2008, Levin's committee launched a bipartisan investigation into the cause of the devastating economic collapse that began earlier that year. The results of that investigation were detailed in a 639-page report released in April.

A key part of that study was a look at Washington Mutual Bank (WaMu), "the largest bank failure in U.S. history."

The report details how the nation's largest thrift embarked on a strategy steering customers away from traditional 30-year loans and pushing them into taking out volatile adjustable rate mortgages because they were significantly more profitable for the bank when those loans were bundled together and sold to investors. One of the bank's subsidiaries, Long Beach Mortgage, led the way.

It turned out to be a sort of Ponzi scheme. As long as housing prices kept escalating, and borrowers could keep refinancing, there wasn't a problem. Warnings from some employees that the growth being experienced during the first part of the 2000s couldn't be sustained were ignored.

In addition, according to the report, bank officials were made aware that there were "high volumes of fraud" being perpetrated by some employees issuing loans.

Examples of that fraud included "falsified income documents, unreasonable income for the stated profession, false residency claims, inflated appraisal values, failure of the loan to meet bank guidelines, suspect Social Security numbers, misrepresented assets and falsified credit information."

The bank raised commissions on these high-risk loans as a way to encourage employees to push them; special training, including role-playing and instructional videos, were used to teach employees how to better peddle these high-risk, high-profit loans to wary customers.

It wasn't just the bank and its subsidiaries that were found to be at fault. The investigation found that the credit rating agencies that were supposed to accurately evaluate the risk of these bundled loans, the big investment houses such as Goldman Sachs and Deutsche Bank, which bought them, and federal regulators, who were supposed to keep a careful eye on the whole process, all failed to do their jobs.

From 2005 to 2007, WaMu issued high-risk loans worth hundreds of billions of dollars.

In November 2008, after this figurative house of cards collapsed — and those enticed or duped into taking out these loans were starting to be thrown our of their actual homes — the Office of the Comptroller of the Currency, which oversees all nationally chartered banks, identified the 10 metropolitan areas across the United States with the highest rates of foreclosure for subprime and other risky loans. Detroit led the list. And WaMu's Long Beach subsidiary was the lender with either the highest rate of foreclosures or the second highest in nine of the 10 cities.

As the Detroit News reported after Levin's report came out:

"One lender cited in the report — Long Beach Mortgage Co., a former subsidiary of Washington Mutual — sold more than 3,800 metro Detroit homeowners on risky loans during the height of the market between 2005 and 2007. More than half — 51.3 percent — of those properties were in foreclosure within a year."

As the group People Before Banks contends, "When layoffs and the spike in adjustable rate mortgages forced millions of homeowners into delinquency on their loans, the bonds and unregulated derivatives based on these mortgages lost value. Banks and insurance companies holding such 'toxic' assets lost billions.

"The Economic Stabilization Act of 2008 provided these Wall Street financial corporations with a $700 billion taxpayer-financed bailout."

Homeowners put at risk of losing the roof over their head got the HAMP.


Launched by the Obama administration in April 2009, the Home Affordable Modification Program (HAMP) has so far managed to provide permanent loan modifications to about 730,000 homeowners.

That compares to the 3 million to 4 million homeowners the administration said the program would help when it began.

On average, those receiving the modifications are able to reduce their monthly payments by about $500 a month.

The problem is that the number of homeowners having their mortgage payments permanently reduced pales in comparison to the number of foreclosures. According to RealtyTrac, there were more than 6.6 million homes facing foreclosure during the first two years HAMP was in existence.

In May, the nonprofit news organization ProPublica released the results of a yearlong investigation into HAMP. Using Treasury Department figures and documents obtained through the Freedom of Information Act, reporters there came to the conclusion that the administration's "fumbling efforts" had largely "failed homeowners."

"Although Treasury Department officials and mortgage servicers claim the industry has gotten better at handling modifications, the average rate of modifications in the past two years is not significantly different than the rate before HAMP launched," ProPublica reported.

Although $37 billion of the $700 billion that went to bailout Wall Street was set aside for HAMP and another program, "little more than $1 billion of that" had been spent as of May.

The Congressional Oversight Panel estimated last December the Treasury would ultimately spend only about $4 billion of that $37 billion.

