Keep People in Their Homes

Today's New York Times editorial page argued that the federal government must do more to keep people in their homes. Since the financial crisis started, NDN has observed that homes are at the root of the financial crisis.

Treasury Secretary Henry Paulson does not seem like the sort of man who suffers fools gladly. Yet, he apparently is tolerant of, or powerless against, a White House that remains opposed to direct government action to prevent foreclosures — a program that is essential to keep millions of Americans in their homes and head off an even deeper financial catastrophe.

Nearly three weeks ago, Sheila Bair, the chairwoman of the Federal Deposit Insurance Corporation, told Congress that the agency was working closely with Mr. Paulson’s department to develop a robust anti-foreclosure plan. Since then, the Treasury Department has balked and equivocated while the White House has argued that it is already doing plenty to help homeowners.

After a year of doing far too little to stem a flood of foreclosures, the problem is getting worse. Defaults lead to foreclosures that push down all house prices. Those falling prices — combined with rising unemployment, falling incomes and another expected surge in monthly payments on adjustable rate loans — will surely lead to more defaults and deeper price declines, threatening bank solvency and prolonging the credit crunch.
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All roads, into and out of this crisis, run through the housing market. Mr. Paulson should be pressing for a streamlined plan that includes permanent modifications to troubled loans. That is the only way to keep Americans in their homes, save the banks and the economy.

For more on NDN's campaign to keep people in their homes, click here. 

As President-elect Barack Obama turns to the enormous challenges facing the nation, his first priority will be to set his priorities. Already, there are more urgent problems than any president could tackle successfully in a single term, and even more will almost certainly emerge. Moreover, he now will have to lead in ways he did not have to as candidate, by taking real and contentious actions. His historic, landslide election will give him greater, initial political capital than any president since Ronald Reagan. Even so, capital gets spent, and a president’s power and influence are finite, so he will have to choose precisely where he intends to focus all that capital, power and influence.

The lead items on his domestic agenda must be the nation’s financial and economic crisis. That will require, first, steps to slow housing foreclosures. He has pledged to initiate a 90-day moratorium on foreclosures, but that would be only a first, modest step. He also could also create a new fund to lend tide-over funds to homeowners facing foreclosure after the 90 days are up, and while Fannie Mae and Freddie Mac work out a responsible plan for them to renegotiate the terms and interest rates on the mortgages of homeowners in distress. He also can help banks get credit flowing again with a temporary, reduced tax rate on an estimated $700 billion in profits now held abroad by the foreign subsidiaries of American companies.

That step also could provide a measure of stimulus for an economy currently entering what is likely to be a long, nasty recession, and addressing the recession also must be one of President Obama’s first priorities. Tax rebates won’t work, since most Americans would most likely save any new checks rather than spend them. So Washington will have to jumpstart the nation’s additional spending, with a new spending package of $200 billion to $250 billion. And President Obama should focus most of it on the long-term investments he called for during the campaign, including grants to digitize health care records and provide access to computer training for current workers, and new supports to modernize the electricity grid and accelerate the development and spread of alternative energy. On top of that – and grants to cash-strapped states so they can avoid large cuts in their Medicaid programs and their workforces – the new president should focus the infrastructure piece of his stimulus on creating a national infrastructure financing bank and initiating new commitments for low-polluting light rail systems in major metropolitan areas.

The president will also hear demands and pleas for a new regulatory framework for the financial sector. That task is clearly a necessary and urgent one, but getting it right will be a long, complex process. His best move would be to create a national, expert commission with a mandate to figure it out over the next six months and report back to the nation.

The president’s serious priority-setting can only really begin once he addresses those emergencies – and it won’t be easy. The stimulus measures can be the first steps toward meeting his pledge to help build a more energy-efficient and climate-friendly economy. And since he will have to choose, the rest of that agenda should probably take lower priority than health care reform. One reason is that while the recession will cut energy prices and energy use with no help from Washington, for at least a time, it will only worsen out health care problems. The recession will further increase the numbers of people without coverage, perhaps by millions, without making a dent in the steady, sharp increases in health care costs that will continue to cut into jobs and wages. And any further delay will only make it all worse. It’s time to carry out his plans to make coverage much more nearly universal, and tie those extensions to a hard-nosed program of cost controls that will require hospitals and clinics to adopt the best practices of the country’s most cost efficient medical centers.

