The mortgage crisis of today is that rare public policy issue that lends itself to a simple and utterly foolproof prescription: Just stop it. End it. Shut it down.
After idly observing months of human misery, the Bush administration finally has decided to sit down with the business community and negotiate a fix to the foreclosures that are wiping out communities around the country. But it's too late and too little. The fix they are proposing would cover only a very small percentage of the mortgages at risk. We need real leadership from government.
Right now, we need a moratorium on subprime mortgage foreclosures. Guaranteed, that will dam the flood of Americans losing their homes and their life savings. Government can do this--and fast. It would be nice if it were done with the support of responsible business leaders, but, frankly, it's not necessary to have the business community on board. A foreclosure moratorium will give real incentives for lenders to restructure loans on fair terms.
Instead, the administration is doing what it's always done to address the consequences of the economic free-for-all it espouses: "The public is restless. It's time to offer something that changes almost nothing but looks like we've done something for the people who have nothing."
In the past few months, I have traveled the country meeting those people like Steven Levine in Toledo, Ohio. Steven is about to lose the home he has lived in for 48 years because of home equity loans he is unable pay. Steven is living in a home in northern Ohio with no heat. The power will be turned off within a week. His mother has Alzheimer's and is in a care facility. Now both have to move into his sister's small home in South Carolina. He's not sure how he'll afford placing his mother in a new care facility.
Steven is literally one in millions. Around the country, families are seeing their life savings evaporate along with their dreams. This must end now. We cannot have homes foreclosed and fear stalking our communities while banks and government agencies negotiate over loan-restructuring programs. Only a moratorium will create real incentives to restructure loans. That is the first step.
Next, the mortgage industry and government must create a structured program providing for the replacement of teaser-rate loans, such as 2/28 adjustable loans, with conventional 30-year mortgages at the teaser rate.
Servicers must renounce agreements that reward mortgage companies for foreclosing on homes rather than encourage refinancing or other workout strategies.
And servicers must commit to publicly reporting, company by company, how many subprime loans they are servicing, how many have reset, how many have been restructured and how many foreclosures are occurring and where.
Finally, there must be massive outreach under federal government auspices to subprime borrowers to let them know how they can keep their homes. The Treasury Department has encouraged this type of outreach by private groups, but this effort should be much more extensive and should be clearly governmental in nature.
These are the steps necessary to stabilize our housing markets, prevent cascading defaults and safeguard our economy. They also are the steps necessary to protect the financial institutions and the investors, the very people who will likely complain about government interference.
Ignore those people. Let them have their say and then turn around and govern. The housing financial crisis is not just the problem of a few poor--read powerless--families. It is threatening to spread into a full-blow recession that will cut a swath through the economic lives of people across this country. Everyone in America will feel the pain. They will demand action. But the damage will already have been done.