It's Time to Treat America's Homeowners as Well as We've Been Treating Wall Street's Bankers

"The banks are too big to fail" has been the mantra we've been hearing since September. But when you consider the millions of American homeowners facing foreclosure, aren't they also too big to fail?
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If you were to make a pie chart showing the amount of attention given to the banking part of the financial crisis -- both by the government and by the media -- and the amount of attention given to the foreclosure part, the catastrophe being faced by millions of American homeowners would barely rate a sliver.

But we are facing nothing less than a national emergency, with 10,000 Americans going into foreclosure every day and 2.3 million homeowners having faced foreclosure proceedings in 2008.

When we put flesh and blood on these numbers, the suffering they represent is enormous and so is the social disintegration they entail.

For a small sample, check out Brave New Foundation's new site, Fighting For Our Homes, where you can see video of people doing just that. People like Debra from Pennsylvania who, due to health care costs, is facing foreclosure on her home of 33 years or Penny from Texas who has been pushed to the brink of homelessness as the result of costly repairs necessitated by Hurricane Ike.

"The banks are too big to fail" has been the mantra we've been hearing since September. But when you consider the millions of American homeowners facing foreclosure, aren't they also too big to be allowed to fail?

Despite being treated like an afterthought, foreclosures are actually a gateway calamity: every foreclosure is a crisis that begets a whole other set of crises.

Someone loses his or her home. It sits vacant. Surrounding home values drop. Others move out. Squatters move in. Crime goes up. Tax revenues plummet, taking school budgets down with them. For a devastating look at what foreclosures do to a community, read this brilliant New Yorker piece by George Packer.

So why hasn't the foreclosure crisis gotten the attention it deserves? A combination of perverse priorities and flawed thinking.

At the congressional celebration of Lincoln's birthday, the Senate chaplain thanked God for our 16th president who, as he put it, was able to "transcend the flawed thinking of his time."

Flawed thinking has been on full display in the way we have approached the foreclosure crisis -- particularly the notion that we can postpone dealing with the crisis while we focus our attention (and hundreds of billions of dollars) on saving Citi, JP Morgan Chase, Bank of America and Wells Fargo.

Clearly, this thinking has been deeply -- and disastrously -- flawed. The public interest -- people being able to keep their houses -- is not aligned with the banks' interest. Banks don't want to adjust nonperforming mortgages down to their actual current value because it would lead to marking down the value of the massive asset pools they have rolled the mortgages into.

This conflict between the banks' interest and the public interest is why the Wall Street-centric focus of Tim Geithner, Lawrence Summers, Ben Bernanke, etc. is so troubling. This focus has included the marginalizing of Sheila Bair, the chairman of the Federal Deposit Insurance Corporation (and a Republican) who has been ringing the alarm bell about the foreclosure crisis for two years now. She was ignored by George Bush and Henry Paulson -- and there are worrisome Washington whispers that Tim Geithner is following in their footsteps.

On Wednesday, President Obama is set to unveil his foreclosure relief plan in hard-hit Phoenix. According to David Axelrod, it will be a "good, solid" plan.

Given the enormity of the crisis, and the delay in finally putting foreclosures on the front burner, it needs to be good and solid and big and bold.

Obama clearly responds to the pain involved in the statistics. We saw how he reacted to Henrietta Hughes, the homeless woman who stood up at his town hall meeting in Florida and talked about her dire circumstances. And on Meet the Press this weekend, Axelrod mentioned a "heart wrenching" letter Obama had received from a woman in Arizona whose husband lost his job, and had to take another job for one-third the pay. "They are really struggling to make their payments and meet their responsibilities," he said. "And she was emblematic of people all over the country."

Hopefully the nuts and bolts of the plan will match the empathy. Among the features the plan should include is a provision allowing bankruptcy judges to modify the terms of home loans. This modification is called a cram down (who gave it that name, Frank Luntz?).

Until 1978, allowing cram downs was standard practice. Subsequent court battles eventually eliminated their use. The mortgage industry, not surprisingly (and for the reasons stated above), is vehemently opposed to bringing the cram down back. Helping fight that battle, again not surprisingly, are Republican members of Congress. A bill to bring it back was approved by the House Judiciary committee in late January -- but only after chairman John Conyers agreed to key concessions to the banking industry, including making the legislation only apply to existing mortgages and not to future ones (even though cram downs could help stabilize the residential mortgage market in the longterm. The late, great financial blogger Tanta explains why here).

Obama has said that it "makes no sense" to keep judges from having the authority to rescue underwater homeowners. He should push to make cram downs ongoing and permanent.

His plan should also include mandatory mediation between homeowners and lenders prior to any final foreclosures. A pilot program along these lines, the Residential Mortgage Foreclosure Diversion Program, started in Philadelphia, has proven very successful. According to one account, the program has prevented or delayed foreclosures in 75 to 80 percent of the cases that have made it to mediation. Currently, many homeowners don't even talk to their lenders until they have been foreclosed on -- partly because the lenders often make it next to impossible to reach them.

"I've been to the City Hall Courtroom where the mediation hearings take place," Pennsylvania Sen. Bob Casey told me, "and they are crammed with lenders and borrowers and counselors and lawyers, and they are remarkably effective." Judge Annette Rizzo has been working hard to keep Philadelphians in their homes. She told Dan Geringer of the Philadelphia Daily News:

There is hand-to-hand outreach to each client here. There is individual caretaking here. The lender lawyers get to know the homeowners as people here. We put a human face on this and they embrace it. So as I work the room, I feel a humanism here on both sides. If necessary, our volunteer lawyers pick up clients and bring them here. Housing counselors make house calls. Our mission is to save lives, one address at a time.

The foreclosure prevention program has worked so well in Philadelphia, it has spread to Boston, Pittsburgh, Cook County, Prince George's County, Louisville and the state of New Jersey. The administration should take this model and apply it on a national level.

It's time to start treating America's homeowners as well as we've been treating Wall Street's bankers.

PS HuffPost intends to keep a spotlight on the housing crisis. And one of the ways we plan to do it is by telling the stories of those facing foreclosure -- your stories. If you are struggling to keep your house, click here to sign up to share your story. Or please share the story of someone you know.

We are also looking for citizen journalists to help cover the foreclosure story. Click here to join our team reporting on home foreclosures and how they are impacting your neighbors and your community.

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