Earlier this fall, the national news lit up when an attorney employed by a mortgage loan servicer admitted to “robo-signing” thousands and thousands of fraudulent affidavits – documents signed under the penalty of perjury – that illegitimately pushed families into foreclosure.  Loan servicers are responsible for collecting mortgage payments from borrowers and initiating foreclosure proceedings when borrowers fail to make payments, but they also have the ability to modify loans and keep borrowers in their homes.

Against this backdrop, my organization, the National Fair Housing Alliance, joined with other national civil rights organizations to call for an immediate foreclosure moratorium.  At that time, at the beginning of October, Bank of America and other national banks announced that they would put a hold on foreclosures in some states until they got to the bottom of what they saw as a technical problem of failing to cross Ts and dot Is. 

The robo-signing scandal is more than a technical problem.  It’s simply the latest public revelation about a lending-and-servicing business that strips tremendous amounts of wealth from communities of color and families with children.   During the subprime lending boom, lenders flooded communities of color with mortgages designed to fail.  By peddling toxic products, often to people who qualified for better loans, banks left families and communities on the hook while they made quick but unsustainable profits.  Servicer negligence continues to harm homeowners that are already victims of a discriminatory system:  it exacerbates already existing profound damage.

The foreclosure crisis has not hit communities evenly.  A study by the Center for Responsible Lending shows that African American and Latino communities will lose hundreds of billions of dollars due to the foreclosure crisis and that African Americans and Latinos are far more likely to go through foreclosure than their white peers. 

It should be no surprise, then, that African American and Latino children disproportionately suffer the stress of living in a home going through foreclosure.  In 2006 and 2007, over 18,000 school-aged children in New York City lived in homes that received a foreclosure notice.  Interestingly, these students were no more likely to be poor than other students, but they did generally live in North-central Brooklyn and Southeastern Queens, which are majority minority and most are predominantly black.  Although 33% of students in New York City schools are Black, 57% of students living in homes with foreclosure notices in 2006-2007 were Black.  In Washington, DC, the number of children living in homes that received foreclosure notices doubled during a two year period.  During that period, African Americans were overly represented and the number of Latino students increased.  Much like in New York City, there was a startling geographic component to this crisis.

A joint study by the National Council of La Raza and the University of North Carolina foundthat the foreclosure process puts an undue amount of stress on families and their children and could impact a generation of children.  Foreclosures result in more than lost wealth and shot credit:  Latino families who face foreclosure report receiving no assistance from their financial institutions, devastated finances, and multiple financial stresses that led to foreclosure.  Through this process, many families reported deteriorating relationships between spouses and between children.  Additionally, families reported their children were “withdrawn and [had] trouble making new friends,” after foreclosure, and began to have both academic and behavioral problems at school.

We should be doing all that we can to avoid these outcomes, but instead, many are finding bizarre ways to justify them.  “Moratorium” has become a bad word and banks have resumed foreclosures.  Some Republicans and Democrats alike, including the Administration, have gone on record to warn about the imprudence of slowing down this obviously broken but ever-churning foreclosure machine.  In doing so, they have put the safety and soundness of banks ahead of hurting homeowners and communities.  Banks have conducted thoroughly insufficient “reviews” of their foreclosures in an attempt to demonstrate that their financial houses are actually in order, and The Wall Street Journal has re-spun the “blame the borrower” narrative into “blame the ever-conniving legal services lawyers who are getting in the way of foreclosures.”

These offensive messages should be replaced with the obvious one people are overlooking: blame the system, and then fix it.  In a letter to State Attorneys General, a number of advocacy groups including mine wrote, “[B]anks and servicers should not move forward on foreclosures until lenders have demonstrated that they are adhering to all existing laws, regulations, and contractual guidelines related to loss mitigation and foreclosure legal process.” 

Fortunately, as Joe Nocera opined this weekend, State Attorneys General are doing the right thing and investigating this servicer fraud with the intention of compelling servicers to adjust or modify loan terms so families can remain in their homes.  This is something that mortgage industry has historically done very poorly.  Instead of finding ways to both stem losses and keep people in their homes, they have instead engaged in a number of tactics that accelerate the foreclosure process.  To just name a few abuses, they pad fees (in one extreme case, a family in Cleveland lost their home due to fees that began to accrue after they underpaid one mortgage payment by 14-cents!), misapply payments, and overcharge for forced-insurance premiums.

Right now, federal policy makers are both missing the full extent of this problem and also missing a tremendous opportunity to help homeowners keep their homes.  We can’t let the industry off scot-free here and we can’t let them continue business as usual.  We can use this opportunity to make decisions that are right for families and that are right for the economy, too.