WASHINGTON -- Sen. Jeff Merkley (D-Ore.) sent a letter to President Barack Obama on Tuesday urging him to address the nation's devastating foreclosure crisis as part of a new plan to create jobs.
"We can and should adopt an aggressive strategy to reduce foreclosures nationally," Merkley wrote. "There are as many as 5 million foreclosures anticipated to come -- this is a huge tragedy for individual families but it is also a drag on our communities and our economy."
Merkley's call to address foreclosures comes as Obama is poised to make what his administration is billing as a major new jobs initiative, with the nation continues to struggle with an unemployment rate over 9 percent.
The collapse of the housing bubble has left many families owing more on their mortgages than their homes are worth. As families struggle to pay their mortgages, they have less money to spend on other activities. This lack of spending, in turn, means businesses cannot sell as many products and are unable to hire more workers. A July 2010 report from the International Monetary Fund suggested that foreclosure problems added 1.25 points to the unemployment rate -- or more than 10 percent of the current unemployment rate.
In his letter, Merkley specifically suggested three policies designed to curb foreclosures and applauded Obama for vowing to "go back to the drawing board" on housing policies which have failed to stem the tide of foreclosures since Obama took office. Foreclosures accelerated dramatically during the final years of the Bush administration and have remained high. Obama's signature foreclosure relief effort, the Home Affordable Modification Program (HAMP), is almost universally regarded as a disastrous failure.
Among the policies Merkley advocate for was the "right to rent" proposal developed by economist Dean Baker from the Center on Economic and Policy Research. Baker suggested giving foreclosed families a right to rent their homes at market rates for several years after their bank seized their home. Banks are generally reluctant to act as landlords, so the plan would encourage banks to work out affordable mortgage modifications with troubled borrowers. Merkley also suggested implementing new refinancing initiatives for borrowers who owe more than their homes are worth.
Merkley previously called on Obama to beef up the administration's anti-foreclosure efforts before this year's State of the Union address, asking the president to roll out new policies in his speech. Obama introduce any new initiatives during the speech.