Bruce Marks stuff
BRUCE MARKS
Bailout must address the foreclosure crisis
By Bruce Marks | September 24, 2008
CONGRESS and the Bush administration must address the underlying issue in the financial crisis - foreclosures. The only real solution is to restructure mortgages based on what the homeowners can afford. This solution can be achieved on scale with little or no taxpayer money.
This unprecedented bailout of the predators is beyond comprehension. Wall Street and its advocates say the crisis is so complicated that no one could have predicted it. Yet now the administration is so sure of the solution that the American taxpayer must sign a blank check for $700 billion to purchase these "toxic" mortgages and bail out these companies. We have trusted the government before and are still paying the price in Iraq. Now Congress is ready to support it on a second request for a blank check.
It is unacceptable to provide such a huge amount of taxpayer money to be used under the sole discretion of decision makers who use the "idiot" defense.
It is ironic that Treasury Secretary Henry Paulson, who was chairman and CEO of Goldman Sachs, could not have predicted this crisis, even though eight years ago I predicted this economic devastation. As the CEO of the Neighborhood Assistance Corporation of America, I testified in Congress on the role of Fannie Mae and Freddie Mac in subprime lending and proposed regulatory legislation (HR 3703): "Without such controls Fannie Mae will continue to expand its reach into the subprime market and might itself become a predatory lender . . . Participation in these schemes by GSEs (government sponsored enterprises) poses potential risks for the housing and banking industry and for the economy in general."
The reason for this financial meltdown is greed. Wall Street and all the affiliated entities made massive amounts of money, but created a "toxic" hangover.
Mortgage lending didn't have to be done this way and the Neighborhood Assistance Corporation of America is the best example. We have been lending to the people the industry considers "subprime" borrowers for more than 20 years with a $10 billion commitment. Because NACA did it the right way, by providing true homeownership with a fixed-rate mortgage, no down payment and no closing costs, our performance has been one of the best and not touched by this crisis. We have destroyed the myth that in order to compensate for the "risk" of lending to subprime borrowers, you need to get a higher return.
NACA is also demonstrating the solution to this mortgage crisis. We are in the forefront of providing real solutions for at-risk borrowers by restructuring their mortgage to what they can afford. The interest rate and/or outstanding mortgage amount is reduced to achieve this affordable mortgage payment.
This can be accomplished for millions of at-risk homeowners if the government utilizes its power of regulation and, if necessary, provides incentives (tax incentives, bond returns, or other economic benefits) to make the mortgages affordable.
We are now committing over a trillion dollars of taxpayers' money to bail out the very institutions that created the crisis. This is truly the moral hazard bearing its ugly head. The previous taxpayer bailouts of Bear Stearns, Fannie Mae, Freddie Mac, and AIG have not opened up the credit markets because they have not addressed the foreclosure epidemic. Worse, Fannie and Freddie - now owned by the American people - continue to foreclose and refuse to restructure mortgages on affordable terms.
Taxpayers must tell Congress and the administration that "it's the foreclosures, stupid" and have them address this underlying issue. They must immediately put a moratorium on foreclosures for owner-occupant homeowners. Then through regulation, legislation, and/or economic incentives, they must demand that homeowners' mortgages be restructured to make them affordable for the remaining term of the loan. If the Neighborhood Assistance Corporation of America - as a nonprofit - can achieve affordable solutions for thousands of at-risk homeowners, the government - with its regulatory and legislative power - can achieve the same results from these servicers and investors.
Bruce Marks is CEO of the Neighborhood Assistance Corporation of America. |
