President Obama, Governor Romney and their backers may be spending hundreds of millions of dollars to live in the most expensive and exclusive house in the nation, but they aren't saying enough about the fact that housing in America is broken. Despite what the media and candidates might have you believe, real estate, home ownership and mortgages are the most important issues of the coming presidential election. No one, however, is really talking about how it broke, who is responsible or what should be done with them. Worst of all, they're not talking about how to fix it. Really fix it.
Across this nation there is marked frustration with the persistent and toxic residue of the Great Recession. Some 12 million Americans find themselves $700 billion under water—their homes threatened by foreclosure. There is a general sense that the $26 billion settlement by which the five major mortgage-servicing banks escaped further liability on some issues was more a victory for the banks than it was for the government or the public. And, just last week another settlement in a class-action suit against Bank of America was challenged, after its $20 million award was agreed to by the lawyers in New York.
That litigation was brought by pension funds seeking redress for nondisclosure of Merrill Lynch's disastrous financial condition at the time that it was purchased by B of A—a condition that resulted from Merrill's real estate and mortgage investments. Lawyers in a collateral case that would be extinguished by such a settlement raised several objections—two of which revolved around charges of collusion, and the fact that the New York settlement involved no payment by individuals.
Those plaintiffs are frustrated—like everyone else. There's a general feeling that people who should be on opposite sides of a barbed wire fence are actually winking and nodding at each other. With all the lawsuits and settlements that have already occurred, and are ongoing at this moment, there are precious few individuals who have been called to account by a civil court, and while the $26 billion settlement allows officials to pursue additional lawsuits, virtually no one has been prosecuted criminally.
Instead, for the most part there have been a number of settlements and fines paid by institutions rather than individuals. Those payments have generally been infinitesimal in comparison to the magnitude of the collapse, have had very little effect on the problem itself, and in most cases were made by financial institutions that benefited directly or indirectly from the taxpayer bailouts of 2008 and 2009.
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In other words, everyone can hear the piper but only the taxpayers are paying him. It sure seems like the bad guys are slithering away yet again. And that's the real issue. It seems like the people who looted our nation and took away the American dream are getting away with it. And we all know it… including the presidential candidates. It's the elephant in the room. OK, it's the donkey in the room, too.
Last week there was a ripple in the media about the new Task Force set up within the United States Department of Justice, and populated by personnel from several federal government agencies and many of the more irate state attorneys general who were dragged kicking and screaming into a $26 billion settlement they felt was both premature and inadequate. There were conflicting reports of pathetic inaction on the one hand, and stories of vigorous organization and investigation being conducted very quietly on the other. If the latter is true, it might suggest that the principal priority of the Task Force is to unearth and prosecute criminal conduct.
I say, "Bravo!" I want to see a pound of flesh extracted from those who ripped the flesh off the backs of beguiled borrowers, but I want much more. A perp walk might be satisfying on one level but it must be combined with more widespread principal and rate reductions, as well as far more meaningful reparations to those who were wronged as a result of the securitization feeding frenzy than the $5 billion cash fund that is on the table in the Settlement of 26. Frankly, in America, bloodlust rarely makes you money, or solves the problem of your $400,000 home that carries a $600,000 mortgage.
Indeed, we may not get the perp walk we all deserve, or sufficient prison time to quench our thirst for justice, but both the president and the governor owe the voters more than platitudes about holding people to account, or letting the foreclosure process run its course.
I understand why they are reluctant to do it. The truth hurts.
It's hard not to look back and see that the problem was, in a way, the result of a vast conspiracy of the willing: willing investment banks who could sell all of the securitized mortgages they could get, and make a lot of money doing it; willing mortgage originators and brokers, who marketed these ridiculous products and cut many corners in order to make a fast buck; and willing borrowers who were quite happy to believe that, only two years later, their house would be worth twice what they paid for it and didn't really care or think about their ability to repay in the face of that nice lump of green created by a cash-out refi.
How much of this was the result of a deregulated mortgage system that could be exploited to make a very few people a lot of money, and how much of it was due to old fashioned law breaking? Until we sort that out, I fear this housing crisis will linger, or worse, happen again down the road. How many times? Well, your guess is as good as mine.
So, Mr. Obama & Mr. Romney, it's time to answer some questions: Do we need a complete overhaul of the way home lending in America works, or just better enforcement of the laws that exist? Is securitization a flawed strategy? Is it time to redefine the American dream of home ownership that results in fewer dreamers getting homes?
Given what's happened over the past four years, you'd think our presidential candidates would have clear positions on these issues.
You better speak up soon guys, or the American people just might assume that you don't understand, or worse, don't care about the problem. And either would be unbefitting the President of the United States.
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Adam Levin is chairman and cofounder of Credit.com and Identity Theft 911. His experience as former director of the New Jersey Division of Consumer Affairs gives him unique insight into consumer privacy, legislation and financial advocacy. He is a nationally recognized expert on identity theft and credit.