Remember how a couple of months after we invaded Iraq, all of a sudden we were no longer there because of Weapons of Mass Destruction, but instead because we were spreading democracy?
So it is that as of yesterday, the TARP ("Troubled Asset Relief Program") will no longer be used to Relieve Troubled Assets. Now, it's all about direct cash equity infusions. Just like Iraq was an urgent threat, the $700 billion bailout could not be discussed, debated, and considered with level heads by Congress. It just had to be passed immediately, "clean", no questions asked. And if you did ask questions, you were declared an enemy of freedom/capital.
Although nobody should be surprised by these classic Bush tactics, this news is actually welcome as far as fixing the economic crisis, because instead of "Cash for Trash" welfare for Wall Street, we can now use the money to help homeowners. A prescription for what ails us and a 5-point foreclosure-fighting agenda over the bump.
Here are the five things that federal regulators, Congress, and President Obama (damn I love saying that) must do to alleviate the foreclosure crisis which is at the heart of the global economic crisis:
I. Employ the bailout for mass modifications. Streamlined modifications to safe, affordable terms for delinquent troubled mortgages are the cure for what ails us. FDIC Chairman Sheila Bair has proposed using the authority granted in the $700 billion bailout to facilitate 3 million mortgage modifications, which is a great starting template pending critical details. Congress should further require taxpayer dollars to only purchase those whole mortgages and securities where the federal government would clearly have the authority to modify the underlying mortgages to prevent unnecessary foreclosures. Any firm participating in the bailout should agree to at least a 90-day moratorium on foreclosures.
II. Use Freddie Mac and Fannie Mae to help Joe and Jane Public. As conservator of the two mortgage giants, the Federal Housing Finance Administration must enact a foreclosure moratorium and then methodically modify mortgages, pulling them from securities if necessary, in order to stave off millions of foreclosures from GSE loans that are not affordable to the homeowner. The recent announcement of a first step in this direction is far too little – it only applies to 90-day delinquent mortgages with 90% LTV or more, and only to those whole, conforming loans that are owned outright by Fannie or Freddie. This program must be dramatically expanded and coupled with at least a three-month moratorium on foreclosures on all GSE loans.
III. Enact bankruptcy protections for principal residences to allow judicial modifications. Congress must close the loophole that allows the wealthy to protect their vacation homes and yachts while leaving those who only own one home out in the cold. This simple change would help an estimated 600,000 homeowners keep their homes and avoid foreclosure through loan modifications to truly affordable terms. Take action on this here.
IV. Create a new regulatory framework and end predatory lending. Congress has still refused to enact any significant curbs on the ability of mortgage brokers and bankers to engage in the unscrupulous lending practices that led us in to this mess. Current federal law (HOEPA) only protects borrowers in less than 1% of loans made. Further, a new regulatory framework is urgently needed so that institutions are governed based on what they do, not what they are.
V. Ensure available access to credit in low- and moderate-income neighborhoods. The Community Reinvestment Act should be expanded to all lending institutions so that they are engaging in safe and sound lending practices that combat the reverse red-lining of predatory lenders. The government must proactively ensure that credit-worthy borrowers in low- and moderate-income neighborhoods are not denied credit in a discriminatory fashion.
See? It's really not that complicated. We stop the foreclosures, housing prices will stabilize, mortgage-backed assets will be easier to value and that will help restore liquidity.
With Paulson bailing on the bailout's original intent, we now have an opportunity to really accomplish Task I from the above list. As a hard-hitting press release(where I stole my title) from ACORN President Maude Hurd said yesterday:
"Now that the bailout money won't be wasted on a 'Cash for Trash' program for Wall Street, that money must go directly into stopping the foreclosure crisis that continues to drag down our whole economy and the global credit market. FDIC Chairman Sheila Bair has proposed using the authority granted in the $700 billion bailout to facilitate 3 million mortgage modifications to avoid foreclosure, which is a great starting template pending critical details. While ACORN was pleased to see Secretary Paulson acknowledge this proposal in his remarks today, it should be explored and debated immediately and implemented in as broad and rapid a way possible. Only when we start stanching the record flow of foreclosures will we begin to stabilize housing prices and start to turn our economy around."
Paulson's got to stop dragging his feet and use his authority to help homeowners fight foreclosures, and if he won't, we all need to be vigilant to ensure that the next Treasury Secretary will! Here's hoping for an out of the box pick (read: NOT Larry Summers).