Thursday, November 20, 2008

President, Congress Must Call for a 90-Day Subprime Loan Moratorium

By Richard E. Nicolazzo

Whatever the country is doing to solve the subprime loan mess just isn’t working. I believe the time has come to start thinking outside the box.

The crisis, born from the bursting of the U.S. housing bubble, has passed through various stages exposing poor regulatory framework, unscrupulous lending, and a pervasive weakness in the global financial system.

Despite the July 2008 passage of the Housing and Economic Recovery Act and recent actions by lending giants such as Citi, JPMorgan Chase, and Bank of America to modify billions of dollars in mortgages, the housing meltdown appears to be worsening.

The Congressional Budget Office had projected during the summer that the so-called “Hope for Homeowners” legislation would allow about 400,000 troubled homeowners to switch their risky loans for conventional 30-year fixed rates with much better terms.

Early results have been troubling. The government received only 42 applications in the program’s first two weeks and, according to the Federal Housing Administration, only 20,000 applications are expected by a year from now.

Consider some other sobering statistics recently compiled by First American CoreLogic, a market research firm quoted widely on the subject:

  • Nearly one in five U.S. mortgage borrowers owe more to lenders than their homes are worth.
  • About 7.63 million properties, or 18 percent, had negative equity in the previous month.
  • Seven hard-hit states (Arizona, California, Florida, Georgia, Michigan, Nevada, and Ohio) had 64 percent of all "underwater" borrowers.

To make matters worse, the Bush administration, Treasury Secretary Paulson, Fed Chairman Bernanke, and the FDIC continue to squabble about how to get direct aid to homeowners. You might call it political “analysis paralysis.”

The FDIC has a plan to provide a federal guarantee to share in any losses on modified mortgage loans, but the White House has opposed it. The FDIC estimates the plan could help prevent some 1.5 million foreclosures.

Sheila Bair, FDIC chair, was blunt in recent comments: “Today, the stakes are too high to rely exclusively on industry commitments to apply more streamlined loan modification.”

Bold Action Needed Now

While definitive statistics are hard to come by, most estimate the value of U.S. subprime mortgages at more than $1 trillion, with approximately 16 percent of this amount in the adjustable rate mortgage (ARM) category.

Why haven’t regulatory and Congressional efforts begun to turn the tide?

My sense is that the whole system needs time. When you dissect the residential mortgage lending industry, you find a complex web of regulations, paperwork, federal guidelines and other impediments that prevent the process from working smoothly. Anyone who has ever applied for a home mortgage can appreciate the challenge.

The time for more bold action is now.

Immediately, the president and Congressional leaders should call for a voluntary 90-day subprime loan moratorium. Lenders holding the mortgages would be asked to grant borrowers the three-month reprieve and stop all foreclosure actions. If voluntary actions don’t work, Congress should step in and enact legislation.

Designed to work as a cooling-off period, the moratorium would address the immediate need for homeowners to “catch their breath” and work with lenders to restructure their loans.

Eligibility would follow along the lines already established by Congress for the Housing and Economic Recovery Act:

  • The loan must be on an owner-occupied principal residence.
  • The homeowner must have a monthly payment greater than at least 31 percent of the borrower’s total monthly income, as of November 1, 2008.
  • The Borrowers must certify that they have not intentionally defaulted on an existing mortgage, and did not get the loan in the first place by fraudulent means.
  • No one with a criminal record could take part in the moratorium.

The moratorium would not be intended as a bailout or as a reward for families who bought homes they couldn’t afford. Instead, it would keep people in their homes.

Rescues Can Work

While the problem is massive and highly complex, history proves radical thinking can work. The 1975 rescue of New York City comes to mind.

With the city $12 billion in debt, financier Felix Rohatyn was brought in by the mayor to set up an entity called the Municipal Assistance Corporation. It raised money selling bonds backed by sales of tax receipts and stock transfer taxes. The goal was to revive the city’s economy while balancing the budget. It worked.

