So now the political ground shifts dramatically in Washington, even as a tectonic shift approaches in Chicago. Here, at least, members of the City Council have found a way to break a political logjam and do something about a serious problem facing their constituents.
With the Sweet Home Chicago ordinance stalled in the finance and housing committees since March despite backing by at least 23 council members, aldermanic supporters prepared a rarely-used motion to discharge to call it to a vote before the full council. The ordinance would designate 20 percent of TIF funds for affordable housing. (See last year’s Newstip.)
Hundreds of activists from the Sweet Home Chicago Coalition turned up at City Hall today to back Ald. Walter Burnett’s effort. And the two committee chairs, Ed Burke and Ray Suarez, agreed to schedule a vote on the legislation no later than November 15, if a consensus on an alternative proposal isn’t reached by then.
This may be a sign of a more assertive and independent City Council as the Daley era comes to a close.
In Washington, meanwhile, the Obama administration is paying the political price for a sluggish economy – and the composition of the new Congress makes it even less likely that a significant jobs effort can be mounted.
There’s one way Obama could act to stimulate the economy – by requiring mortgage lenders to reduce principal on loans where homeowners owe more than their homes are worth.
That’s at least 15 million American families – 4 million of them are 50 percent or more underwater – whose overpriced mortgages are “absorbing billions of dollars that could be used for other forms of consumer spending – a drag on family finances, the housing market and the entire economy,” Don Lee writes in the Tribune.
“Banks convinced people their homes were worth an inflated amount and persuaded them to borrow against that amount.,” writes R.J. Eskow at Huffington Post. Forcing homeowners “to pay them the full amount of that inflated loan, with no penalty to the bank for its role in that transaction,” amounts to an “invisible bailout,” he argues.
In the New York Times, economist Yves Smith points to an IMF study that “found that the persistently high unemployment in the United States is largely the result of foreclosures and underwater mortgages.” He says a “process for major principle reduction” could come about “through coordinated state action or a state-federal effort.”
According to Liz Ryan Murray at National Peoples Action, though, the Obama administration has the tools to force banks to reduce principle, through its HAMP program and through other leverage including TARP and FHA insurance.
Of course, this would require the Obama administration to be significantly more assertive toward and independent from big banks.
The record isn’t strong on this. Despite administration claims, HAMP isn’t working – even a top Federal Reserve economist recently called it a “failure.” Foreclosures continue to rise. The TARP inspector general reported that the program could actually be pushing people into foreclosure by loading back payments, penalties and late fees on homeowners who are denied permanent modifications after successfully completing trial mods.
Even homeowners who get a permanent modification can find themselves farther underwater – and thus more vulnverable to default in the future.
President Obama has downplayed such concerns, saying “the biggest challenge” is to avoid “wasting money on [homeowners] who don’t deserve help.”
On the face of it, this seems a strange statement from a leader who backed a $700 billion bailout of banks to save them from their own irresponsibility.
On top of that, in the wake of the foreclosure fraud scandal, Treasury officials admit that mortgage companies enrolled in HAMP “may be receiving taxpayer funds despite not having a legal right to the home or to the mortgage,” Huffington Post reported. And “despite faulty or missing paperwork, the Obama administration allows mortgage companies to boot homeowners from the program, sticking the borrowers with massive bills that often leave them worse off.”
Fifteen million homeowners facing potential trouble certainly represent a threat to the stability of the economy, though writedowns would hurt banks’ bottom lines and executive bonuses. And the money they’re spending on the “invisible bailout” is money that could be boosting the economy and feeding job creation.