This will leave President Obama with plenty to tackle in the second half of his term. That can be the time to take further steps to help make America more climate friendly and energy efficient. It also has to be the time to build on the cost-control lessons from health care reform and finally address the serious and treacherous business of reforming Medicare and other entitlement spending for tens of millions of Baby Boomers.

And if President Obama can make real progress in these priority areas over his first term, it will almost certainly earn him an even bigger national landslide for a second term. 

From recent action on Capitol Hill, it looks as though the federal government may ultimately take action to keep people in their homes. As Sam mentioned in his daily round-up (a relatively new NDN product that has become a must read in the mornings), FDIC Chariman Sheila Bair’s testimony to the Senate Banking Committee yesterday was well-received, and details of the plan are expected in weeks.

From the New York Times:

With foreclosures mounting, Bush administration officials said Thursday that they were preparing to step up efforts to help struggling homeowners.
A senior policy maker told a Senate committee that the administration was working on a plan under which the government would offer to shoulder some of the losses on loans that are modified.

The insurance program could cost tens of billions of dollars, according to a person briefed on discussions about the plan, and would be run by the Treasury Department under the $700 billion financial rescue bill Congress passed earlier this month.

The remarks about the plan, made by Sheila C. Bair, the chairwoman of the Federal Deposit Insurance Corporation, came as a new report showed that foreclosure filings jumped 71 percent in the third quarter from a year earlier. At the hearing, Congressional Democrats criticized the administration for not doing enough to help homeowners even as the Treasury and Federal Reserve have moved to inject hundreds of billions of dollars into banks and the financial system.

Ms. Bair, who has been one of the most ardent proponents of loan modifications, acknowledged that more needed to be done. "We are behind the curve," Ms. Bair told the Senate Banking Committee. "We are falling behind. There has been some progress, but it’s not been enough, and we need to act and we need to act quickly and we need to act dramatically."

The Washington Post's front page also has coverage on the proposal. For well over a month, NDN has been arguing that the federal government must take decisive action to keep people in their homes, as stanching forecloures is a key ingedient to stopping the financial cave in. Thankfully, it finally looks as though the federal government will act. For more on the NDN Keep People in Their Homes campaign, click here.

From the pages of today’s New York Times come two articles on the struggles of millions of Americans who are worried about staying in their homes. The first, from the editorial page, argues that there has been "Only Half a Bailout" and echoes a call made by NDN over a month ago to keep people in their homes. The second, by David Leonhardt, ponders some of the pros and cons of doing just that.

From the Editorial Page:

The unfortunate reality is that as long as millions of Americans continue to default on their mortgages and housing prices continue to slide, banks will continue to suffer big losses. Unless something is done quickly to help American homeowners avoid foreclosure and stay in their homes, those losses could swamp the bailout effort by exceeding the sums being spent to rescue the banks.

Despite the danger posed by foreclosures — to the bailout, homeowners, taxpayers and the economy — the Bush administration and Congress are still depending on banks and other participants in the mortgage industry to voluntarily modify troubled loans, say, by giving borrowers more time to pay or by reducing interest rates.

The voluntary approach hasn’t been enough to stanch foreclosures. As things now stand, some 3.2 million homeowners will likely lose their homes to foreclosure this year and next, and millions more will struggle to catch up on delinquencies. Vacancies and defaults will continue to push house prices down; they have already fallen by 20 percent nationwide and are now expected to fall by at least another 10 percent. There is no time to waste to reverse the spiral.
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Both John McCain and Barack Obama have recognized that this crisis won’t be solved until a way is found to keep many more Americans in their homes.

The editorial goes on to explain detailed options of the Obama and McCain plans, as well as other potential options. The most important point is that homes are the assets at the bottom of this financial cave-in. If foreclosures continue, so will the meltdown. For more on NDN’s Keep People in Their Homes campaign, click here.

The front page of today’s Wall Street Journal features an article on Federal Deposit Insurance Corp. Chairman Sheila Bair calling on the federal government to do more to keep people in their homes. She echoes an analysis that NDN offered a month ago: that home foreclosures are at the root of this financial crisis and that the federal government must work to keep people in their homes.

