Attorneys general can make big banks fix foreclosure mess

Mike McCarthy

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On Dec. 14, community organizers from 14 states, representing millions of homeowners, traveled to Des Moines and, together with over 75 members of the Iowa Citizens for Community Improvement, took an urgent and powerful message to Iowa Attorney General Tom Miller: It's time to make the big banks fix their mess.

It has been well over two years since the country started feeling the adverse effects of the unregulated greed of the big banks. We are still dealing with the fallout. As the year ends, the biggest banks will hand out over $140 billion in bonuses and compensation to the same executives who brought our economy to the brink of collapse.

It's a truly ugly situation. While many of us Americans have sacrificed - lost our homes, our jobs, our pensions and savings - the big banks have continued to rake in record profits and reward themselves. Where's the justice ?

As the lead investigator in the 50-state probe into the mortgage servicing practices of the nation's largest banks, Mr. Miller is the best hope yet to see some justice for millions of Americans fighting off foreclosure. He could achieve what others - most notably the federal bank regulators - have consistently chosen not to do: put sufficient pressure on the nation's largest banks to do mass loan modifications that could prevent another 8 million-plus foreclosures and put a floor on housing values.

In our meeting with Miller, we asked if we could count on him to stand up for everyday people. We left convinced that we had found a champion.

As Mr. Miller so rightly said, the mortgage servicing system is rife with fraud. He even suggested that some bankers would go to jail for the crimes they have committed. While many Americans would welcome this development, we are more excited by what Mr. Miller insisted was the real solution to the crisis: the widespread use of principal reduction as a critical tool in modifying home loans.

Mr. Miller recalled how important the use of principal reduction was in ending the 1980s farm foreclosure crisis and insisted that we heed the lessons from that era. The solution that helped stabilize the economy nearly 20 years ago is the same solution we need right now. Miller knows this, and economists such as Paul Krugman and Neil Harl agree.

It seems the only people against principal reduction are the big banks, who likely want to preserve their bonus pool. However, the AG's settlement with the nation's biggest banks - if strong enough - could be the move that forces big banks to get serious about loan modifications and address the role that underwater mortgages are playing in prolonging our current crisis.

The AGs are still months away from reaching a settlement. The big banks have repeatedly managed to weaken efforts to get to the root of the foreclosure crisis.

As many have pointed out, they have either failed to live up to their promises or have outright ignored the rules under the Obama administration's Home Affordable Modification Program, with little to no consequences. Mr. Miller and the team of attorneys general he is leading have a chance to change this dynamic once and for all. We hope they do, because the future of our economy depends on it.

Mike McCarthy is a member of Iowa Citizens for Community Improvement who lives in Des Moines. A state employee for over 30 years, he also was an official for AFSCME, a public employees' union. Comments: mike

andjeanmcc@msn.com