40 Million Strong: Underwater Homeowners Can Fight and Win ... If They Get Organized

It sounds like hype to say it, but underwater homeowners can change the course of history. It's not me saying that -- it's the numbers. People who owe more than their homes are worth have the power to become the a powerful new political and economic force.

They've got the numbers, they've got the votes and -- if they can get organized -- they've got the economic clout. And we can prove it.

This is something I and others have been pondering for a while, and it's been on my mind again as I look forward to being on a panel at the Take Back the American Dream conference with New York Attorney General Eric Schneiderman, Heather McGhee from Demos and MSNBC 's Alex Wagner. It also came up in a conversation we had this weekend on The Breakdown with members of the Home Defenders League , a group that's looking to organize underwater homeowners.

How powerful are those homeowners? The numbers are staggering.

40 Million Strong

A new and more accurate study by Zillow shows that the number of underwater homes is higher than we had thought, and that that 16 million homes are underwater. If those households are the same size as the American average, then the average number of people living in them is 2.6. (I thought it might be higher, but I cross-tabulated some Census Bureau numbers and came up with 2.63.)

That's more than 40 million people.

40 million people is more than the population of Connecticut. Of Iowa. Of Mississippi. Of Kansas, Arkansas, Utah, Nevada, New Mexico, West Virginia, Nebraska, Idaho, Maine, Hawaii, New Hampshire, Rhode Island, Montana, Delaware, South Dakota, Alaska, Vermont, North Dakota, the District of Columbia and Wyoming ...

In fact, it's more than all of them put together.

That's right: The number of people living in underwater homes is larger than the number of people living in twenty-two states and the District of Columbia. The residents of those states are represented by 44 senators. The number of people living in underwater homes is greater than the entire population of California, our largest state.

How many voting-age people live in underwater homes? Statistics are hard to come by, but if we assume it's 1.5 voters per household here's the figure we get:

24,000,000 voters. 132,618,580 people voted in the last presidential election. That means these homeowners could account for as much as 18 percent of all voters -- if they all turned out to vote. It also makes them one of the largest potential voting blocs in the country.

These numbers are going to get smaller little by little as foreclosures move forward, so we may eventually have to give back Connecticut. But it's a huge number. If the Home Defenders League continues to show up at Obama and Romney rallies and steps up its efforts to exert pressure on both parties -- and if it's able to rally large numbers of underwater homeowners -- underwater homeowners could become an enormous political force.

A Debtors' Revolution

They could become an equally powerful financial force, too.

We don't normally think of underwater homeowners as having economic clout, but they do -- if they get organized. How much clout? Zillow now estimates the underwater portion of their mortgages at $1.2 trillion. That's "trillion," with a "t." And that's just the lost value in their mortgages.

But their clout doesn't just extend to the mortgage amount that's underwater. It involves the whole amount owed to the banks. Another data group, CoreLogic, reported at the end of 2011 that the average "underwater" amount on these homes -- the difference between what was owed and what the home is worth -- was $64,000. But the average total owed was $252,000.

If these ratios are still accurate, then we can multiply that $1.2 trillion by four to get the total amount these underwater homeowners owe banks:

$4.8 trillion.

To paraphrase an old saying, if one person doesn't pay his mortgage, it's a tragedy. If 16 million don't pay, it's a freakin' revolution.

When you do it, it's immoral. When they do it, it's "strategic."

It was a stunning act of moral hypocrisy for the Mortgage Bankers Association, which calls itself "the voice of the real estate finance industry," to do a short sale on its Washington, D.C., headquarters, walking away from its own underwater loans even even as CEO John Courson was lecturing homeowners on their "legal obligation" and the terrible "message they would send" if they did the same. (More here .)

How did the Mortgage Bankers Association get away with it? How was Morgan Stanley able to walk away from its San Francisco headquarters when the building's value plummeted below what it owed, abandoning both the building and the debt despite having available capital of $213.2 billion?

Do you think they were given moralistic lectures about being greedy, or about how they should've known better? Do you think they told to worry about "the message they would send"? Do you think their lenders threatened them with legal action?

Do you think their FICO scores went down, or that any of their executives had problems with their next job application?

What these corporations did is called "strategic defaulting"; a number of others have done it too. How did they do it? With clout. They command a lot of money, and that makes them powerful. They also do enough other business with their colleagues to make it worthwhile for lenders to give them a pass, or cut them a generous deal that reduces the principal they owed.

Sure, they're all country-club buddies, too, and homeowners are not. But these are people who'll negotiate with anyone -- once it's clear they have more to lose than they have to gain by not negotiating.

Eyeball to Eyeball

Does that mean that 16 million underwater homeowners should strategically default too? Not necessarily -- but they should be willing to default, if that's what it takes, and they should be prepared to act in an organized manner. After all, even if only one-fourth of these mortgages (in dollar terms) went "on strike," the banks would losing more than a trillion dollars from their books.

If homeowners are willing to go to the brink, to walk away if necessary rather than pay unjust mortgages, banks will suddenly become very willing to negotiate. But they won't do it until it's clear they have a lot to lose if they don't.

It's about hanging tough to get a fair deal -- and not giving up until you do. They call it "Staring eyeball to eyeball to see who'll blink first."

Sure, the banks can repossess the underwater negotiators' homes, but another Zillow study showed that banks lose far more than the underwater amount when they do that. If something like this became a mass movement, or anything approaching one, the banks would stand to lose hundreds of billions of dollars unless they came to the bargaining table prepared to make deals.

Hundreds of billions? As William Shatner used to say, "Now you're negotiating!"

Movement and Reality

Is this all a fantasy? After all, even the Home Defenders League isn't talking about a mortgage strike -- yet. And it, like other efforts to fight bank fraud against homeowners, is still in the start-up phase. But things could change quickly if the movement catches hold, just as it did in the Arab Spring and the early weeks of the Occupy movement.

How can it become a movement? The right mental state helps. If they haven't already, underwater homeowners have to get past the shame some of them are still feeling. That emotion's been imposed on them by corporate-fueled media. (Sometimes that shame has led to suicidal thoughts and acts, and to the kinds of heartbreak reflected in the emails I began receiving when I first started writing on this topic a while back.)

Nothing's better for getting past unwarranted shame than getting together with others who are in the same situation.

Then people have to get organized and disciplined. They have to decide how far they're willing to take this struggle, and how committed they're willing to become to various forms of action: political protest, nonviolent demonstrations, arrests, or legal action arising from non-payment of mortgages. They'll have to choose leaders and negotiators.

Realistically, these homeowners aren't all going to act in unison. But if large enough numbers of them band together, they can change ... everything.

Nothing to Lose

First people need to get interested, then they need to get involved. Both of these steps can be taken at the Home Defenders League , at gatherings like the American Dream conference, at Occupy rallies, and at other places where independent activists are willing to fight for economic justice.

It doesn't cost a nickel -- and it could be the best investment anyone's ever made.

As Kris Kristofferson said, "Freedom's just another word for nothing left to lose." Underwater homeowners have already lost a lot. It's time to use their hard-won freedom to win a little justice, too.

Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future and the host of The Breakdown, broadcast Saturday nights from 7-9 pm on WeAct Radio, AM 1480 in Washington DC.