Federal Deposit Insurance Corp. Chairman Sheila Bair on Wednesday criticized the federal government for failing to take more aggressive steps to prevent Americans from losing their homes, highlighting a rift between her and other senior U.S. officials over terms of the $700 billion rescue package.

The government plan will help stabilize financial markets but it doesn't do enough to address home foreclosures, the root of the crisis, she said in an interview with The Wall Street Journal."Why there's been such a political focus on making sure we're not unduly helping borrowers but then we're providing all this massive assistance at the institutional level, I don't understand it," she said. "It's been a frustration for me."
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Ms. Bair has argued the plan should have a bigger focus on homeowners, whose travails are at the heart of the current crisis. Until home prices stop falling, financial markets and the economy are unlikely to stabilize. "This agency, probably as much as anybody, given our genesis in the Depression, has a sense of purpose now perhaps more than any other agency," Ms. Bair said.

Blair’s call is a welcome sign of the growing consensus of the need for a smarter approach from the government on the financial crisis. Keeping people in their homes is not just a moral issue or good politics, it’s crucial to the economy. If the government fails to stabilize the housing market, the financial cave-in will continue. For more on NDN’s campaign to Keep People in Their Homes, click here.

I'm no economist, but I can read. The front page of my morning paper has huge, screaming headlines about global stocks sinking, the Dow closing below the 10,000 level for the first time in four years, Germany drafting a plan to shield its banking sector and no planned raises for local teachers because of a now-expected budget shortball, among others. The front page looks downright apocalyptic.

Most of this news seems far away -- it's on Wall Street, in Berlin, in Tokyo. But it's not. It's affecting those teachers in Maryland. It's affecting the presidential race in states like Michicgan (U.S. Sen. john McCain pulled his campaign out last week) and Ohio, where a new poll shows folks' economic anxiety on the rise along with the poll numbers of U.S. Sen. Barack Obama.  

What can we do?

For the last several weeks, NDN has argued that Congress and the President must make a serious effort to slow down the continuing deterioration of the housing market that ultimately has driven the problems in financial institutions. The bottom line? Keep people in their homes. 

So long as housing values continue to fall and foreclosures continue to climb, housing-based securities and derivatives will continue to default, further weakening financial institutions and the businesses and households that depend on them for credit.

In an insightful new Associated Press report (well worth reading) on just what caused the financial collapse, whom it's affecting and what might be done to fix it, AP's Tom Raum talked to NDN Globalization Initiative Chair Dr. Robert Shapiro:

Rob Shapiro, who was an economic adviser to President Clinton, said the crisis in Europe will turn out to be at least as severe as it is in the United States. "Between Europe and the United States, we'll take everybody else with us. And this is reflected in the markets," he said.

Shapiro, who heads the global initiative program at NDN, a Washington think tank, said one step that might help restore confidence would be for the government to set up a program to make direct loans to people facing foreclosures. Another might be for the government to turn all the problem mortgages held by Fannie Mae and Freddie Mac into 30-year fixed rate ones.

As Jake pointed out last night, the presidential campaigns are engaged in plenty of political maneuvering on the eve of the candidates' second debate, but Obama made clear in a speech yesterday in North Carolina that he knows very well the importance of addressing the ongoing mortgage crisis.

So again, NDN urges Congress and the President to take steps to stablilize the deteriorating housing market. Only then will we be able to address the economic struggles of everyday people here at home and turmoil in the markets abroad.

Marc Ambinder over at the Atlantic does a good job summing up today's political messaging as it relates to the economy. In "Fannie, Freddie, or the Future," Ambinder argues that speaking about the future of the American economy is a better political strategy, and, that going for the gutter, as the McCain camp announced they were going to do, while politically enticing, might not be the best way to win (especially executed this poorly).

[Keating economics] successfully jammed up McCain's message of the day, which is that Obama is somehow to blame for the excesses of Fannie Mae and Freddie Mac. Blaming Democrats for Fannie and Freddie's collapse -- implicity, blaming the government for giving people home loans who couldn't afford -- isn't beanbag, but the McCain campaign is using it the way that Democrats used to respond to foreign policy questions: by stumbling around, latching on to a poll-tested response, and ignoring the bigger picture.

Ayers and Keating aside, the leading edge of this debate is about what do we do post-bailout to restore confidence in our economy. The public will rightly pressure both candidates for more answers. It's an opportunity for somebody to come up with a newer, global message. or at least sound like they get the international dimension of our meltdown.

