$700 billion Wall Street Bailout Inequitable and Fails to Address the Core Problem: Foreclosures

On behalf of its over six hundred organizational members across the country, NCRC said today that it is opposed to the $700 billion bailout bill proposed by the Administration unless it first addresses the foreclosure crisis affecting millions of Americans.

 

FOR IMMEDIATE RELEASE             Contact:  Jesse Van Tol (202) 413-5614
September 22, 2008                                                     This e-mail address is being protected from spambots. You need JavaScript enabled to view it




Washington, DC – On behalf of its over six hundred organizational members across the country, the National Community Reinvestment Coalition (NCRC) said today that it is opposed to the $700 billion bailout bill proposed by the Administration unless it first addresses the foreclosure crisis affecting millions of Americans. The $700 billion proposal is the latest and most expensive of a series of financial system liquidity interventions that fail to address the core problem undermining the financial system and destabilizing the economy. Declining assets in the form of foreclosures are dragging down the economy, and continued lopsided attempts to provide liquidity to financial institutions will not resolve the issue.

“This Wall Street bailout leaves Main Street out in the cold,” said NCRC president & chief executive officer John Taylor. “Worst of all, it won’t solve the economic problems facing the country. A comprehensive solution to stem foreclosures is needed to shore up the economy and keep millions of Americans in their homes.”

The Board of Directors of NCRC will meet today with Chairman Ben Bernanke at the Federal Reserve to say that before acting to shore up Wall Street, the government should first provide assistance to homeowners to avoid foreclosure, the core problem rocking the financial system, and then act to help Wall Street out of its current crisis.

Foreclosure prevention efforts should take the form of a broad scale loan modification effort modeled after the Home Owners Loan Corporation of the 1930s, such as NCRC’s proposed Homeowners Emergency Loan Program (or HELP Now). Under that plan, the government would buy whole loans at a discount and modify them in such a way as to make them sustainable for the homeowner. The program would be significantly less expensive than the Administration’s plan, because after modification the government would sell the loans and recoup the major part of the cost.

Congress should also amend bankruptcy law to allow judges to modify the terms of  primary mortgages, as is currently allowed for investment properties.

“Assisting homeowners to stay in their homes would have been a more effective and equitable way to prevent the collapse of financial institutions and seizure of the credit markets,” said John Taylor. “In addition to keeping the economy strong, doing so would have allowed millions of working families to maintain their homes.”

Once Congress has assisted homeowners, it is appropriate and necessary for them to address the liquidity crisis that has resulted from the ongoing foreclosure crisis.
“Address the woes of Wall Street second,” said John Taylor. “Bailing out the very firms that caused this crisis in the first place would be an outrage.”

Finally, Congress should enact protections for homeowners to ensure that unfair and deceptive lending practices do not again lead to a foreclosure crisis. Senator Dodd’s Homeownership Preservation and Protection Act of 2007 should be added to the Wall Street bailout package. “Asking the American public to pay $700 billion to bail out investors for reckless and irresponsible lending practices without ensuring this problem does not reoccur in the future is unconscionable,” said John Taylor.

The Dodd bill would eliminate prepayment penalties and yield-spread premiums in subprime and high-cost loans (as defined by HMDA), and create a “good faith and fair dealing” duty for all lenders, including a fiduciary responsibility for brokers. The proposal aggressively addresses abuses in the servicing sector, and would hold lenders accountable for problematic appraisals. Non-traditional products, such as option-ARMs and so-called 2/28 & 3/27 mortgages, are also included in the protections of the bill.

Congress needs to get these three things done – a comprehensive plan to address foreclosures, efforts to improve liquidity and an anti-predatory lending bill – before it adjourns. If they fail to do all three, they will leave American homeowners out in the cold.

The National Community Reinvestment Coalition is an association of more than 600 community-based institutions that promote access to basic banking services, including credit and savings, to create and sustain affordable housing, job development and vibrant communities for America's working families.

 Download the pdf

< Prev		Next >