The Foreclosure Crisis
What happened to all the homes foreclosed on when the housing bubble burst? Millions of people lost their homes and most of their life savings when the value of their homes plummeted during the most recent financial collapse. Many found they could not keep up with mortgage payments, either because they lost their jobs during the recession or because they were overextended financially for some other reason. Some would say many never should have been offered the loans in the first place. The fact remains that many people went from pursuing the “American Dream” of home ownership to struggling just to keep a roof over their heads by renting in a very short span of time.
The banks lost tons of money on loans that would never be paid in full, but they did have something very tangible in place of the money – the property. The real estate still belonged to them. Home buyers were left with nothing after pouring thousands of dollars into the effort to purchase a home, only to be turned out when they simply did not have the resources to complete the transaction. The banks were promptly bailed out by the taxpayers, despite questionable lending practices that ultimately resulted in sizable settlements. Little of the proceeds of these settlements ultimately made it into the hands of the people actually wronged. Some of the states used large chunks of the settlement money to fill budget holes instead of compensating former homeowners for their losses.
Many contend that being able to just pay some money, often obtained by questionable means to begin with, without admitting any guilt on the part of the lending institutions or any of their executives was inadequate punishment for the serious nature of the wrongs perpetrated. That the companies were willing to spend that much money to avoid criminal prosecution or admission of any guilt indicates our government may have let them off too lightly. Certainly many of those most affectedly believe that is the case.
The result of all the foreclosure activity was the availability of enormous numbers of homes to be resold, often in bulk, for vastly reduced prices. Who better to step into the void created by the individuals forced into foreclosure than large institutional buyers – hedge funds and other private equity companies capable of raising large amounts of capital to invest in the family home market. This happened to a large degree. particularly in areas of the country where the housing market became the most depressed in terms of property values. The idea was often to turn these properties into rental units until such time as property values returned to levels that would allow them to be sold at a tidy profit. The result could then end up being that people who had lost their homes to foreclosure would end up renting similar property from one of these large institutional owners. They would have a place to live, but be unable to accumulate any equity in the property to be used in the future as a cushion against possible financial difficulties, or to pass on to heirs.
In effect, this trend has resulted in even further redistribution of wealth in this country upward – from the poor and particularly the middle working class people to the wealthy. Investors in private equity companies and hedge funds on this scale do not, for the most part, supplement their low wage incomes with food stamps or social security checks. People who live from paycheck to paycheck (believe me, there are many more of us than the Wall Street crowd would like us to believe) do not have spare change to put into a hedge fund waiting for the profits to start rolling in.
So the banks either get their money back from the bailout, or from the proceeds from reselling the repossessed real estate. The large investors get their money back with a profit for just collecting rent or repairing and reselling the properties. The only people who have little or nothing to show for their efforts are those who toiled to earn enough money to start trying to purchase a home, only to see it all evaporate in a sudden economic downturn. Their money ended up in the hands of the flimflam artists who sold them the rotten loans in the first place, along with those wealthy enough to buy the properties at rock bottom prices and further profit from them upon a resurgence in the real estate market.
Something is drastically wrong with a system such as ours which enables a very small percentage of the population to profit greatly at the expense of so many more others. The notion that only minimal amounts of money (in terms of the enormous wealth gained in the process) are seen by the powers that be to be adequate recompense for the misery created by these transactions is appalling. These companies and people produced far more economic damage to far more people than Bernie Madoff ever dreamed of. He was sentenced to 150 years in prison. They received bonuses. Attempts begun at effectively regulating the responsible financial institutions to ensure that a repeat performance can be avoided have been stymied at every turn by politicians, many of whom are beholden to the very interests they claim to want to regulate.
Some say we have the best government money can buy. It certainly serves the moneyed interests far better than rest of us. There are some elected officials willing to stand up to them and fight for rest of us. Unfortunately, they are currently a small minority in Congress and the legislatures of most states. Until we get effective regulation of the financial services industry to prevent future robbery of this sort, the economic inequality and impoverishment of ever more members of our society will continue. We need to back those who are willing to stand up for us and increase their numbers and influence in our government at every opportunity. Never again should this sort of disaster be allowed to be perpetrated on such a large segment of the American people with absolutely no accountability on the part of those responsible for it. Never again should the victims (in this case, the American taxpayers) be held responsible for financing this sort of economic chicanery, while those responsible stash their take in tax shelters and pay not a dime of their own money in fines or spend as much as a day in prison. This is a case where the punishment has to this point fallen far short of the seriousness of the crime.
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