Editorial: Mortgage reform essential to recovery
The financial crisis of three years has never really gone away, and the global economy continues to tremble from the aftershocks. Whatever jobs programs President Barack Obama might announce Thursday are unlikely to clear the debris.
In fact, lawsuits filed Friday against 17 mortgage lenders will increase the pressure on an industry simultaneously groping for solutions to Europe’s sovereign debt crisis and carrying millions of loans on homes worth less than the principal.
Lenders are laying off thousands of workers, perhaps as many as 40,000 at Bank of America, from which the Federal Housing Finance Agency is seeking $57.5 billion. The agency’s total claims for mortgage securities gone bad approach $200 billion.
Suing banks poses little political risk. Public resentment toward Wall Street’s overpaid kingpins remains hot. The fact that FHFA’s Fannie Mae and Freddie Mac helped inflate the housing bubble by buying up questionable, often fraudulent, mortgage paper has contributed to the overall erosion of Americans’ confidence in their government.
But distressed housing markets around the country are probably the No. 1 drag on consumer confidence – and on the miserable job market.
That homeowners can no longer finance spending sprees by tapping into their home equity is a good thing. That millions are immobilized financially and professionally in houses they cannot afford but cannot sell is a very bad thing. Lenders are likewise in a vise, unable to sell thousands of foreclosed homes lest they push prices still lower and more borrowers underwater.
Administration efforts to find solutions have largely fizzled. The Home Affordable Refinance Program has helped fewer than 1 million homeowners. But millions could benefit if borrowers could access record-low rates that would reduce monthly payments by hundreds of dollars – increasing their overall financial well-being and, hopefully, stimulating spending on other goods that would help the broader economy.
To make that happen, the FHFA is going to have to be more flexible on fees and terms, including refinancing up to 125 percent of a home’s value, one of the practices that triggered the housing collapse in the first place. Because rates are so much better, owners’ monthly payments could be lower.
Potential modifications to his earlier mortgage initiatives are reportedly on the list of measures Obama may announce Thursday. They would be well-received if carefully fashioned to balance the needs of the homeowners, their lenders and the nation, which so badly needs a stabilized housing industry.
Sound solutions have the potential to undo some of the damage done by the speculation, fraud and greed that have so much to do with the economic fix we find ourselves in today.