Clinton Calls For Bold Action To Halt Housing Crisis
Plan Would Help Families Avoid Foreclosure And Unfreeze Mortgage Markets
Hillary Clinton delivered a major speech in Philadelphia today on the state of the American economy and announced a four-point plan to stem the tide of home foreclosures, which has been a key driver in the weakening economy. Her plan includes new action to help at-risk homeowners restructure their mortgages, the creation of a working group that would investigate ways to broadly restructure at-risk mortgages and report its findings in the next three weeks, an easing in legal liability for mortgage servicers to help unfreeze the mortgage market, and an additional $30 billion in stimulus to help states and localities fight foreclosures in their communities.
"Over the past week, we’ve seen unprecedented action to maintain confidence in our credit markets and head off a crisis for Wall Street Banks. It’s now time for equally aggressive action to help families avoid foreclosure and keep communities across this country from spiraling into recession," said Clinton. "The solution I’ve proposed is a sensible way for everyone - lenders, investors, mortgage companies and borrowers - to share responsibility, keep families in their homes, and stabilize our communities and our economy."
The plan she announced today builds on her previous proposals to address the housing crisis including, cracking down on unscrupulous mortgages lenders, establishing a 90-day moratorium on foreclosures, and freezing interest rates for five years on subprime mortgages.
In 2007, there were more than 34,000 foreclosure notices sent out in Pennsylvania. And at least 1.7 million Pennsylvania homes will lose value because of foreclosures in their neighborhoods.
Clinton has been calling for action on the foreclosure crisis for more than a year. Unfortunately, the Bush administration is only now willing to consider aggressive action. But the time for mere consideration has passed. Hillary Clinton believes that immediate, bold action is required to unfreeze our mortgage markets and help keep millions of families in their homes. The four-part plan to protect American homeowners and address the housing crisis is as follows:
New Action to Help Millions of At-Risk Homeowners Restructure their Mortgages and Stay in Their Homes. Senator Clinton believes we should extend the Federal Housing Administration’s (FHA) capacity to guarantee restructured mortgages as proposed by Rep. Frank and Sen. Dodd. She believes that using an FHA guarantee to encourage private sector auctions of large mortgage pools is the preferable way of unfreezing our struggling mortgage market. However, she announced today that the government should stand ready to play a more proactive role in purchasing, restructuring, and reselling underwater mortgages.
A High-Level Emergency Working Group on Foreclosures to Investigate How to Achieve Broad Restructuring of At-Risk Mortgages. Hillary believes we cannot afford to wait until Congress passes legislation to determine the viability of the Dodd/Frank auction mechanism, or whether it will be necessary for the FHA or a similar entity to act as a temporary intermediary purchaser of mortgages. Therefore, she is calling on President Bush to appoint an Emergency Working Group on Foreclosures to address this question within the next three weeks. The group could be headed by eminent leaders like Alan Greenspan, Paul Volcker, and Bob Rubin - each of whom supports one of the remaining candidates in the Presidential race.
Clarifying Legal Liability for Mortgage Servicers to Help Unfreeze the Mortgage Market. Many mortgage servicers who want to work with families are deterred out of fear of litigation. Senator Clinton is introducing legislation to provide them with legal protection when they act to help struggling homeowners to modify mortgages.
A New Housing Stimulus Package With at Least $30 Billion for States and Localities to Fight Concentrated Foreclosures. After passing a $168 billion stimulus package with virtually no action to address the housing crisis that is driving down our economy, Senator Clinton is calling for a second, housing-focused stimulus package. She believes that if we can extend a $30 billion lifeline to avoid a crisis for Wall Street banks, we should extend at least $30 billion to help states and localities fight foreclosures in their communities.
