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Mortgage Crisis: A Perfect Storm Of Neglect

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By DONALD JONES Special to the Tribune

The Tampa Tribune

Published: June 11, 2008

Hurricane season has begun. But this time the storm threatens to be bigger even than that which struck New Orleans. Not a physical storm but a storm of houses facing foreclosure, families uprooted, whole neighborhoods blighted by unseen forces. No, we do not have people stranded on the roof.

But presently there are 1.3 million homes in Florida in some stage of foreclosure. Another 2.7 million are in trouble. Florida has the second highest rate of foreclosure in the United States. In Florida, according to one study there is one foreclosure filing for every 95 households.

Of course, this catastrophe was a preventable as the disaster in New Orleans. There the federal government had noticed for years that the levees were in drastic need of work and had even conducted mock scenarios to preview what would happen in the case of a category five storm. Despite this knowledge the Bush administration did nothing.

This latest disaster is the direct result of a failure to regulate on the part of the Bush administration. These regulatory lapses were arguably as reckless as the failure to buttress the levees in New Orleans. There were two major forces that came together to produce what became a perfect economic storm. First subprime lenders in Florida had a free hand to make predatory "teaser "loans in which the interest rate balloons in a couple of years. Asleep-at-the-switch federal regulators did not recognize this massive subprime phenomenon for the time bomb that it was. Second, the government permitted and even encouraged what is called the "securitization" of mortgages. In essence allowing Wall Street speculators to bid up the price of homes as if homes were commodities like oil or gas.

Bush's inaction here was not accidental; it was a choice, a kind of head-in-the-sand indifference: The economy will take care of itself.

What has happened gives a sense of dejÀ vu. Just as Reagan's deregulation in the 1980s led to the savings and loans collapse, so did deregulation of the mortgage industry lead to the collapse of the housing market.

Ironically, the only solution of the federal government offers is to bail out the very lenders that created this mess while, in the words of Wade Henderson, "kicking hardworking families to the curb."

Some say it is the problem of those who are losing their homes: "Who signed that mortgage?" Wrong. When millions of homes go up in foreclosure it is everyone's problem.

The home is the epicenter of the American dream. The scope of the disaster is not merely that thousands of families have lost this centerpiece of the American heritage but that America's economy has lost its equilibrium.

Many political leaders throw up their hands. In essence they say there is nothing they can do. There is an answer. At the state level Gov. Charlie Crist should convene a panel of academic experts, and ordinary citizens none of whom are in government, and none who are part of the elite financial class who created this mess.

It is not that the problem is insoluble; it is that the groups of people who are doing the thinking have a vested interest in business as usual.

The second thing that needs to happen is that threatened homeowners should form political action committees. There must be accountability. These committees would evaluate candidates on whether they have concrete solutions to the current crisis.

Homeowners could then start voting with their feet and boot out of office those leaders who are not responsive to their needs. I'm reminded of the airline pilots who said that they could not make their flights on time because of the weather. The airline decreed that pilots would lose pay for being late. The weather started getting better.

Donald Jones is a professor of law at the University of Miami.

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