Vol. 74/No. 3      January 25, 2010

According to the Mortgage Bankers Association, a record one in seven U.S. mortgages, held by 4 million individuals, was in foreclosure or at least one payment late in the third quarter of 2009. What began as a crisis with subprime mortgages—which have higher interest rates for those people the banks consider “high risk borrowers”—has spread to those with prime fixed-rate loans. “You’re in a situation where even the good mortgages are going bad because people are losing their jobs,” Federal Deposit Insurance Corp. chairperson Sheila Bair told Bloomberg News.

For those with adjustable-rate mortgages, higher interest rates are being reset starting this month. That could force 7 million others into foreclosure, reported Bloomberg. About one-third of those who own houses with mortgages in the United States—some 15 million people—are considered to be “underwater borrowers,” meaning they owe the bank more than their house is worth.

In its Home Affordable Modification Program, which began last March, the Obama administration allocated $75 billion in loan subsidies toward persuading banks to voluntarily renegotiate mortgage payments.

About 750,000 individuals were given three-month trial adjustments of interest rates, with lower monthly payments that many still couldn’t afford. Only 31,000 of them were granted permanent modifications.

“In New York City, where 20,000 homeowners faced foreclosure this year, a recent study by the Center for NYC Neighborhoods found that lenders have offered new or trial mortgages to just 3 percent of homeowners who have sought help,” reported the New York Times.

With little publicity, the Treasury Department in November began the Foreclosure Alternatives Program, which aims to hasten the surrender of houses by those unable to pay their mortgages.  
 
Impact of owning a house
Over the past decade or more banks and their financial intermediaries through “low down payment” loans and “adjustable rate” financing convinced millions of working people to switch from renting to owning, assuming huge debts.

Owning a house has a conservatizing impact on working people. It cuts across habits of class solidarity by elevating relations with fellow “property-holding owners” over those with fellow workers.

In his 1873 booklet The Housing Question, Frederick Engels explains that for workers “freedom of movement is the prime condition of existence,” being essential for getting jobs and moving to others with better wages and conditions. “Give them their own houses, chain them once again to the soil, and break their power of resistance to the wage cutting of the factory owners,” Engels wrote. “The individual worker might be able to sell his house on occasion, but during a big strike or a general industrial crisis all the houses belonging to the workers affected would have to be put up for sale and would therefore find no purchasers or be sold off far below their cost price.”

At the end of December the Treasury Department lifted the $400 billion cap on government bailout funds to keep the mortgage giants Fannie Mae and Freddie Mac afloat. These capitalist-run financial agencies own or guarantee half of the nation’s $11 trillion in mortgages. Together with the Federal Housing Administration they back nearly nine in 10 mortgages. The government considers them along with huge banks and insurance companies “too big to fail.”

The federal government first bailed out Fannie Mae and Freddie Mac in September 2008, making as much as $200 billion available to cover losses from mortgage defaults. Five months later this figure was doubled. The decision to provide unlimited funds “could position Fannie and Freddie to get more aggressive” in “taking troubled mortgage investments off banks’ books,” noted the Associated Press.

Such a move would bolster what the Federal Reserve has been doing for the banks. In a program projected through March 2010 the Fed is spending $1.25 trillion to purchase banks’ mortgage-backed securities, many of which are nearly worthless or of questionable value.

Legislation passed by the House of Representatives in December to supposedly regulate the financial system promises more of the same in huge bailouts for the largest banks. The bill “authorizes Federal Reserve banks to provide as much as $4 trillion in emergency funding the next time Wall Street crashes,” reported Bloomberg News December 30. “That is more than twice what the Fed pumped into markets this time around.” Payments are guaranteed for the wealthy bondholders—the capitalist rulers—as the bill “allows the government, in a crisis, to back financial firms’ debts.”  
 
 
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