The local government in Philadelphia, Pennsylvania recently made the decision to suspend sheriff’s sales of foreclosed properties. No more foreclosure auctions will be held for homeowners with adjustable rate subprime mortgages, and the suspension will last for the entire month of April. This remarkable measure can bring relief to thousands of homeowners and is one of the small victories for people in the foreclosure crisis.
From Ohio judges striking down foreclosure laws to this latest suspension of judicial sales, local governments have been able to act much more forcefully to combat rising foreclosures than the federal government. Still, no one can really say which companies, hedge funds, investors, or banks own the documentation and have the legal right to collect on the loan. Subprime loan marketing was just a scheme to generate as much money as possible in loan origination fees and sell toxic loans to investors. This has been achieved and the consequences must now be addressed.
But the banks are getting their bailout courtesy of the American public, through generous loans and packages provided by the Federal Reserve. It seems like it’s just people, through their community leaders, coming up with their own solutions. In fact, perhaps the entire foreclosure crisis will strike some kind of perverse equilibrium with the Federal Reserve stealing money from the public to bail out banks, creating massive inflation, and completely cutting the banking industry off from any government regulation, while the Homeowners find ways to undo their mortgage contracts completely and stop the auction of their properties and the financial destruction of their communities.
Another question to ask yourself is whether the banks are taking real damage from the foreclosure. They’re getting hundreds of billions of dollars from the Federal Reserve, which essentially pays off a lot of these mortgages. So where is your position to sue? Taxpayers have already paid off the defaulted mortgages through the Federal Reserve’s granting of US Treasury securities to banks. If the banks no longer own the mortgages and have nevertheless paid them off, it would seem that they have little reason to continue to go after homeowners to steal their property.
However, ending the incessant whining about subprime mortgages going bad and the danger to the survival of the banking industry would mean that banks could not ask for more bailouts. Banks have already made a killing on the way up by bundling up what they knew to be bad loans and selling them to unsuspecting investors, who were tricked by bond-ratings agencies into buying what they thought were top-rated securities. Now that the lending is going bad, the banks’ reserves are running low (on paper), so they need generous borrowing and free money from the Federal Reserve to ensure they can make more money from the resulting market crash.
The people of Philadelphia, by suspending foreclosure auctions, may be onto something big. Hopefully, the suspension will last more than a month, and banks will have no choice but to deal with homeowners as bargaining partners, rather than hosts for their parasitic lending practices. Banks have put themselves in a situation where the only logical reaction for local governments is to realize that their mortgage loans are invalid. With lower property taxes on local governments, the ability of banks to manipulate local communities into allowing invalid foreclosure laws to go forward may also be disappearing.