In addition, "about $7 billion was set aside for the Hardest Hit Fund, which provides subsidies to states for various foreclosure prevention programs," ProPublica reported. That, too, has been slow to get off the ground. Only $104 million has been spent so far."

In written testimony that Detroit attorneys Fluker — who in recent months has twice been sanctioned (wrongly, she says) by judges claiming she filed "vexatious" appeals while representing clients facing foreclosure — and Goldberg provided to Congress, they point to one of the more distressing aspects of the efforts to keep people in their homes.

The two attorneys testified that Freddie Mac and Fannie Mae, which were designed to help increase homeownership by backing affordable loans and had to be taken over by the federal government as a result of the massive losses sustained once the housing bubble burst and the market collapsed, now "own or guarantee" more than half this country's single-family mortgages. When combined with the Federal Housing Administration loans and other government program, the feds "back or issue a whopping 75 percent of the country's mortgages.

And so, while the government on the one hand has set aside billions for programs (administered by banks) to help keep people in their homes, on the other hand that same government is largely responsible for foreclosing on properties.

As the Rev. Ed Rowe of the Detroit's First United Methodist Church said during June's public hearing, "We're foreclosing on ourselves."


It would be easy to say that support for a moratorium is largely a left vs. right kind of issue. And certainly, there can be that element to the debate.

That rift showed itself in the hearings held by the House Judiciary Committee last December, when Detroit Democrat John Conyers Jr. was still chair.

Holding the view of the right was Rep. Louie Gohmert (R-Texas), who warned of the dangers of halting foreclosures, saying, "All indications are that a moratorium would cause further harm to the already depressed housing market."

Conyers, on the other hand, referring to the devastating affect the crisis has had on communities — especially communities of color, which were targeted by predatory lenders — said:

"Current projections estimate that by the time this foreclosure crisis abates, as many as 13 million homes will ultimately be lost to foreclosure. And yet on Wall Street, mortgage lenders and services and Fannie Mae and Freddie Mac, all of whom received taxpayer bailouts to the tune of billions of dollars over the last two years, have, in many instances, turned a blind eye toward homeowners in similar financial distress."

"We hear report after report," he continued, "that homeowners are drowning in bank bureaucracy with lost documents, unexplained rejections, and some of them [loan servicers] just closed down, period, and vanished. You can't even get them on the phone, and they aren't even in their business location any longer. And so many homes are rushed through foreclosure without homeowners having a realistic opportunity to restructure their mortgage."

But the debate is not quite as clear-cut as Republican vs. Democrat.

In a phone interview with Metro Times, economist Dean Baker — co-director of the left-leaning Center for Economic and Policy Research in Washington, D.C — questioned the value of instituting a moratorium, giving validity to the fear that loans, already admittedly hard to get in a city like Detroit, would completely dry up if lenders were confronted with the possibility that even more people would stop paying their mortgages.

On the other hand, the pro-moratorium faction points out that the market is already saturated with vacant homes — that quickly become worth nothing once scrappers strip them of plumbing and anything else of value.

According to the Jacksonville, Fla., firm Lender Processing Services, Inc. there is currently such a backlog or foreclosed homes in Wayne County that it would take almost two years to sell them off at the current rate.

Moratorium advocates contend that a halt on foreclosures, rather than hurt any housing recovery, would help stabilize the market by keeping deeply discounted foreclosed homes from adding to the glut, and driving down prices even further.


Four years ago, when attorney Goldberg — who had researched the legal precedent set during the Depression — raised the possibility of the state declaring a financial emergency with then-Gov. Granholm at a town hall meeting, the concept of a moratorium was largely foreign to most people.

But he and Fluker and a handful of activists — many of them people who work for nonprofits tasked with helping people remain in affordable housing, and, as a result, witness to the consequences up close before most others — have been relentlessly pushing the issue.

And more.

They've taken their struggle to the street. Literally. Staging protests at banks and holding rallies at the homes of people facing foreclosure.

People like Belva Davis, who two years ago was facing foreclosure on her East English Village home on Detroit's east side.

A house that she owed $150,000 on was worth maybe $20,000. But the lender was playing hardball. The Moratorium Now! folks rallied around her, turning out as many as 125 activists, politicians and supporters to help draw attention to her plight.