Although no silver bullet exists to solve the subprime loan mess and general downturn in housing, a 90-day moratorium on subprime mortgages is something homeowners and the country desperately need.

While policy makers in Washington continue their debate, homeowners continue to suffer.

Richard E. Nicolazzo is president and CEO of Nicolazzo & Associates, a strategic communications and crisis management firm headquartered in Boston, Massachusetts. Joe M. Grillo, senior vice president, contributed to this commentary.


oakleyses said...

nike free run, ugg boots, longchamp outlet, ray ban sunglasses, prada handbags, prada outlet, nike air max, polo ralph lauren, christian louboutin outlet, cheap oakley sunglasses, nike free, louis vuitton outlet, oakley sunglasses, louis vuitton outlet, nike air max, polo ralph lauren outlet online, gucci handbags, polo outlet, longchamp outlet, replica watches, ugg boots, louboutin pas cher, uggs on sale, burberry pas cher, louis vuitton, oakley sunglasses wholesale, longchamp outlet, sac longchamp pas cher, replica watches, chanel handbags, christian louboutin uk, nike roshe, air max, kate spade outlet, longchamp pas cher, nike outlet, christian louboutin shoes, oakley sunglasses, jordan shoes, louis vuitton, christian louboutin, tiffany and co, michael kors pas cher, louis vuitton outlet, oakley sunglasses, tiffany jewelry, tory burch outlet, ray ban sunglasses

oakleyses said...

polo lacoste, michael kors outlet online, nike air max uk, replica handbags, nike roshe run uk, uggs outlet, coach outlet, michael kors outlet online, sac vanessa bruno, oakley pas cher, ray ban pas cher, nike air max uk, lululemon canada, new balance, nike free uk, north face, nike air force, hogan outlet, kate spade, burberry outlet, mulberry uk, coach purses, true religion jeans, michael kors outlet online, abercrombie and fitch uk, michael kors outlet, hollister uk, converse pas cher, nike blazer pas cher, timberland pas cher, nike tn, true religion outlet, ralph lauren uk, michael kors, guess pas cher, sac hermes, michael kors outlet, ray ban uk, uggs outlet, michael kors outlet online, true religion outlet, coach outlet store online, michael kors, vans pas cher, true religion outlet, hollister pas cher, nike air max, michael kors outlet, north face uk

oakleyses said...

converse outlet, chi flat iron, ray ban, insanity workout, ferragamo shoes, mac cosmetics, herve leger, soccer jerseys, converse, louboutin, north face outlet, asics running shoes, jimmy choo outlet, gucci, ralph lauren, mont blanc pens, soccer shoes, celine handbags, nike trainers uk, beats by dre, vans, bottega veneta, babyliss, nike roshe run, hollister, ghd hair, wedding dresses, giuseppe zanotti outlet, abercrombie and fitch, hermes belt, nike air max, hollister clothing, iphone cases, north face outlet, vans outlet, nfl jerseys, hollister, mcm handbags, valentino shoes, p90x workout, new balance shoes, nike huaraches, timberland boots, instyler, lululemon, nike air max, longchamp uk, baseball bats, reebok outlet, oakley

oakleyses said...

canada goose outlet, canada goose jackets, pandora charms, moncler uk, moncler, barbour uk, moncler outlet, pandora uk, moncler, louis vuitton, juicy couture outlet, canada goose, canada goose, juicy couture outlet, pandora jewelry, canada goose outlet, louis vuitton, links of london, supra shoes, canada goose uk, moncler, ugg, toms shoes, ugg,ugg australia,ugg italia, canada goose, canada goose outlet, coach outlet, swarovski crystal, wedding dresses, pandora jewelry, barbour, louis vuitton, moncler, lancel, doudoune moncler, ugg pas cher, ugg,uggs,uggs canada, karen millen uk, marc jacobs, louis vuitton, ugg uk, louis vuitton, moncler outlet, replica watches, swarovski, hollister, thomas sabo, montre pas cher