Hitting back with the Keating Five was political necessity from the Obama camp, and as Ambinder writes, has worked today, but Obama's real strength in recent weeks has come on the back of his strong response to the financial crisis. The current narrative about Obama's calm reaction compared with McCain's erratic reaction, believeable because it reinforced preexisting memes about both candidates, will serve Obama well for the next month.

Now, as the Obama campaign launches its Keating Economics piece, Obama himself expands his message on the economy and hits McCain on trying to turn the page. Today in Asheville, North Carolina, Obama had this to say:

We are going to have to then move on an aggressive plan to deal with some of the underlying structural problems in the economy, including the continuing decline in the housing market. Now Senator McCain and I have a debate tomorrow night, and obviously the American people are going to be anxious to hear from one of the two people who’s going to be the next president and responsible for dealing with this economic mess, what their plans are.

As NDN has argued, that plan must include action from Congress and the President to do more to keep people in their homes. For more on NDN's reponse to the financial crisis, visit Keep People in Their Homes.

This is running on their site now:

After nearly eight years of voting in virtual lock step with President Bush on everything from tax cuts to torture, House Republicans decided on Monday to break ranks on the survival of the nation's financial system.

The rejected bailout bill that was on the floor after a weekend of hard negotiating was objectionable in many ways, but it was a Republican-generated bill and was improved from the administration's original version. Sixty percent of House Democrats voted for the bill, enough to easily pass the measure if the Republicans had not decided to put on their display of pique and disarray.

The question now is whether the stock-market plunge that followed the House's failure to lead - and a renewed credit freeze - will be enough to get the 133 Republicans who voted against the measure to change their minds. And, more important, whether the damage that the no vote has inflicted is readily reversible.

Republican no votes were rooted less in analysis or principle than in political posturing and ideological rigidity. The House minority leader, John Boehner, conceded as much: "While we were able to move the bill drastically to the right, it wasn't good enough for our members."

It's not clear what would be good enough for the Republicans since there was very little talk of substance on Monday after the bill died on the floor of the House. Instead, the Republicans tried to blame a speech before the vote by House Speaker Nancy Pelosi, who connected the current crisis to the fiscal and economic mismanagement of the Bush years. It may not have been the perfect moment to say that, but it was true.

Republicans were also upset that serial bailouts represent a rejection of free-market principles. They do. That's because the free market in finance, unregulated and unsupervised, has failed. And, in its failure, it is inflicting greater damage on an already weak economy.

No amount of amendments to the bailout package will change the administration's disastrous economic record or erase the manifest failure of the Republicans' free-markets-above-all ideology.

Since last week, this page has urged Congress to take the time to get the bailout right. Over all, lawmakers have given too little consideration, in public at least, to alternatives to the Treasury's plan to buy up the bad assets from various financial firms.

In the bill rejected on Monday, the unlimited powers that the Treasury Department had initially sought were curbed, and Congressional oversight was added. But judicial review of Treasury's purchases was not adequately ensured. The courthouse door was not closed entirely; lawyers could still seek effective remedies for actions that violate the Constitution. But that's a much higher hurdle than the already formidable barriers in place to discourage lawsuits against the government.

Homeowners were also given short shrift with provisions that mainly urged lenders and the Treasury to do more to help them. That's unconscionable. The financial crisis is as much a problem for homeowners as for Wall Street investment bankers. Appeals to lenders' better natures have not worked to bring lasting relief to homeowners. If they are still not working in the coming months, Congress will have to revisit the issue.

Taxpayer protections are also iffy, such as a requirement that in five years, the president must give Congress a plan for recouping any losses from financial firms. What will happen then is anyone's guess. Lawmakers could decide at that point that taxpayers are the only pit bottomless enough to absorb those losses.

Still, the imperfections in this bill are the result of a democratic process that can be rethought, revisited and reworked. It is better than nothing, which is what some backward-looking House Republicans gave Americans on Monday.

Just now, in some serious high-drama action usually reserved for reality TV, the U.S. House of Representatives just rejected (OK, Simon, you called it) the proposed $700 billion proposal to bail out the nation's financial markets. 

And more bad financial news keeps rolling in: the New York Times reported earlier today that, "Citigroup has reached an agreement early today to acquire the banking operations of the Wachovia Corporation after making a daring bid that pulled the deeply troubled company from the brink of collapse."

