When I was growing up in South Carolina among hard-pressed families, food would often be short. Mothers with two lamb chops and five children wouldn’t give the lamb chops to the biggest child and cut off the others. No, they would chop the lamb up, add vegetables, and make a stew that could be shared among all. That love and fairness make good sense, for if young ones starve, they are susceptible to diseases that could infect the entire family.
Part of America’s continuing economic woes is that we are ignoring the wisdom of good mothers. Powerful banks have been bailed out, but nothing has been done for millions of homeowners in trouble. The result is weakening the entire economy. Without action, America will truly face a lost decade.
On average, home values have fallen almost a third since the popping of the housing bubble. Millions have lost their homes; about 6.4 million mortgages are delinquent, with many headed to foreclosure. Almost one in four homeowners with a mortgage is underwater, owing more than the property is worth. They can’t refinance to take advantage of lower interest rates.
African Americans and Latinos are disproportionately caught in this bind. They got an education, worked hard and saved money. When they could afford a down payment, they often stretched to buy a home in the suburbs.
When the bubble burst, the value of their homes plummeted. Foreclosures dotted their neighborhoods, driving prices down further. Some were laid off. The very people who had lifted themselves up found their savings erased.
Fearing that collapse of the global financial system would trigger a global depression, the Bush administration and the Obama administration bailed out the banks without reorganizing them.
Distressed homeowners were what the military calls “collateral damage” of the strategy. Some thought this justified. Why should people who gambled on risky mortgages or bought homes that they couldn’t afford be helped? The Tea Party dates its start in part to a televised screed by a business reporter railing against helping homeowners.
But it isn’t just the irresponsible who are being hurt. Falling home prices, underwater mortgages, and forced foreclosures hit the innocent, as well. And the scope of the crisis feeds the economic troubles that affect everyone.
It is long past time for action. A sensible first step should be to allow judges in bankruptcy courts to modify mortgages, adjusting the debt to the value of the home. (A power they already have for the vacation homes of the affluent). The judges could divide the innocent victims from the reckless. The banks would have to write down the value of the loans. The smaller loans could be refinanced at lower rates. With reduced debt and payments, more homeowners would be able to keep their homes. That would reduce the foreclosures that are driving down home prices and destroying neighborhoods. It would also give banks and servicers an incentive to negotiate across the board.
In urging this, Henry Cisneros, the former secretary of Housing and Urban Development under President Clinton, also calls for a more comprehensive solution, including encouraging investors to buy foreclosed homes en mass to manage as rentals.
Bailing out the banks without helping write down the debts of distressed homeowners continues to get in the way of any recovery. It’s time to remember the lesson taught by those wise mothers in South Carolina. Fairness is both more moral and more effective.