Constructive goals Occupy Wall Street could pursue - the housing market

We are not going to find a solution to the housing crises that involves either Wall Street or the Federal Government any time in the near future and our economy will not recover until we deal with the housing mess.   In any economy the driving force is the people from 35 to 50, people still young and energetic, but with the experience and maturity to build or grow an economy.  To use the latest Republican buzz word, the job creators.  In my experience it seems it is the people in this group that have been hammered the worst by the housing market collapse.  The hard working, imaginative and ambitious who got to the point where they felt like they could finally buy a house in the middle of the last decade are now locked into houses they can't afford to own the way they are currently financed, but also can't afford to sell.  We are financially crippling the dynamic heart of our economy.


Government is not going to solve the problems in the housing market, for both partisan ideological reasons and structural reasons.  The feds have created programs to refinance loans with great fanfare, then virtually no loans get refinanced.  Occupying foreclosed  houses will get some publicity and wring some concessions out of banks in the short term on individual properties but will not result in any action by the private sector or government that will begin to solve the problem.


What is the problem?  It appears to be twofold.


1.  The political problem - Republicans are living in an economic fantasy world and Democrats are ineffectual without Republican help.  It really doesn't matter why Republicans policies are so out of touch with reality - whether it is an irrational belief that making money is proof of goodness, or simply they see rich folks as their constituency and are protecting their constituency the result is the same.  They will not consider any plan to address the housing market that doesn't involve laws benefiting the same folks that caused the problems.


2.  Structural problems - Getting a home loan used to be pretty simple, you went and talked to the bank, if they thought you were reliable and had the income to make the payments, they made the loan then held the mortgage in their portfolio until it was paid off.  Gradually all those smart people on Wall Street started making it more and more complicated.  No bank, to my knowledge, holds loans they make to maturity anymore.  Banks make loans anticipating the mortgage will be sold in secondary mortgage markets, maybe sold repeatedly.  So now instead of having to convince the banker across the desk from you that you are reliable and can pay the mortgage back, that guy across the desk from you has to meet the criteria set by a bunch of different people you never met.  The old simple transaction has become a complex and tangled bureaucratic minefield, so even if you had the money in the bank to buy the house outright you still might not qualify for the loan. 


On top of the complexity of the transaction the banks that control the process are understandably not enthusiastic about converting a bunch of loans on which they are getting interest of 6, 7 or 8% to loans on which they will getting somewhere around 4%.  So they are perfectly happy to just wring their hands in sham sympathy and quietly let the complex process not work.


So what can OWS do?  Here are some ideas:


1.  Start organizing all the people out there who bought houses at the peak of the boom, are struggling to keep the house, and could keep the house with some financial restructuring.  When they are dealing with the banks one by one they are helpless.  But if hundreds or thousands get organized and are prepared to take concerted action, they could have the power to strike fear in the heart of Wall Street.   Suppose half a million homeowners pledged to stop paying their mortgage payments on March 1 if some real refinance option was not in place.


2.  A back up strategy (because it would take longer to implement) would be create an fund to make direct refinancing loans using local or state government bonds working through refinance agencies set up by branches of government.  Local governments, for example, can offer tax free status on their bond issues to make the bonds attractive.  Local governments could perhaps reduce the loan balances in some cases and take back an equity interest in the home as a way of protecting property values within the community.


At the State level an option that could get refinancing up and running pretty quickly in California would be to open up the Cal-Vet loan program to allow refinancing, and maybe even open up the program to non-veterans due to the dire economic situation in the State.  The Cal Vet loan program has been around for decades, it is entirely funded by bonds paid off through the payments on the loans. 


A non-government option would be to create a non-profit that little folks can invest in to create a pool of money, then use the money to refinance home loans, starting with those with the highest interest rates first.  Google, Apple or other tech companies are making a lot of money off the generations that have been hurt by the housing collapse, why can't they kick in some money to create a fund to provide an alternative to the banking system?


Until there is an option to the banking system that threatens to damage the banks bottom lines, the banks are going to keep dragging their feet.  If private sector banks started to see their highest interest rate loans disappearing from their balance sheets, and their loan portfolio's shrinking they might discover that maybe refinancing loans isn't such a bad idea.