Some people may not like them, but we've got very detailed plans to help the banks, create jobs and improve health care. But where's the plan to help families facing foreclosures? What's the air date for the primetime address on how to prevent potentially over a million families from losing the roof over their heads in 2010?
The only plan I know about involves relying on the good faith effort of banks. In other words, there is no plan because there is no good faith. And, as we know, the Administration's Home Affordable Modification Program, also known as HAMP, has been deemed a failure.
With the help of taxpayers and a big, fat kiss from the IRS, bank CEOs are paying back their bailout money and returning to their private jets, posh offices and second homes - but not before blaming their inability to stop foreclosures on the borrowers. It's a tried and tested strategy; blame the victim or the other guy and the focus shifts from you.
How are these banks doing in addressing the rising tide of foreclosures dragging down real estate values and our economy?
Short answer? Not very well. In fact, they've permanently modified fewer than 50,000 loans under the HAMP program. But for the 9th straight month, more than 300,000 properties have entered foreclosure, according to Realty Trac.
A year of cajoling by Secretary Paulson and President Bush urging the banks to cooperate in modifying loans failed miserably. That was followed by a year of Secretary Geithner and President Obama doing their cajoling, also without success.
It's time to stop the cajoling and insist that these bailed out banks cooperate with the government's plans to end the foreclosures. The Fed needs to go on the offensive and force banks to reduce loans to reflect their real property values - not the values based on a Wall Street Ponzi scheme that drove up housing costs beyond imagination. Some people, including journalists, think I'm crazy for proposing such measures and believe they have no chance of happening.
When first proposed, this seemed like a radical idea. Now, not so much. Our federal government has sunk over $11 trillion into the economy to prevent another Great Depression, and it has had minimal impact on the number one factor keeping our economy in this Great Recession: foreclosures.
Here's how our plan would work:
The National Community Reinvestment Coalition, the organization I work for, first called for a broad-scale loan modification program in March 2007. We proposed that the Treasury Department acquire mortgage loans at a discount through the powers granted to the Administration under TARP or through the power of eminent domain. This would allow for the permanent and sustainable modification of loans, including principal reductions, which could then be packaged and resold to the market. Prof. Howell Jackson of Harvard Law School has demonstrated how the government could use eminent domain in this instance.
No one doubts the economic destruction that foreclosures wreak upon families, communities and the national economy. We've witnessed it firsthand during the past year. There's also no question that stopping foreclosures is not as expensive as creating jobs. And, we have to stop this vicious cycle underway now, with job losses feeding foreclosures and foreclosures feeding more job loss.
President Obama's strong words to "fat cat" bankers must translate into strong actions, requiring banks to adjust loan principals to home values and modify loans in a timely fashion to stop foreclosures and the drag on the economy.
President Bush never even considered this option, and President Obama missed a golden opportunity after his election, giving the banks way too much credit - figuratively and literally. He clearly, though, has the courage to tackle tough problems; we are seeing him do it with the health care bill and job stimulus measures. Hopefully, it's not too late for foreclosures.
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