20 Percent of U.S. Mortgages are ‘Under Water’Foreclosures Have Increased 71 Percent Since Last Year and Pose a Significant Threat to Home Prices, Communities and the Economy
WASHINGTON, DC – November 6, 2008 – (RealEstateRama) – In a letter to Chairman of the Federal Deposit Insurance Corporation (FDIC) Sheila Bair, Senator Hillary Rodham Clinton urged her to remain vigilant in putting forward an effective mortgage modification and foreclosure prevention program. Using the authority derived from the Emergency Economic Stabilization Act of the 2008, the FDIC is in the midst of presenting a comprehensive mortgage modification plan that would help homeowners in danger of default and foreclosure, renegotiate better terms with fixed monthly payments enabling them to keep their homes.
“This new wave of foreclosures poses a huge threat to American families at the worst moment as the slowing economy presents new challenges. If we are going to prevent this current downturn from becoming a prolonged recession, steps need to be taken now to keep families in their homes, to prevent falling housing values from wiping out hard earned home equity wealth, and foreclosed and abandoned properties from threatening the stability of communities.”
The huge spike in foreclosures, an estimated 71 percent since last year according to RealtyTrac, and the projections that millions of more Americans are at risk of losing their homes in the coming year clearly show that a further depression of housing prices, excess supply coupled with the ongoing credit crunch and worsening economic conditions will result in a deepening of the economic downturn and trillions of dollars in lost housing equity and wealth for millions of more Americans.
Citing Chairman Bair’s extensive and consistent record in warning of the economic challenges posed by the foreclosure crisis, Senator Clinton also highlighted several of her proposals, some dating back over two years that would encourage mortgage modifications, put a temporary freeze on foreclosures to help homeowners and lenders find better alternatives to foreclosures, and new initiatives to work with banks and homeowners to modify unworkable home loans.
The text of Senator Clinton’s letter is attached.
November 6, 2008
Ms. Sheila Bair
Chairman
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, D.C. 20429
Dear Chairman Bair:
I would like to commend you for your efforts at addressing what I believe to be the underlying challenge in this current market and economic turmoil, the foreclosure crisis and its dramatic impact on the value of residential homes. You have been a consistent and prescient voice in sounding the alarm over the consequences of inaction and have led the way for other federal agencies in responding to this crisis.
As your testimony to my colleagues in the Senate Banking Committee outlined, we have been behind the curve for too long in addressing this mortgage crisis, the progress made thus far has not been enough, and time is of the essence if we are going to prevent a new wave of mortgage defaults and foreclosures from deepening our current economic troubles even further. I am encouraged by your efforts thus far and I urge you to remain vigilant in putting forth a responsible and effective plan that will meet the scale of the mortgage and housing market challenges ahead of us.
For nearly two years, I have been sounding the alarm bell about the housing crisis and the need to tackle the problem immediately. Urgent action was and is needed given the dire consequences that waves of foreclosures would have not only on our markets and our economy but also on the families who would be displaced from their homes while having their most valuable asset wiped out. As one of the first to support a temporary foreclosure moratorium to stabilize the housing market, I appreciate your commitment to this issue. Additionally, I proposed allowing mortgage workouts to take hold and introduced legislation two years ago to promote the role of the Federal Housing Administration in offering alternatives to subprime mortgages. I have also voiced my skepticism about the effectiveness of the Administration’s response to crisis. I agree with you that at this stage our response to the current crisis needs to be “dramatic” or at least proportional to the significant risks that a further depression in housing prices and waves of new defaults and foreclosures would pose to the economy.
We both see the benefit of creating a uniform standard for safe, fair and stable mortgages. I recently unveiled my support for a new federal initiative called the Home Owners’ Mortgage Enterprise (HOME) with a mandate similar to that of the Home Owners’ Loan Corporation created by President Roosevelt during the Great Depression. It would identify the non-performing mortgages within mortgage pools and purchase them directly with bonds, direct cash or insure them at a level that would provide a greater return for banks and investors than foreclosure. A HOLC could rewrite the terms of the mortgage and provide at-risk homeowners a fixed monthly payment not subject to change based on their ability to pay. Additionally, my proposal would provide flexibility to account for any unforeseen event, such as job loss or a health emergency by enabling the extension of the loan terms which would in effect ensure that the mortgage is self-amortizing. Ultimately, a program like the one I am proposing would provide the homeowner with the certainty of knowing precisely how much their monthly liability is. I urge you to look at the model of the HOLC as a way to ensure that our foreclosure prevention efforts are effective.
As you finalize your plans, I hope that you will to continue to push for a fair plan that offers effective relief to homeowners and places accountability on banks and other lenders participating in the program. Restoring value to distressed mortgage assets and non-performing mortgage through the workout and modification of unreasonable terms will prove to be a significant incentive for them to work with you and the FDIC. You and the FDIC have demonstrated your ability to create a framework for mortgage modifications as evidenced by your efforts to rework the mortgages held by IndyMac, and I hope that you will continue to be successful as you move towards this larger challenge. Indeed, preventing the next foreclosure crisis is one of the most critical components of addressing this current economic turmoil.
Thank you for your attention to my concerns, and please do not hesitate to contact me if I can be helpful to the FDIC’s ongoing efforts.
Sincerely,
Hillary Rodham Clinton
