Economy -- Rescuing The Drowning Homeowners

February 25, 2008

by Faiz Shakir, Amanda Terkel, Satyam Khanna, Matt Corley, Ali Frick, and Benjamin Armbruster

ECONOMY

Rescuing The Drowning Homeowners

A new report from Moody's Economy.com states that 8.8 million homeowners, or 10.3 percent of the total, are "underwater," meaning they owe more on their homes than the homes are worth. Mark Zandi, the site's chief economist, observed, "The last time we saw so many homeowners with so many home values that were worth less than the amount of mortgage they owed was back in the Great Depression." As the housing crisis continues to slow the economy, effective solutions from the government are needed immediately. The 8.8 million figure is double the percentage of just a year ago, and by the end of 2008, as many as 15 million U.S. households may be underwater, according to Jan Hatzius of Goldman Sachs. This increase may "fuel an increase in foreclosures, erode prices and increase mortgage bond losses." As Sen. John Kerry (D-MA) writes today in the Boston Herald, "If we really want to address the economic anxieties of the average American, we must deal with the mortgage crisis and help hard-working families keep their homes."

ACTION IS NEEDED: "Our country faces a likely serious and possibly devastating economic downturn. Policymakers must act to stem the severity to the extent they can," notes John Podesta and Laura Tyson of Center for American Progress (CAP). Foreclosures jumped 75 percent nationally for all of 2007, and a recent report from the Joint Economic Committee estimates that over $100 billion in housing wealth will be lost through 2009. Housing prices have now declined for 11 consecutive months. Some observers seem remarkably cavalier about the enormous potential loss of American wealth, retirement, and education savings represented by plummeting home values for not merely subprime borrowers, but for whole communities, arguing that this is "just a natural correction of the market and that policy makers should let market forces play themselves out." President Bush continues to insist that the economy is fine. Conservative housing experts like the American Enterprise Institute's Alex Pollack even agree there is great danger of a over-correction with house prices in freefall. "The risks to the financial health of families are simply too high," notes CAP Senior Fellow Christian Weller. "The economy needs a dual solution. For one, income has to grow faster and families need to work out solutions for the mortgages that they cannot pay." The free-fall in home prices in many communities undermines refinancing options for all homeowners. CAP has also proposed a Great American Dream Neighborhood Stabilization Fund (GARDNS), along the lines of the recent proposal in Senate Majority Leader Harry Reid's (D-NV) Foreclosure Prevention Act legislation, moving funds to states and localities to acquire foreclosed properties quickly before neighborhoods deteriorate to the point of pricing collapse and blight.

NO MORE LIP SERVICE: Voluntary efforts and the limited interest rate moratorium offered by Secretary Paulson's Hope Now Alliance are too little, too late. Lawmakers are considering ways to aid the class of "underwater" borrowers, keep more people in their homes, and prevent prices from continuing to fall. The best proposals will ensure that those financial institutions that irresponsibly made credit available will take serious losses. This would not be a bailout, but instead would be a way to facilitate a transfer the loans to new lenders who can restructure these loans on sustainable terms. Senate Banking Committee Chairman Chris Dodd (D-CT) expressed interest in a plan to develop a new agency for this kind of transfer. House Financial Services Chairman Barney Frank (D-MA) is considering a variety of proposals. CAP Senior Fellow Michael Barr discussed the Saving America's Family Equity -- or SAFE loan plan -- inspired by the Home Owner's Loan Corporation created to deal with foreclosures in the Great Depression. To speed assistance to borrowers, the SAFE plan envisions using existing entities like the Federal Housing Administration, Fannie Mae, Freddie Mac, and Treasury to transfer the mortgages and offer new products for loans that better reflect the value of the homes and the borrower’s capacity to repay.

STATES ACT: As they get hit by the housing crisis, states are demanding action, "calling on the Bush Administration to deliver a comprehensive solution to the ongoing mortgage crisis." Govs. Martin O'Malley (D-MA), Eliot Spitzer (D-NY), and Jon Corzine (D-NJ) said the two plans offered by the Bush Administration "exclude the majority of homeowners who need help." "The Administration should also take responsibility for the role of federal regulators and national banks in this crisis, and engage in greater collaboration with states in the development of a solution to this problem and a preventive strategy for the future," they said. Neil Pierce today says the GARDNS proposal is "appealing," as it would "provide money quickly and efficiently to local nonprofits or cities to buy foreclosed or vacant absentee-owned homes and offer them, as quickly as possible, for sale to qualified low- and moderate-income families on affordable terms."

MEDIA -- DOCUMENTARY ON TORTURE WINS OSCAR: Last night, the Academy of Motion Picture Arts and Sciences awarded an Oscar to Taxi To The Darkside for best documentary feature. The film explores the Bush administration's detention polices in the wars in Iraq and Afghanistan and features the story of an innocent Afghan taxi driver tortured to death by U.S. officials at Bagram Air Base. Director Alex Gibney originally agreed to sell the rights of the film to the Discovery Channel because executives convinced him they would "give the film a prominent broadcast." But the cable channel decided to break its contract to air the film prior to the 2008 elections because executives planned to take the company public and were afraid the "film's controversial content might damage Discovery's public offering." Last week, however, HBO announced that it had bought the rights to Taxi and will show the film in September 2008.

