Recently there has been a slew of negative appraisals of Barack Obama’s financial policies, especially the policies about housing and foreclosure. Surprisingly, many of these critiques have come from the left, but the truth is that the Obama administration could have done a much better job of fighting the foreclosure crisis.

During the Great Recession, the United States experienced nearly 3 million foreclosures per year.
These foreclosures dragged the economy down and made wealth inequality much, much worse.

Foreclosures have a very diverse set of negative consequences on the economy. They make wealth inequality worse because they bring neighboring home values down, and homes are the greatest source of middle class wealth. This causes many people to cut back on spending and save, thus slowing the economy even more.

The foreclosure crisis began under President George W. Bush, and his successor Barack Obama was elected in part to solve the crisis the Bush years had created. Obama’s slogan was “Change we can believe in” and “Yes we can.” People believed that he was going to take powerful action to combat the economic crisis.

There is a strong historical precedent of sustainable solutions for American borrowers who cannot afford their mortgages. The Frazier-Lemke Act, which was signed into law by Franklin Roosevelt in 1934 as a part of the New Deal, prioritized borrowers and homeowners over creditors in order to help America’s farmers: it halted foreclosures on farmlands and required banks to lease properties back to the owners for a period of time until they could buy it back. It was renewed four times by congress over the next fifteen years and helped greatly to alleviate worries during the Great Depression.

I founded a company in 2008 called American Homeowner Preservation (AHP) that utilizes similar tactics to fight foreclosure. The first was called a “short-sale leaseback.” It means that we purchased homes on short sales from struggling homeowners, usually at a significant discounts, and then leased the homes back to the homeowners along with the chance to buy back at a big discount from what was previously owed. This was done one-by-one. Over time, this evolved into AHP purchasing bulk pools of distressed mortgages from lenders at even bigger discounts. This is very similar to President Roosevelt’s Frazier-Lemke Act. Our strategy has always been to share the discounts with the homeowners, so they can afford to stay.

In other words, we prioritize the borrowers, the homeowners, over the creditors (ourselves or the bank).

AHP was not the only one. An organization based in Massachusetts called Boston Community Capital also took up this fight; they purchase homes that are already foreclosed on, and avoid eviction by helping the homeowners repurchase with new financing at more affordable rates. They have since expanded to several other states, and have helped over 700 families stay in their homes.

AHP and Boston Community Capital, along with the historical Frazier-Lemke Act, show that this strategy works. Many people were hoping for and expecting the Obama administration to pass similar legislation to help homeowners during the Great Recession. Unfortunately, the president’s reaction was not as strong as many hoped.

Matt Stoller wrote in the Washington Post that, “Rather than forcing some burden-sharing between banks and homeowners through bankruptcy reform or debt relief, Obama prioritized creditor rights, placing most of the burden on borrowers.”

This was seen through the policies of Obama’s Treasury Secretary, Timothy Geithner. Geithner and the Obama administration decided that rather than stop foreclosures, they would enact policies to help the banks complete more foreclosures.

The Home Affordable Modification Program, or HAMP, was one such policy. Because of its name, many people assumed it would help homeowners to refinance their mortgages at rates they could afford. However, Geithner explained in a congressional hearing that this was not the case.

“We estimate that [the banks] can handle ten million foreclosures, over time… this program will help foam the runway for them,” he told Elizabeth Warren after being asked why the program wasn’t slowing foreclosures.

In addition, Obama’s landmark financial reform bill, Dodd-Frank, red-lined poor neighborhoods by putting untenably low fee caps on low-value houses, making it unprofitable for banks to do business in those areas.

The effects of these policies and foreclosures were devastating to many millions of Americans. American Homeowner Preservation has worked with many of these families over the years. Our model is proven to provide real relief to struggling homeowners, and we even turn a profit doing it.

Our time-tested method, however, requires creditors and debtors to share the burden. At the end of the day, this is best for everyone. But as has often been the case in America lately, the 1% are able to influence policy at the expense of the 99%. The government showed a clear preference for the big banks, and so many homeowners have had to look elsewhere for solutions to foreclosure. What they have found are solutions like American Homeowner Preservation and Boston Community Capital.

Hopefully, if there is ever another housing crisis, the people in charge will look to these companies as an example of how to help the 99% and not just the wealthy.

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