Details on Senator Clinton’s Plan to Protect American Homeowners
1. New Action to Help Millions of At-Risk Homeowners Restructure their Mortgages and Stay in Their Homes. The share of mortgages entering foreclosures is at an all-time high and housing prices are falling at record rates. Already, 8.8 million Americans owe more on their mortgages than their homes are worth, the highest number since the Great Depression. If prices fall another 15 percent, one-third of all mortgages would be similarly "underwater." This trend threatens not only millions of families but the effective functioning of our credit markets as banks become less willing to make loans. The liquidity crunch is rippling through the economy, affecting everything from state and local tax revenues to student loans.
Under these circumstances, Hillary believes that we need broader and more aggressive action to help millions of Americans, who could responsibly pay monthly payments, by restructuring their mortgagees on affordable, sustainable terms. To this end, Hillary supports an approach recently outlined by Rep. Frank and Sen. Dodd in legislation that she has co-sponsored. This approach would expand the government’s capacity to guarantee affordable, restructured mortgages, and use a private-sector auction of large mortgage pools to help unfreeze our struggling mortgage market. This approach will give lenders new incentives to work with homeowners who have seen the value of their homes fall below the principal on their loans, and holds the potential to quickly restructure hundreds of thousands of viable mortgages and help bring an end to our credit crunch.
However, while Senator Clinton believes that using a private-sector auction mechanism is the preferred way to achieve this goal, she also recognizes that we may need even more aggressive efforts to facilitate broad-based mortgage restructuring and keep families in their homes. We can no longer allow ideology to stand in the way of helping at-risk homeowners. That is why Hillary is calling on the Federal Housing Administration or a similar government entity to stand ready to purchase, restructure, and resell underwater mortgages if a private-sector auction does not achieve the type of broad-based restructuring our housing market needs. Such an effort would not require creating new government bureaucracy and could be self-financing over the long run.
2. A High-Level Emergency Working Group on Foreclosures to Investigate How to Achieve Broad Restructuring of At-Risk Mortgages. Senator Clinton believes we cannot afford to wait until Congress passes legislation to address key questions about how to best help millions of homeowners restructure their mortgages on affordable terms. She is calling on President Bush to appoint an Emergency Working Group on Foreclosures to consult with experts and report to Congress and the Administration within three weeks on the best way to solve this crisis while focusing first and foremost on keeping families in their homes.
The Working Group should be headed by a non-partisan group of eminent leaders like Alan Greenspan, Paul Volcker, and Bob Rubin—each of whom supports one of the remaining candidates in the Presidential race. The Working Group should focus on key questions about whether and how we can use an expanded FHA guarantee to facilitate a private sector auction as proposed in the Frank/Dodd legislation. If it is determined that such an auction process would be ineffective in achieving the necessary unlocking and restructuring of mortgages, the group should investigate a broader government role through the Federal Housing Administration or another existing federal entity as an intermediary purchaser if direct government intervention ultimately becomes necessary.
3. Clarifying Legal Liability for Mortgage Servicers to Help Unfreeze the Mortgage Market. Many mortgage servicers are hesitant to undertake far-reaching restructuring efforts for fear of legal liabilities to investors who actually own the mortgage papers. Even though restructuring is often better for the bottom line than foreclosing, the absence of legal clarity surrounding servicers’ obligations to their investors discourages them from doing so. Consequently, servicers are wary of making themselves vulnerable to expensive lawsuits and have not aggressively pursued options for restructuring. Providing them with legal clarity will allow them to work openly with struggling homeowners to modify mortgages. This is a simple step that can save families’ homes, save investors from losses down the road, and help put the economy back on the right track.
Senator Clinton intends to introduce legislation to ensure that servicers who do the right thing by balancing the interests of the homeowners, the investors, and our economy will not face legal liability or negative tax consequences.
