Today the Center for Responsible Lending (CRL) registered major disappointment with a bailout proposal that fails to address the root causes of today's economic crisis. While agreeing that the current situation calls for substantial government intervention, the Center says the plan that emerged is neither effective nor fair.
"Any plan that fails to stop foreclosures will ultimately fail to fix the crisis," said Michael Calhoun, president of CRL. "Wall Street firms and banks caused a massive foreclosure crisis in this country, and this bailout provides no meaningful way to end it. It doesn't stop the epidemic that will continue to drag down property values for everyone."
CRL estimates that subprime foreclosures will cause 40 million homes that happen to be located nearby to lose as much as $352 billion in property values over the next few years. For more details, see CRL's recent update on the impact of subprime foreclosures and their impact on home values at: Updated Projections of Subprime Foreclosures in the United States and Their Impact on Home Values and Communities
The bailout bill does virtually nothing to help millions of middle-class families facing foreclosure, and therefore it cannot fix the housing market. "Congress missed a massive opportunity, and obligation, to put a stop to needless home losses that are driving down everyone's property values," Calhoun said.
"There is nothing in the bailout that will mitigate widespread damage caused by foreclosures," he said. "The bill includes a vague provision that calls for the government to buy mortgages and securities and then try to modify them, but this will have very limited impact. Wall Street splintered home loans into complex securities, making it very difficult for the government to fix the resulting scattered pieces of mortgages."
Effective approaches to the foreclosure problem were widely available and yet were ignored in the final package—approaches that imposed real duties on Wall Street and banks and did not cost any tax dollars. These included providing homeowners with the same right to judicial modification of their home loan that Wall Street firms have for their debts, a short-term deferral of foreclosures to provide time for negotiations with servicers, and requirements that lenders at least make an attempt to fix a loan before foreclosing. Wall Street and the banks blocked all of these options, while at the same time demanding their own massive bailout.
The housing crisis and economic turmoil will continue until these and other effective and fair measures are adopted.
For more information: Kathleen Day at (202) 349-1871 or kathleen.day@responsiblelending.org; Sharon Reuss at (919) 313-8527 or sharon.reuss@responsiblelending.org; or Ginna Green at (510) 379-5513 or ginna.green@responsiblelending.org.