"Wow," she said at the time. "I'm just one little person, and sometimes I feel like I'm fighting Goliath."

Except that the number of Davids continues to grow, and they are becoming angrier and angrier at the devastation being wrought by the foreclosure crisis.

The problem of predatory lending showed itself in Detroit before it appeared most other places. Which is one of the reasons why the backlash started sooner here as well.

And with each fight that the Moratorium Now! crew engaged in, their numbers grew. Which is why perhaps 150 people poured into that June public hearing.

The struggle under way is far from a new one. It is different now than it was five years ago, though. The problem of predatory lending, as James H. Carr, chief operating officer of the National Community Reinvestment Coalition, pointed out in testimony that he gave to yet another congressional subcommittee in 2009, was not an "equal opportunity" issue.

"African-Americans and Latinos were targeted disproportionately for deceptive high-cost loans," he testified. "According to a study by the U.S. Department of Housing and Urban Development, subprime loans are five times more likely in African-American communities than in white neighborhoods, and homeowners in high-income black areas are twice as likely as borrowers in lower-income white communities to have subprime loans."

Now, though, it is widespread unemployment that is causing people to lose their homes. And what was once mostly an inner-city issue has spread to the suburbs.

As the problem has grown deeper, the struggle has grown broader.

Consequently, what once seemed like a radical demand — to let people stay in homes they could no longer afford — has become mainstream enough to gain the apparent support of a majority of county commissioners — white and black, urban and suburban.

Recently, that growth took a quantum leap when the Untied Auto Workers announced that it was throwing its considerable weight behind the effort.

In a statement from union President Bob King, which was introduced at the hearing, the union's position was made clear:

"The economic and human catastrophe of foreclosures is reason enough for government intervention to stem the tide of eviction, homelessness, abandoned houses, neighborhood blight and declining property values. An estimated 100,000 families were foreclosed in Michigan last year according to the Center for Responsible Lending, and fully one-quarter of this total were homes in Wayne County."

The statement referenced Levin's investigation, and that fact that the senator has called the "mounting toll of foreclosure in Detroit a 'man-made crisis, the product of reckless risk-taking and rampant conflict of interest' by mortgage companies and banks that engaged in predatory — and illegal — lending practices.

"All of which raises the question: Should the sheriff be giving legal cover to what the chair of the FDIC calls 'pervasive' fraud evident in the foreclosure process? Or should we call for a moratorium of sheriff foreclosure sales of occupied homes and investigate the harm these practices are causing the county and its citizens?"

That public hearing in June was unlike any most folks had ever been a part of. Commissioner Burton Leland, who represents northwest Detroit, said that he has been engaged in civic activity for 30 years and that he'd never been involved in an event so "passionate, elegant, informed and intellectual."

"I was informed and moved tonight," he said.

And then there's Commissioner Scott, who introduced the resolution, which, if passed, would also have an advisory question put on the November ballot, asking county voters as a whole if they want the sheriff to impose a moratorium.

"We have a fight on our hands," she said. "But we can win it if we stand together."

It is a fight that includes such people as Sandra Hines who, like Fluker, made the journey to Washington to testify before Conyers' committee.

She told of how the house her mother owned, free and clear, until she was convinced to refinance. And then, after having lived in it for 40 years, saw it taken away.

At times, he testimony sounded eerily like the speech given by the character Ma Joad in the film version of John Steinbeck's The Grapes of Wrath.

"I don't get it why you all sit here and make decisions over our lives, and you all can't see that if you throw us out of our homes, we don't have a life. ... All of you got a home. You've got money. You've got health care. You've got the best insurance that anybody can have. You probably have the best homes that anybody can have. Don't you think other Americans want that too?

"Isn't that what America is suppose to be about? The land of the brave and the home of the free? The people, the people, the people have worked and built America — what it used to be, because America ain't what it used to be no more. My mother used to always say, they're going to turn America into a third world country. Well, you just about did it.

"Come to Detroit and look at the neighborhoods, how they've been ravaged by home foreclosure and eviction. ... I don't know where those people are at.

"I came here to tell the story of the people. Maybe if the people were telling the stories, y'all would get it."

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