Unions tackle housing and foreclosure crisis

SAN DIEGO, Calif. – “The seeds of this crisis were sown long ago and are symptoms of a low-wage economic strategy where workers are given the power to spend and borrow instead of an increase in wages.”

Thus, the AFL-CIO, at its March 4–6 executive council meeting here described the root cause of the rash of mortgage foreclosures sweeping the nation. “The crisis also has its roots,” federation President John Sweeney said, “in the economic policies of past years, which promoted deregulation of our financial markets over common-sense rules to protect the interests of those seeking to achieve the American Dream.

“Our country faces an urgent housing financial crisis that is affecting the health of our entire economy and one that is fueling an impending recession,” he said.

The situation he described is reflected in the fact that finding affordable housing is becoming almost impossible for middle- and low-income workers, families and retirees. Many workers are one paycheck away from homelessness. Still many others have been victims of predatory and unscrupulous lenders. “In many cases home is no longer where the heart is but rather where the hurt is – truly a sad commentary for America,” Sweeney said.

The creation and preservation of decent, affordable housing for workers has been a longstanding priority of the labor movement. Union members are both builders and buyers of housing. It goes deeper, however, because through the targeted investment of labor pension funds, unions could have a significant impact on low and moderate income housing production in the nation.

The AFL-CIO Housing and Building Investment Trusts and many union pension investment programs that invest in affordable housing have increased the availability of single and multi-family housing for workers in U.S. cities.

“It is a crime that in the richest nation in the world, a full-time job no longer guarantees access to decent, affordable housing,” the federation said in a statement.

“Many millions of Americans spend an untenable share of their income – more than 30 percent – on housing, and persistent inequality in housing and employment opportunities has led to significantly lower homeownership rates for African American and Latino families.”

Union leaders here noted that, not since the Depression, has a larger share of Americans owed more on their homes than their homes are worth. Nearly 8.8 million homeowners, or 10.3 percent of the total, are in distress – twice the number from a year ago.

The labor movement is saying the mortgage crisis is threatening the “American Dream” for millions of families. Predatory lending practices and slumping real estate markets threaten the jobs and incomes of thousands of workers as well as the financial stability of state and local governments. They are angry about financial executives who, they say, helped create this crisis and who vote themselves huge bonuses while millions of homeowners are simply trying to hold onto their homes.

Their concerns are borne out by the figures. The Bureau of Labor Statistics reported in February that the construction sector employed 27,000 fewer workers in January, 2008 than in December, 2007. Employment in building construction dropped 11.2 percent, 10.2 percent of which is attributable to the decline in residential construction. The drop in residential construction employment hits those least able to sustain the economic blow, the lowest paid workers in the construction industry.

The impact, however, is beginning to extend to high-rise residential construction and will likely have disastrous consequences throughout the construction industry.

Union leaders here noted that for many families, the crisis will be triggered by a “catastrophic” rate increase on an inappropriate “exploding” sub-prime adjustable rate mortgage loan. They said that, as devastating as foreclosures have been to date, the worst is yet to come. In 2007 home foreclosures increased by 75 percent to 2.2 million.

Foreclosures are expected to accelerate dramatically during 2008, when 2.5 million loans are scheduled for rate resets.

The union statement on the crisis noted that low income and minority homeowners are suffering disproportionately. Fifty five percent of mortgages obtained by African Americans are subprime and 46 percent of mortgages obtained by Latinos are subprime.

The AFL-CIO also noted that the affordable housing and foreclosure crisis is taking a toll on already-reeling state and local government budgets as property values tumble in the neighborhoods where foreclosed houses stand empty. Property tax revenues that local governments rely upon to provide vital services, including K-12 education, are shrinking.

The housing crisis also has reduced state sales tax revenue collections from housing related big-ticket items including construction materials and appliances. The federation noted that several states are considering plans to help families that are in danger of foreclosure – and these plans will further deplete state coffers. “The federal government must provide adequate resources to help troubled communities and distressed homeowners overcome the problems created by the foreclosure crisis and resulting problems,” the federation statement declared.

The AFL-CIO has already actively pushed for legislation to deal with the credit crisis. Labor supported a number of bills, including the Mortgage Reform and Anti-Predatory Lending Act of 2007, which was passed last year and establishes new protections for consumers by preventing brokers from steering prime borrowers into more expensive loans and requiring responsible lending practices such as conducting meaningful analyses of the borrowers’ ability to repay loans.

In addition, the federation backed the Expanding American Homeownership Act of 2007 which enables the Federal Housing Administration to use risk-based pricing to more effectively reach underserved borrowers.

The federation is backing a number of new bills including the Homeownership Preservation and Protection Act of 2007. This would establish new consumer protections and will allow state attorneys general to enforce the provisions of the law.

The AFL-CIO is also supporting the Emergency Home Ownership and Mortgage Equity Protection Act and the Helping Families Save Their Homes in Bankruptcy Act, which will prevent hundreds of thousands from losing their homes by allowing them access to bankruptcy relief.

The federation’s resolution described the Bush administration’s proposed month-long moratorium on mortgage foreclosures as an “insult” to Americans in distress and said, “While the policy process inches along, working families cannot wait. We need an immediate moratorium on mortgage foreclosures for at least six to 12 months. Just as important, during this moratorium the mortgage industry and government must immediately engage in a structured program providing for the replacement of teaser rate loans with conventional 30 year mortgages at the teaser rate.”

The AFL-CIO also insists “servicers must renounce servicing agreements that reward mortgage companies for foreclosing on homes rather than encourage refinancing or other workout strategies. And servicers must commit to publicly reporting – company by company – how many sub-prime loans they are servicing, how many have reset, how many have been re-structured and how many foreclosures are occurring and where.”

Also needed, the federation says, is a change in bankruptcy laws to provide for a court supervised process that will allow for modification of home mortgages to help families save their homes. Many union leaders in San Diego saw all of these steps as crucial but as only a beginning.

The federation resolution said that, “as part of an overall program to revive the middle class, the nation’s policymakers should take immediate steps to resolve the current mortgage foreclosure crisis and hold those responsible accountable. It is time for a moratorium on economic policies that put corporate profits ahead of worker prosperity and reward financial gimmickry over an honest day’s work.

“Our nation must also remedy egregious affordable housing shortfalls; improve incentives to preserve existing housing for low-income families, including retirees; provide adequate funding for federal housing programs; and repair the frayed safety net that protects the poorest and most vulnerable.”