Make lenders pay for this crisis

I marvel at the athletic prowess of today's bankers and financiers, especially during a time when many Americans have had to give up their homes and their hopes for a secure future. Have you ever seen so much dodging, punting, feinting and power moves from any industry?

These bankers' skills were nearly enough to stop the House of Representatives from passing major financial-reform legislation that included authorization for the badly needed Consumer Financial Protection Agency. After all the economic damage done by toxic lending products - damage that is still ongoing - it should be a no-brainer to guard against future out-of-control lending.

Most citizens understand this. According to a recent poll commissioned by liberal advocacy group Americans United for Change, 70 percent of voters surveyed said that our financial system needs either major reforms or a total overhaul. No one denies that consumer-lending protections have been especially shoddy during the past decade. Even the Federal Reserve admits that it was among the regulators that dropped the ball on egregious lending practices. Yet with Globetrotter-like finesse, banking officials are trying to dodge stronger federal oversight and pointing fingers at everyone but themselves.

It's easy to be dazzled by the mortgage industry's polished plays, but their own score card tells the real story. Today, one out of every seven homeowners is either late paying the mortgage or facing foreclosure. And one out of every four homeowners is "underwater," trapped in a house with a mortgage that exceeds the home's market value.

Things won't get better until we understand how we got here and then implement solutions that will make a real difference.

First, lenders can't blame borrowers for their own failure to properly underwrite risks. Nor can they blame borrowers for accepting the exotic loan products they offered. How often do you think low-income earners walked into a lender's office and said, "Hey, give me a 2/28 exploding ARM, and make that with a super-sized interest rate and prepayment penalty, please"?

Brokers aggressively marketed these loans, and if wannabe homeowners expressed any concerns, they were told not to worry because they could always refinance later. But later never came for most people. When the market collapsed, brokers walked away with the money they raked in, and homeowners were left out in the cold. Literally.

Second, lenders shouldn't be allowed to get away with blaming unemployment for the foreclosure crisis. Yes, housing led the downturn and resulted in a domino effect of job losses - not only in construction and real estate, but also in the many businesses that provide goods and services related to housing. But unemployment was about 5 percent and the foreclosure crisis already in full swing when today's recession started in December 2007. Unemployment is certainly feeding the problem, but that fact should not be used to minimize the catalytic role of bad lending.

With up to 13 million foreclosures expected over the next five years, there is widespread agreement that getting them under control is key to our economic recovery. But only 31,000 homeowners have received permanent loan modifications from President Obama's federal foreclosure prevention program, "HAMP."

CitiMortgage, for example, has started more than 100,000 trial modifications but made only 271 of them permanent. What's up with that?

On the Hill and in the press, the lending industry is trying to divert attention away from its poor performance on foreclosure prevention by once again blaming borrowers. The industry whines that eligible homeowners aren't turning in the required paperwork. Meanwhile, a growing chorus of professional housing counselors and legal aid attorneys working for homeowners bitterly complain that they do submit the required paperwork - repeatedly - only to be caught in the lending industry's maze of "lost" faxes, conflicting information and a revolving door of contact people who cannot - or worse, will not - help them complete the process.

Most incriminating is the lenders' own records, which tell us that the overwhelming majority of those who successfully navigate the paperwork logjams and roadblocks still don't have a permanent modification.

We need to find a way to streamline the process for getting help. If a homeowner qualifies for a trial loan modification, we could save a lot of time and expense just by making the change permanent. What's more, the foreclosure process needs to stop for homeowners who are actively under consideration for a loan modification.

Most of all, we need to ensure this foreclosure fiasco never happens again. Bankers recently told the president that they will not try to thwart any financial reform. My guess is that their lobbyists have already gathered in a huddle to come up with some new moves on the Hill.

As the hardworking members of the U.S. Senate consider the proposed Consumer Financial Protection Agency, let's hope they can look beyond the lending industry's razzle-dazzle of fancy footwork to answer the urgent need to help homeowners get back on their feet and restore confidence in our lending markets.

© 2009, United Features Syndicate

Donna Brazile is a political commentator on CNN, ABC and NPR; contributing columnist to Roll Call, the newspaper of Capitol Hill; and former campaign manager for Al Gore.