4. A New Housing Stimulus Package With at Least $30 Billion for States and Localities to Fight Concentrated Foreclosures. Since Senator Clinton first called for emergency housing funds in January, there has been a growing recognition of the need for broader and more flexible tools to states and localities to stem the harmful effects of foreclosures. As Federal Reserve Chairman Bernanke recently noted, clusters of foreclosures are negatively impacting entire communities.[1][1] For every empty house, nearby properties lose over 1.4 percent of their value. In a city like Chicago, this comes to a citywide loss of almost $1.4 billion - an average of $371,000 per foreclosure.[2][2] Concentrated foreclosures also reduce economic activity and tax revenue, threatening school funding and leaving localities unable to help struggling homeowners.[3][3] A study by the U.S. Council of Mayors found that the foreclosure crisis will be directly responsible for $6.5 billion in lost tax revenue and 524,000 fewer jobs across ten states.[4][4]
Senator Clinton’s $30 billion Emergency Housing Fund is designed to administer funds quickly and effectively to state, local and community groups to stem further foreclosures and counteract negative economic impacts in these communities. The fund will get money out quickly by using the existing funding formulas in the Community Development Block Grant (CDBG) program, rather than designing an entirely new set of allocation criteria. Local match requirements will be waived to ensure that funds flow out fast even in communities where the local tax base is contracting. Grants will be provided for one of several purposes, including:
Acquiring foreclosed or distressed properties, making improvements, and putting them back into productive use. As Federal Reserve Chairman Bernanke recently argued, purchasing foreclosed properties is an effective way to avoid the negative impact of concentrated foreclosures in communities. Senator Clinton’s Emergency Housing Fund would allow local governments, non-profit organizations and land trusts to purchase and re-sell properties to lower-income borrowers or convert purchased units into affordable rental housing. Buyers who receive the benefit of a reduced price property with an affordable stable mortgage would be expected to pay back some of that benefit as the equity in their home rises. This would allow communities as a whole to profit from the collective efforts of forestalling a downward spiral in property values.
Offsetting the costs associated with keeping neighborhoods with high numbers of foreclosures safe and secure. Vacant properties encourage crime and vandalism and can impose new infrastructure and public safety costs on localities. In Lee County, Florida, for example, where a quarter of the homes stand empty, robberies are up 58 percent. [5][5] States could use these grants to help cover the cost, including increased police and fire support, and investments in lighting and maintaining public infrastructure to ward off blight.
Working with homeowners threatened with foreclosure to restructure their mortgages and providing foreclosure prevention services at the local level. Many states have undertaken efforts to better educate at-risk homeowners with toll-free hotlines, expanded financial counseling and community-based foreclosure prevention education campaigns. In addition, state housing agencies and community groups are working with limited resources to help families restructure at risk mortgages so they can stay in their homes. These efforts need more support, and would be eligible for assistance under Senator Clinton’s Emergency Housing Fund.
SENATOR CLINTON’S PLAN TO PROTECT AMERICAN HOMEOWNERS BUILDS ON HER AGGRESSIVE PROPOSALS TO COMBAT THE FORECLOSURE CRISIS
For over a year, Senator Clinton has been urging action to get out in front of the growing housing crisis. In March 2007, Senator Clinton warned of the growing problems in the subprime market, and called for a "foreclosure timeout" and common-sense regulations to protect borrowers. In August 2007, Senator Clinton outlined a series of reforms to crack down on unscrupulous mortgage lenders and correct oversight failures in the mortgage industry. In December of 2007, she called on the Administration to convene stakeholders and secure a voluntary agreement around a framework that would help keep families in their homes, which included:
A foreclosure moratorium of at least 90 days on subprime, owner-occupied homes. The moratorium would stop foreclosures until lenders and servicers have an opportunity to implement the freeze in mortgage rates. The moratorium would also give state and city organizations as well as community groups the necessary time to provide financial counseling to at-risk homeowners.
Freeze the monthly rate on subprime adjustable rate mortgages, with the freeze lasting at least 5 years or until the mortgages have been converted into affordable, fixed-rate loans. This would give the housing market time to stabilize, give families an opportunity to rebuild equity in their homes, and give mortgage industry time, and incentive, to convert mortgages that were designed to fail into loans that are actually affordable.
