California Attorney General Kamala Harris did right to re-open the talks demanding compensation from the nation's largest banks that admittedly engaged in unscrupulous mortgage and foreclosure practices.
This is particularly important to Latino and African-American homeowners, who account for only 36 percent of California's mortgages but 55 percent of the state's foreclosures.
Banks did wrong by making some loans which should not have been made. Some borrowers did wrong by borrowing money they had no intention of paying back. Add to that a rogue's gallery of unscrupulous bank loan officers, mortgage brokers and mortgage servicers, and bad decisions at Fannie Mae and Freddie Mac. It's a system in need of real reform.
But let's be clear: California's anticipated $6 billion share of the eventual settlement is small potatoes when stacked up against the $1.73 trillion lost in home values here in the Golden State since 2007. It also pales in comparison to the $700 billion banks received in the TARP bank bailout program. The nation's attorneys general should force the banks to dig deeper before closing the books on this tragedy.
While this settlement will bring some relief to homeowners, it won't impact home prices.
Nor will it create jobs from Californians renovating their homes or entering the marketplace as new buyers. Only steady and sustained economic growth -- people finding work and investing confidently in their futures -- will do that. People need good-paying and secure jobs to have the confidence and money to invest in a home.
The AGs need to make structural reform of the mortgage process part of the settlement. Much of the mortgage system in the U.S. dates to an era when a family would walk down the street, meet with their local banker and depart with the money to buy a home. Hardly consistent with today's world where nameless, faceless intermediaries slice and dice mortgages and resell them around the world. To move forward we need to reform the system, better inform borrowers and -- most importantly -- start creating jobs.
My suggestion:
First, let's require the banks to establish a financial literacy program to properly educate borrowers on the in-and-outs of mortgages and foreclosure risk. This needs to be a real program -- requiring the banks to spend the same effort they did in selling the mortgages in the first place. There's no excuse for future bank customers to be kept in the dark.
Second, let's use $1 billion of this settlement to create CALJOB -- the California Jobs and Opportunity Bank. CALJOB would establish a series of local investment funds, beginning with one here in Los Angeles, to help small business.
We've seen in recent years flawed government-led approaches to creating jobs -- good intentions, no impact. What I propose has important differences:
1) This fund will immediately provide small businesses the funds they need to grow and create jobs. As the loans are repaid, the fund will be replenished and become a permanent source of capital for California's darers and doers.
2) Rather than being yet another government agency slowed by bureaucracy, tainted by political cronyism and staffed with people with no experience creating private-sector jobs, CALJOB would be a private, not-for-profit entity led by professionals -- not career politicians or their cronies.
3) All loans made by CALJOB would be done with complete transparency and public scrutiny -- no secret sweetheart deals for politicians' friends with benefits.
Los Angeles is mired in an unemployment rate approaching 12 percent (our actual jobless rate is even higher, perhaps 20 percent). The lack of new private-sector jobs creates a downward spiral -- one in which L.A. is hard-pressed to provide such core services as tending to the needy and keeping neighborhoods safe, and without the money to invest in schools and roads.
We can't wait for the rest of the world -- or even the federal government -- to solve our problems for us. It's pretty obvious that they're broke. We need to roll up our sleeves and start fixing things ourselves. CALJOB will start us down the path to create good-paying jobs for everyone in California who needs one.
With New Year's resolutions soon upon us, let's make 2012 the year when banks start acting responsibly and Californians start investing in our own state's future.