The Mortgage Crisis: Just Stop It

The mortgage crisis of today is that rare public policy issue that lends itself to a simple and utterly foolproof prescription: Just stop it. End it. Shut it down.

After idly observing months of human misery, the Bush administration finally has decided to sit down with the business community and negotiate a fix to the foreclosures that are wiping out communities around the country. But it's too late and too little. The fix they are proposing would cover only a very small percentage of the mortgages at risk. We need real leadership from government.

Right now, we need a moratorium on subprime mortgage foreclosures. Guaranteed, that will dam the flood of Americans losing their homes and their life savings. Government can do this--and fast. It would be nice if it were done with the support of responsible business leaders, but, frankly, it's not necessary to have the business community on board. A foreclosure moratorium will give real incentives for lenders to restructure loans on fair terms.

Instead, the administration is doing what it's always done to address the consequences of the economic free-for-all it espouses: "The public is restless. It's time to offer something that changes almost nothing but looks like we've done something for the people who have nothing."

In the past few months, I have traveled the country meeting those people like Steven Levine in Toledo, Ohio. Steven is about to lose the home he has lived in for 48 years because of home equity loans he is unable pay. Steven is living in a home in northern Ohio with no heat. The power will be turned off within a week. His mother has Alzheimer's and is in a care facility. Now both have to move into his sister's small home in South Carolina. He's not sure how he'll afford placing his mother in a new care facility.

Steven is literally one in millions. Around the country, families are seeing their life savings evaporate along with their dreams. This must end now. We cannot have homes foreclosed and fear stalking our communities while banks and government agencies negotiate over loan-restructuring programs. Only a moratorium will create real incentives to restructure loans. That is the first step.

Next, the mortgage industry and government must create a structured program providing for the replacement of teaser-rate loans, such as 2/28 adjustable loans, with conventional 30-year mortgages at the teaser rate.

Servicers must renounce 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 subprime loans they are servicing, how many have reset, how many have been restructured and how many foreclosures are occurring and where.

Finally, there must be massive outreach under federal government auspices to subprime borrowers to let them know how they can keep their homes. The Treasury Department has encouraged this type of outreach by private groups, but this effort should be much more extensive and should be clearly governmental in nature.

These are the steps necessary to stabilize our housing markets, prevent cascading defaults and safeguard our economy. They also are the steps necessary to protect the financial institutions and the investors, the very people who will likely complain about government interference.

Ignore those people. Let them have their say and then turn around and govern. The housing financial crisis is not just the problem of a few poor--read powerless--families. It is threatening to spread into a full-blow recession that will cut a swath through the economic lives of people across this country. Everyone in America will feel the pain. They will demand action. But the damage will already have been done.

Comments

[mmckinl]

Welcome to the Sharecrop economy ...

where one misstep , one illness , one layoff relegates you to debt servitude ... where bankruptcy means garnished wages for years and years...

and now borrowing for home ownership exposes you to instant long lasting poverty.

[BobLablah]

I think the government should just pay everyones mortgage for them. Everyone would get richer and the country would be better.

[cylindar]

You are wrong not everyone in America will feel the pain.

[pigsatthetrough]

For all of the rights or wrongs of the latest Bush activity, the reason for the current plan is very simple. Markets have boom and bust period. During the bust, current thinking is you try and put brakes on, don't let first reality, then fear, irrevocably tip the scales. That is not good political business. To think that Bush has any understanding of the overall economy, its variables, or where true leadership should be given at this juncture, would be to misjudge the reality of the situation. However, they do understand, misleading, ommision or inference of facts which are not forthcoming, and the use of such tactics. They, Bush and Republicans, have amply displayed that ability, and these latest announcements are a continuation of mismanagement.

[mmckinl]

Sweeney !

If you really want to help people:

CHANGE THE BANKRUPTCY LAWS !

[Raven]

Stop it?

We're way way way too late for that. You may as well try to stop the tide.

