Because homeownership is central to a family’s security, well-being, and long-term asset accumulation, the foreclosure crisis must be attacked aggressively by Federal and state governments. Critics of stimulus spending argue that the worst of this crisis is over, but many trustworthy indicators suggest that foreclosure rates will not return to pre-crisis levels for several years. In order to slow foreclosure rates and begin to repair affected communities, steps must be taken both to prevent existing homeowners from facing foreclosure and to prevent lenders from issuing mortgages that are beyond the ability of the borrower to repay. Although the latter step of increasing regulations regarding predatory lending in the future is beyond the scope of this proposal, it is absolutely essential. Without changes in mortgage lending, any positive steps taken to protect current homeowners will be negated.
Two primary methods must be used to help borrowers who are currently in danger of losing their homes. First, refinancing opportunities must be increased, particularly for families who were coerced into borrowing at sub-prime rates. This is a policy area that has already been addressed, but more must be done. Many of the programs previously implemented by state legislatures have used rigid standards of refinancing without regard to the individual’s specific needs. In some cases, this has caused homeowners to spend more money than they would have lost in a foreclosure! As of November 2009, Maine is the only state requiring loan servicers to produce individual calculations. Their groundbreaking legislation must be implemented nationally in order to benefit homeowners elsewhere. Second, borrowers who have lost their jobs and cannot benefit from refinancing alone must have an additional option, especially in cities and neighborhoods that have been practically obliterated by the crisis.
Although the crisis has affected every state and region of the United States, certain areas have suffered disproportionately. Sunbelt areas such as Nevada, California, and Florida experienced housing bubbles that popped as the economy declined. Many borrowers suddenly held mortgages that were worth more than the value of their homes, leaving them unable to sell the home to pay off their debts in case of job loss. Older industrial centers such as Buffalo, Cleveland, and especially Detroit have suffered acutely as well, since the manufacturing jobs they depend upon have increased their flight to cheaper labor markets abroad. This has caused whole neighborhoods to implode as entire blocks are vacated. We desperately need a solution that can protect our neighborhoods and preserve our cities from complete obliteration. I propose that the Federal government create a program that specifically targets homeowners in the hardest hit neighborhoods.
In order to qualify for this program, borrowers must meet two conditions: they must have lost their job in the past 18 months and they...