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Mark Winston Griffith Headshot

The Bair Necessities

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As reports emerge that FDIC chair Sheila Bair is being considered for Treasury Secretary, I am transported to a point in time over a year ago, when Bair fired a shot heard around the banking and economic justice world. On October 19, 2007, in a New York Times op-ed, Bair made a sweeping proposal to make mortgages more affordable to homeowners:

There have been many proposals to deal with the problems in the mortgage market. But the best place to begin is by looking at the poor lending standards and weak consumer protections at the root of the problem -- in particular, the troubling loans called 2/28 and 3/27 subprime hybrids. They have starter interest rates of 7 percent or more for the first two or three years, and "resets" that raise rates to as much as 12 percent, causing monthly payments to increase by at least 30 percent.

...[S]ubprime servicers should take a... standardized approach: restructure all 2/28 and 3/27 subprime hybrid loans for owner-occupied homes in cases where the borrower has been making timely payments but can't afford the reset payments. Convert these to fixed-rate loans at the starter rate.

This would be no bailout. These borrowers would still be required to make their monthly payments -- at rates higher than what prime is today. Billions in savings would be generated by avoiding the administrative, legal, marketing and other costs of foreclosure, which can run to half or more of the loan amount. And avoiding foreclosure would protect neighboring properties and hasten the recovery of markets burdened by an excess supply of houses.

The mortgage crisis is growing, and the mortgage industry has the ability to help solve much of it on its own. Subprime borrowers need a better deal -- one that they can afford.

Bair's rather common sense op-ed was at the same time so remarkable that it prompted a coalition of progressive economic justice organizations I belonged to issued a press release that day in strong support of Bair's thinking. Releasing that press statement was arguably the swiftest and most decisive action our fledging coalition had ever taken up to that point.

What was so remarkable about Bair's proposal? First, it focused on the plight of homeowners. Secondly, it identified "poor lending standards" and "weak consumer protections" as being at the root of the foreclosure crisis. Thirdly, it proposed system-wide, across the board, action that, if followed, would have helped to put some brakes on the growing foreclosures crisis. And the last, most fascinating aspect of Bair's proposal was that it was coming from a Republican appointee in the Bush administration, an administration which, up to then, had turned a neglectful eye to the plight of homeowners and predatory lending practices.

Since then Bair has been leading an aggressive mortgage modification charge, mostly against the grain of proposals made by Treasury Secretary. Talks recently broke down between Bair and Paulson when Bair was hawking a far-reaching foreclosure prevention plan, and last week she basically panned another do-nothing mortgage modification plan offered by Fannie/Freddie and chamioned by the Hope Now Alliance, a coalition of financial service industry leaders.

All this and more have caught the attention of fair lending advocates, while leading to a considerable amount of blog chatter, much of which has been calling for or predicting a Bair Treasury appointment for weeks.

A Bair appointment would slay several political birds at once for an Obama administration. She is a Republican woman who would provide across-the-aisle street cred and represent the closest thing to a cabinet level, pro-Main street, economic policy maker this country as seen in the last eight years. She's media savvy and was bold enough to publically break from the Republican economic policy pack when it was clearly going in the wrong direction.

As Michael Corleone would have said, "It's the smart move. Bair was always smarter."