And besides, we do not have a mortgage crisis. We have a banking crisis of unprecedented proportions. The entire system is melting down, even as the pirates continue to hide their booty.

We have a system that's been allowed to hide its skeletons among so many spreadsheets, that no one even knows how many bodies there are - much less how to find them.

And when it's your money in those retirement accounts that are going to get screwed, do you really still think the best plan is to allow all recourse to stop?

Because, make no mistake Mr Sweeney. Those mortgages were given with your money. And the money of all of your friends and family members.

And, just like everyone else, they're going to want their money back.

Unfortunately, most of them aren't going to get it.

But that's the way pyramid schemes always work - even when they're huge pyramid schemes that Greenspan thought were just fine and dandy in their prime.

[Abbdtb]

I have plenty of compassion for people in difficult financial situations. But if someone has to drain all the equity out of their house to pay for medical bills, that sounds like more a healthcare issue in this country. It's sad to see people losing their homes but people have to accept the consequences of their actions and move on.

[joebaggadonuts]

Right approach, wrong century. The neocons and Randites need to get this out of their system. Bush is the new Hoover. http://en.wikipedia.org/wiki/Herbert_Hoover

[WMG]

Exactly how is freezing interest rates at near-zero teaser levels helpful to "the financial institutions and investors"? I'm not saying that should be a primary concern, but u raised the point, and it is ridiculous. And keep in mind: "investors" includes all sorts of state and municipal money funds, as well as countless retirement pools. The debt has been sliced and diced and sold everywhere. So your point deserves more than lip service.

And who should pay the spread between the contractual rates and the teaser rates u wish to extend permanently? And what do u think foreigners, already victims of this debacle too, will conclude when we intervene to suppress money rates and invalidate contract law? They'll stop buying our debt, they'll start selling their dollars, and the cost of money will increase even more.

Nearly free money, complements of Greenspan, got us into this mess; legislating more of it will not get us out.

Let's help the victims of fraud pursue appropriate legal claims from those who defrauded them. That might be feasible, and would be a just "bailout".

[hopeless277]

Yo, dude, we're in Bushland now. No more free hand-outs for the indigent. No more free rides for the Sub-Prime Mortgage Queens in their Caddies. It's every man for himself in Bushland. We have to remember that this country was built on 'bootstraps' being pulled up by hearty individuals. Remember, there is no 'fraud' in Bushland. If someone lies to you and you're stupid enough to believe them, then it's your own fault if you can't pay the mortgage. Now if Steve would incorporate and bid on a Homeland Security billion dollar contract, he'd get all the subsidies he could handle from the government. After all, we can't let corporations go hungry. We're not monsters..­..

[gdogs]

Funny how no one seems to be laying in blame in the people that signed on the dotted line. What happened to personal responsibility? No one made these people go out and buy houses that they couldn't afford. That is really what we are talking about, living outside one's means. This is the problem facing America, not foreclosures. Mounting credit card debt, car leases, and now sub prime interest rates are the RESULT of our lust for what we can't afford, not the PROBLEM. People... we need to open our eyes and see the world for what it really is.

We have freshmen college students all over the country signing up for credit cards. And do you know what the worst part about that is... they are doing this on campus. Credit card sign ups is without question one of the largest fund raises for the fraternities and sororities. They prey on their own classmates.

All it promotes is spending beyond one's means, because hey in 4 years they'll have a great job, making lots of money, and it won't be an issue. Yeah right! Without even getting into the details of employment after college, what about all those that never graduate?

It starts somewhere but it never ends. And why should it? The government is going to bail them out again. Who cares what it does to the economy right?

[mmckinl]

WRONG ! The Plan won't help : Dean Baker

" It is unfortunate that most reporting on the rash of foreclosures in the mortgage market continues to focus on the mortgages as the source of the problem. This is leading to seriously misguided policy, since the core problem is falling house prices, not resetting mortgages.­"

http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=12&year=2007&base_name=subprime_solution_to_mortgage