Michigan sheriff points the way: Enforce bailout bills, relieve homeowners

By Jerry Goldberg

Feb 14, 2009

The Treasury Secretary will soon announce plans for the federal government to essentially take over the failed mortgage industry. The announcement is expected to include a dramatic expansion of the Troubled Asset Recovery Program, under which the U.S. Treasury will either directly control or have a significant interest in most mortgages, either through the creation of a special federal bank for failing loans or with enhanced federal guarantees to back up failing loans.

This is an extension of a policy already in effect. On July 30 of last year, the U.S. government took over Fannie Mae and Freddie Mac, which own or guarantee at least one-half of all mortgage loans, through the Housing and Economic Recovery Act. That laid the groundwork for TARP. In January the government announced that in addition to bailout gifts of $45 billion each to Citigroup and Bank of America, the government will guarantee $300 billion in bad loans for Citigroup and $100 billion in bad loans for Bank of America.

What this means for workers and poor

Both TARP and HERA contain buried language ignored by Congress, the media and the mortgage industry that potentially offers significant protections for homeowners.

For example, 12 USC 5219 in TARP states: “To the extent that the Secretary acquires mortgages, mortgage backed securities, and other assets secured by residential real estate, including multi-family housing, the Secretary shall implement a plan that seeks to maximize assistance for homeowners and use the authority of the Secretary to encourage the servicers of the underlying mortgages, considering net present value to the taxpayer, to take advantage of ... available programs to minimize foreclosures. In addition, the Secretary may use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures.”

Section 1403 of HERA amends the federal Truth in Lending Act and places a duty on servicers of residential pooled mortgages to carry out loan modifications or workout plans when the value of the plans would exceed the value to be derived from foreclosing the homes.

These loan modifications mandated by the bailout acts are significant because they force loan servicers to take into account the present value of homes and, especially in the case of HERA, the value of the homes in foreclosure. In almost every part of the country, home values have dropped precipitously, so these laws mandate significant reductions in the principal of the loans. In cities like Detroit, where $150,000 homes are selling for $7,500 after the owners are foreclosed and evicted, these laws virtually mandate turning over the homes to their current owners.

There is no effective mechanism in place, however, for carrying out the provisions embodied in TARP and HERA on behalf of homeowners. It will take a mass struggle to enforce these laws and stop foreclosures.

Sheriff Evans got it right

On Feb. 2 Wayne County Sheriff Warren Evans of Detroit, after examining the bailout bills, stopped all sheriff sales in the county. Sheriff sales are the first step in the foreclosure process in Michigan. There were approximately 500 sheriff sales per week in Wayne County.

Sheriff Evans stated, “The sheriff would violate the TARP by conducting mortgage foreclosure sales. ... The sheriff opens himself up to liability by foreclosing mortgages, or assets as they are defined in the TARP Act, that have been bought by the Secretary. The potential liability would arise if the sheriff ... forecloses a mortgage containing ‘troubled assets,’ thereby violating a homeowner’s right to loan modification, especially where the anticipated recovery on the principal outstanding obligation of the mortgage under the modification is likely to be greater than, on a net present value basis, the anticipated recovery on the principal outstanding obligation of the mortgage through foreclosures.” (www.waynecounty.com/sheriff)

Evans said he would not break federal law by continuing to carry out foreclosure sales.

Sheriff Evans got it right. It’s important for activists throughout the country to express their solidarity with his actions, which are under severe attack from the finance industry and the media. Email your support to Evans’ press secretary at jroach@co.wayne.mi.us. Sheriff Evans’ actions set a precedent for the entire country and provide activists with ammunition to demand that local government bodies that carry out foreclosures in their areas immediately cease and desist.

Goldberg is a Detroit attorney and organizer with the Moratorium NOW! Coalition to Stop Foreclosures and Evictions.