Home prices are down, and mortgage delinquencies are up. Experts say the spreading housing crisis is threatening to drive the U.S. economy into a recessionâ€“if weâ€™re not there already. As might be expected, politiciansâ€“especially presidential candidatesâ€“have come up with proposed solutions to the credit crisis.
Presidential hopeful Hillary Clinton has proposed a $30 billion federal fund to buy out troubled mortgages, a plan which she discussed while addressing a Philadelphia audience at the University of Pennsylvania March 24. She parallels the plan to the Federal Reserveâ€™s recent bailout of the investment bank Bear Stearns. “Itâ€™s now time for equally aggressive action to help families avoid foreclosure,” Clinton said.
In her speech, Clinton noted that some 2.2 million notices of foreclosure went out last yearâ€“up 75% from 2006. “Communities of color have been especially hard hit,” she said. “Subprime loans are five times more common in predominantly African American neighborhoods than predominantly white ones.”
Congress passed, and President Bush signed, a $168 billion stimulus package. “But this package did next to nothing to help homeowners and communities struggling with foreclosures,” she said. “I said at the time, if we did not address the housing crisis, we would not be able to stem the bleeding. Congress is trying to combat a recession caused by the housing crisis without doing anything to address that crisis.”
Earlier this week, she spelled out her four-part “Protect American Homeowners” plan. Highlights include:
Part One:Mortgage auctions. The first section of Clintonâ€™s plan is actually in support of legislation already introduced by Rep. Barney Frank (D-Mass.) and Sen. Christopher Dodd (D-Conn.) It would create an auction system for holders of mortgages to sell their mortgages “in bulk” to investors, thus setting prices for hard-to-value mortgages and reducing the uncertainty that has caused so much of the problem. Under the proposed legislation, the Federal Housing Administration (FHA) would guarantee the mortgages, as long as the values were reset to reflect current housing prices. Clinton called for the FHA to stand ready to buy mortgages, if the federal guarantees donâ€™t attract adequate bids. Then the FHA could restructure the mortgages it buys and resell them.
Part Two: Foreclosure moratorium. Clinton also proposed the creation of an Emergency Working Group on Foreclosures, led by well-known economic figures. She suggested former Federal Reserve Chairmen Alan Greenspan and Paul Volcker as well as former Treasury Secretary Robert Rubin. The group would be charged with reporting to Congress in a few weeks on whether further federal intervention in the mortgage market is desirable. But Clinton wonâ€™t wait for this group to mull the mortgage market and get a response from Congress. Instead, she has called for an immediate 90-day moratorium on foreclosures of subprime mortgages, provided that the homeowners are residents rather than investors. In addition, Clinton has proposed a five-year freeze on interest rates for subprime mortgages on owner-occupied homes, so adjustable-rate mortgages wonâ€™t be reset.
Part Three: Federal funds. A $30 billion housing stimulus package that would supply money directly from Washington to cities and states around the