Rachel Alexander
While the Obama administration has been busy bailing out irresponsible financial institutions and big business, individual homeowners have been left with little relief, with many forced to file for bankruptcy. About the only relief Obama has doled out for the rest of us is the Home Affordable Modification Program (HAMP). Launched in early 2009, it has been a complete failure. The program was meant to lower mortgage payments by decreasing interest rates and extending loan repayment terms for mortgagors undergoing financial difficulties. A GAO study released in May found serious problems with the program, from loan servicers losing documents to taking too long to make decisions and miscalculating homeowners' income.

76% of borrowers had a “negative” or “very negative” experience with the program, and fewer than 9% found it “positive” or “very positive.” Almost half of applicants waited longer than seven months to receive a decision on their application. Nearly 75% of the time loan servicers lost documentation – which they then used to turn down applications. A Congressional oversight panel labeled the program a failure in December 2010. The Treasury Department has asked loan servicers to fix the problems but has not bothered to penalize servicers who don't comply. One Congressman, David Schweikert (R) of Arizona, is opening up the first loan modification assistance program in the country to specifically assist mortgage holders who are being given the runaround on this program by their banks.

Homeowners everywhere are applying for HAMP due to being laid off and unable to find work in this economy – no fault of their own. Meanwhile, the Treasury Department continues to bail out the banks for their poor investment decisions. Even more egregiously, the banks receiving the bailouts are not revealing how they spent the money. It is certainly not being spent to assist many homeowners with modification of their mortgage payments. Bank of America has been propped up with bailouts since 2008. They have received $210.4 billion in aid, and have only paid back $19.7 billion. States like Arizona and Nevada are now suing BofA for loan modification fraud. Goldman Sachs’ Litton Loan Servicing LP is one of the lenders being investigated after a whistle-blower’s letter reported that Litton had cleared its backlog of HAMP applications by denying all applications in one fell swoop.

The banks brought on the housing crisis a few years ago by continuing to buy and sell risky mortgages and invest in mortgage-backed securities until they were so heavily leveraged that any slight change in financial circumstance would result in everything tumbling down, which happened in 2007. Mortgage analyst Martin Andelman compares their unsafe investments to a homeowner who takes out a second mortgage in order to invest in the stock market.

The banks are foreclosing homes and sitting on them, knowing the government will bail out the cost. They have little incentive to help homeowners because they usually do not own the loans they handle, most have bought the mortgages and are only the servicers, so they do not lose money when the homes foreclose. Earlier this month, hundreds of fed-up homeowners, renters, clergy and union organizers rallied in front of Wells Fargo's corporate headquarters in San Francisco to demand the bank halt foreclosures.

U.S. homeowners have lost $9 trillion in home equity since 2006. Home values aren’t expected to go back up to pre-crash levels until 2034 in Phoenix. Almost 30 percent of homeowners nationwide are now underwater – owing more on their homes than they are worth. It makes no sense for many homeowners to stick it out in their home when they can short sell and start anew with a much cheaper home. This is grossly unfair to homeowners who continue to pay full price on their mortgages, and who are now stuck with low-valued homes next door further dragging down their home values.

With government choosing to bail out big business and unaccountable banks, enabling them to continue their reckless investments and mistreatment of homeowners, more and more struggling homeowners are left with few options other than bankruptcy if they want to keep their home. By paying off the fat cats on the backs of the middle class, the government is creating a bankrupt middle class.

Nevada has the highest rate of personal bankruptcy filings per capita currently, with 10.5 out of every 1000 people filing bankruptcy. The bankruptcy rate in states like California continues to rise. Personal bankruptcy filings have decreased this year, but the numbers are still high. 114,803 Americans filed for bankruptcy protection in May.

The good news for financially stricken homeowners is that bankruptcy generally leaves them much better off. Virtually all unsecured debt (credit cards, medical and attorney bills) is erased in a Chapter 7 personal bankruptcy, and homeowners are generally allowed to keep their house, car, and possessions as long as they are not extravagant. Credit scores usually rise about 100 points within a year after filing, due to the elimination of all the bad debt.

The federal government is on the verge of defaulting on its loans – essentially going bankrupt - while it continues to bail out unaccountable big business. The U.S. reached the debt ceiling on May 16, and is not legally allowed to borrow anymore money. Instead of sending the U.S. government over a cliff by continuing the bailouts, the government needs to let the reckless banks suffer the consequences of their poor decisions and go bankrupt. Eliminating the shoddy decision-makers will prevent this kind of economic disaster from happening again, and restore the middle class.

This is an area where blue collar workers can agree with principled conservatives. The Tea Party must champion this as its next area of fiscal reform. The cozy relationship between the Treasury Department and Wall Street must come to an end, and big business must be held as accountable as average Americans are. The reckless banks and big business that got us into this economic mess should be going bankrupt, not the middle class.


Rachel Alexander

Rachel Alexander is the editor of the Intellectual Conservative.