IRAQ -- COBURN ADMITS INVADING IRAQ WAS 'A MISTAKE': During a recent town hall meeting in Muskogee, OK, Sen. Tom Coburn (R-OK) said, "I will tell you personally that I think it was probably a mistake going to Iraq," contradicting his previous statements. The senator "made it clear" during the town hall meeting that "he did not believe the U.S. could withdraw" from Iraq, but it is unclear when he decided the war was "a mistake." Though Coburn was not a member of Congress when the war was authorized in 2002, he made it clear during his 2004 Senate run that he supported the choice to go to war. Sen. James Inhofe (R-OK) was shocked by Coburn's comments. "I cannot believe he said that," he responded. Inhofe shouldn't be so surprised. With his change of heart, Coburn joins the 60 percent of Americans who believe that Bush's Iraq gambit was a mistake.

CONGRESS -- CONSERVATIVE SENATORS STALL BUSH'S NOMINEE: Though President Bush tapped Michael J. Sullivan to head the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) nearly a year ago, three conservative senators continue to tie up Sullivan's nomination. He is now "one of the president's longer-serving stalled nominees." Although the Senate Judiciary Committee approved his nomination in November, the senators -- led by Larry Craig (R-ID) -- have held up Sullivan's nomination because they believe "the agency has been overzealous in enforcing requirements that dealers keep detailed gun-sale records." Sullivan, a U.S. attorney from Massachusetts, has juggled that post with his duties of ATF acting director since August 2006; Bush cannot name a new U.S. attorney to fill Sullivan's place until the Senate confirms the ATF position. The delay is not without irony, as the Bush administration has repeatedly accused Senate Democrats of holding up his nominations. Moreover, the ATF director was not subject to Senate confirmation until 2006, when gun rights groups helped add the provision to the bill reauthorizing the Patriot Act.

"A year after a scandal erupted over the long-term treatment of soldiers at the hospital, the Army has turned to Disney for help. 'Service, Disney Style' is newly required for all military and other government employees at Walter Reed."

More and more economists foresee the country falling into a recession, according to the latest survey by the National Association for Business Economics. "The group said in a report being released Monday that 45 percent of the economists on its forecasting panel expect a recession this year."

Yesterday, a suicide bomber attacked a large group of Shiite pilgrims heading to the southern Iraqi city of Karbala to commemorate the death of one of the religion's major figures, Imam Hussein, a grandson of the Prophet Muhammad. At least 56 pilgrims died in that attack, while two other roadside bombs targeting pilgrims went off in eastern Baghdad wounding four.

The Bush administration announced on Saturday that "wiretaps will resume under the current law 'at least for now,'" as "telecommunications companies have agreed to cooperate 'for the time being' with spy agencies' wiretaps."

Last week, Talking Points Memo was awarded a George Polk Award for its coverage of the firing of eight United States attorneys. The New York Times writes that the award signified for many that "anyone can assume the mantle of reporting on the pressing issues affecting the nation and the world, with the imprimatur of a mainstream media outlet or not."

The number of troops and their families "seeking help from a Pentagon employee-assistance hotline -- often linked to war deployments -- has grown 40% every year since 2004." The calls, which provide "confidential sessions with a licensed therapist," underscore concerns "that more and longer combat tours strain troops and their families."

Nobel economist Joseph Stiglitz and Harvard public policy lecturer Linda Bilmes write, "We have attempted to identify how much we have been spending -- and how much we will, in the end, likely have to spend” for the Iraq war. They conclude: "The figure we arrive at is more than $3 trillion."

"Will any candidate be ready to lead on Day One?" asks the USA Today. "You need to both be able to chart a course that emphasizes your priorities but (also) be able to handle and manage things that you never even thought of that are coming at you from left field," Center for American Progress President and former White House chief of staff John Podesta said. "Stuff just happens."

Women's lives in Afghanistan are "worse than ever." A new report finds that violent attacks against women "are at epidemic proportions with 87 per cent of females complaining of such abuse -- half of it sexual. More than 60 per cent of marriages are forced."

And finally: Former Massachusetts governor Mitt Romney may not have won the GOP nomination for president, but he did win a Chicago Dental Society poll for "best smile." Forty-five percent of dentists thought preferred Romney's pearly whites over all the other presidential candidates. On the Democratic side, Sen. Barack Obama (D-IL) and former senator John Edwards "were neck and neck at 38 percent and 36 percent of the vote." Coming in last? Sen. John McCain (R-AZ), with just six percent of the vote.

Following plans by Stanford and Harvard to dramatically cut tuition for poorer students, Brown University announced today it will eliminate tuition for students whose parents earn less than $60,000.

ARIZONA: "State and local governments tighten belts as tax revenues fall, a ripple effect of the housing slump."

DISTRICT OF COLUMBIA: "Lead in tap water rose to dangerously high levels in hundreds of District homes."

HOMELAND SECURITY: Several governors are unhappy with Real ID and "a batch of new Medicaid rules that could cost them $13 billion over five years."

THINK PROGRESS: Weekly Standard editor William Kristol: "I recommend the politics of fear."

AT LARGELY: CBS affiliate in Alabama blocked the broadcast of 60 Minutes last night, which featured a story about Karl Rove's efforts to discredit former Alabama Governor Don Siegelman.

NO COMMENT: Karl Rove's response to the 60 Minutes report is misleading and factually inaccurate.

"[I]t's a largely unscientific hoax. And it's a political concoction."
-- Right-wing pundit Mary Matalin, 2/20/08, on global warming

VERSUS

"Warming of the climate system is unequivocal, as is now evident from observations of increases in global average air and ocean temperatures, widespread melting of snow and ice, and rising global mean sea level."
-- Intergovernmental Panel on Climate Change, 2/07

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Rescuing The Drowning Homeowners

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