Whether Congress ultimately passes the bailout or not, NDN strongly believes that Congress' work has just begun.

Nearly two weeks ago, NDN launched an effort to ensure that the actual cause -- the massive destabilization of the U.S. housing market -- was addressed. Michael, Rob, Simon and Jake have said it much more eloquently, but the bottom line is that faulty financial products were at the bottom of the financial cave-in. An excellent article in yesterday's Washington Post explains why you and I now own millions of properties across America.

For that reason, and because lawmakers should make every effort to help homeowners as much as they are helping Wall Street, Simon, Rob and Michael today issued the following statement:  

While we applaud the bipartisan effort by Congress and the White House to craft a response to the turmoil in the American financial markets, we are concerned that this package does not address critical issues causing the current problems and will not be effective unless additional steps are taken. 

First, Congress and the President must do much more to stabilize the housing market by helping people keep their homes. This crisis began when the home mortgages that had been securitized with massive leverage began a precipitous decline. As housing prices fell and more mortgages defaulted, the decline in the value of the only real assets in this financial house of cards began to pull down the highly leveraged securities and their derivatives. The financial crisis will continue so long as the housing market declines. 

A real solution to this crisis, therefore, must include far-reaching measures to break this vicious cycle and end waves of foreclosures. Last week Senator Obama, Senator Clinton, NDN and others argued that an effective response to the financial crisis must include a mechanism for rapidly renegotiating the mortgages of Americans facing imminent foreclosure, or a direct federal loan facility to help those Americans stay in their homes. 

After Congress finishes with this bill, it should turn immediately to legislation designed to keep people in their homes. Further, if the new legislation fails to restore confidence in financial institutions, as we believe may well be the case, Congress and the Administration should also come together to consider approaches other than a massive bailout to provide stability to the financial sector.

Nine days ago, Dr. Rob Shapiro, Chair of NDN's Globalization Initiative, and NDN President Simon Rosenberg launched a "Keep People in Their Homes" effort to ensure that any proposal to put our financial markets and economy back on track include provisions to do just that. 

This strategy is now one of the core points of the Obama plan. Yesterday, Senator Hillary Clinton embraced the idea in a powerful op-ed, "Let's Keep People in Their Homes," in the Wall Street Journal. Today, the New York Times embraced it in its lead editorial, "What About the Rest of Us?"

On Tuesday of this week, Rob and Simon released a more detailed essay, entitled, "Keep People in Their Homes." On Wednesday, Rob wrote an important piece, "Back to the Basics: The Treasury Plan Won't Work." Rob's arguments from that essay received excellent coverage today in an insightful Wall Street Journal article, "Bailout Proposal Gets Hung Up Over Central Issue: Will It Work?" by Deborah Solomon and colleagues. Also today, NDN Fellow and Green Project Director Michael Moynihan argued in his essay, "Notes on the Financial Crisis," that the Administration needs to stop using panic as a negotiating tactic in an effort to reach an agreement.

I encourage you to read the Obama statement, Senator Clinton's op-ed and the New York Times editorial above.

NDN's argument is simple: among all the things the government can do to address the financial crisis, there is at least one thing it must do -- keep people in their homes. Keeping people in their homes will help stabilize the declining assets that are causing the current financial market collapse. We must drastically reduce the foreclosures that have destablized  the housing market underneath all the leveraged debt that is weakening our financial markets. Unless we do so, those markets will continue to weaken, even with a $700 billion bailout. And homeowners will continue to lose their homes. 

Passing an economic rescue plan that does not directly address declining home prices by helping people keep their homes is a risk too great for the American people to take. 

That's why we are asking today for you to do more than just read our e-mails. We are asking you to take action. We are asking you to call or e-mail your Senators and House Members, regardless of party, and insist that this provision be in any final economic plan. If you know Members of Congress outside of your state, call or e-mail them as well. 

While it is critical for Washington to act this week, it is more important that we do the right thing rather than the expedient thing. We cannot accept any deal that doesn't address the struggles of everyday people, particularly a deal crafted by an Administration that has gotten so little right these last 7 1/2 years. Please join us and make sure our elected officials do what they need to do in these next few days. The stakes are too great for us to get this one wrong.