NCRC Proposal to End the Foreclosure Crisis
Friday, March 14, 2008In Plenary 2, and later on during the NCRC conference on March 14, 2008, details of the NCRC plan to end the foreclosure crisis were outlined and discussed. A full press release on this is available on the NCRC website and also available from Jesse Van Tol at jvantol@ncrc.org.
Under the NCRC plan, the government will buy the loans in auction at deep discounts. This will already reduce the value of the mortgage. And if the new reduced mortgage is still greater than the market value of the home, then the government will hold a “soft-second” loan on that difference, maintaining a lien worth that value on the property. The government will get back the value of the lien when the property is sold or refinanced.This plan provides a solution that is sustainable in the long term and it tackles the problem at a large scale–which is the need of the hour.
The program can be implemented almost immediately and requires no new government bureaucracy.The NCRC proposal does not involve setting up a new agency. It is the Treasury Department that would purchase the loans under a new three-year program. Thus, administrative costs of this plan will be kept minimal.
Greg Stanton of Wall Street Without Walls provided a detailed picture of the NCRC plan. Shawn Bailey provided the Wall Street investor’s perspective on the plan. Its best feature, according to Bailey, is that it does not violate existing contracts. When contracts are violated, it sends a very bad signal to the market, and can well freeze the entire industry to a standstill. According to him, the NCRC plan does not violate bondholders rights and will help bring housing prices down to more normal levels. In his words, “it is the most sensible program I have seen.”
Bruce Marks of Neighborhood Assistance Corporation of America (NACA) expressed the view that it was not investors who were the main problem, but mortgage servicers–they were responsible for creating the housing crisis, and they are the ones to go after in finding any solution to the problem.
Irvin Henderson of Henderson & Company emphasized the importance of a grass roots approach and using local options. He stressed counseling, dissemination of information, and sharing information. According to him, collaboration and not just anger will help solve the problems.
As participants commented later in the day, a mutipart solution will be required. The NCRC plan tackles the problem very substantially at the national level, and this should be supplemented with grass roots level assistance to tackle unique local issues.
The proposals at the conference offered much hope. But this hope is dampened by President Bush’s warning that he will veto any such proposal that “uses taxpayer money.”
Even as the NCRC conference was in session, the news of the day broke — of the Bear Stearns crisis and the immediate bailout from the Fed for this company. And at the same time, President Bush commended the Federal Reserve for its interventions in the economy, but warned against any “massive” intervention in the mortgage crisis.
NCRC President John Taylor commented on the lack of nimbleness of federal institutions in responding to problems of consumers, in contrast with their alacrity in responding to problems of Wall Street.
Nandinee K. Kutty is an economist and a policy consultant. Dr. Kutty has authored papers in peer-reviewed journals of economics and policy. She is an editor of and contributor to a recent book on housing policies in America published by Routledge. She has a Ph.D. in economics from the Maxwell School, Syracuse University, where she was awarded the Roscoe Martin Dissertation Award, and a University Fellowship. She was formerly an assistant professor at Cornell University. She has been awarded numerous grants for research and innovative teaching.