Foreclosure plan not enough

Opinion: April 20, 2010 at 12:00a.m.

By Brian Gilmore

McClatchy-Tribune

The recent announcement by the Obama administration to do more on the foreclosure crisis comes as a welcome surprise. But the new policy does not go far enough.

Every week, more and more consumers contact the housing clinic I direct at the Howard University School of Law seeking assistance with their housing problems. Most of the consumers are facing imminent foreclosure and are looking for counsel about negotiating loan modifications on their loans that have gone bad. There are so many people in search of help now that we have to turn some away.

Foreclosure levels in the United States have reached record levels.

Approximately 25 percent of all homeowners in the United States own a home where the home is “underwater,” or worth less than the amount of mortgage owed on the property. Essentially, individuals are paying mortgages on homes with no net resale value. And more than 7.5 million homes in the United States are in foreclosure or the owner is delinquent in payment, according to Lending Processing Services, the nation’s largest provider of mortgage data.

These developments are the direct result of greed, misguided government policy, cheap credit and lack of government oversight over the last 15 years or more. Mortgage lenders sold thousands of loan products with unconscionable terms and conditions and then the obvious occurred: The borrowers could not make their inflated payments.

The abuses in the mortgage industry were compounded by massive job losses brought on by the economic recession. Individuals lost their jobs, fell behind in their mortgage payments and faced foreclosure.

The Obama administration has attempted to address the issue but its efforts have been lacking. It seemed to focus more on assisting banks than helping consumers who are facing economic ruin. Thousands of consumers have received loan modifications due to Obama administration programs on their bad loans but many are still in danger of losing their homes.

The new policy has several components.

First, it provides banks with financial incentives to lower the principal amounts that borrowers owe to banks. Second, it doubles the amount the government pays to banks that agree to modify troubled loans. And, third, borrowers in trouble can get refinanced loans backed by the government. In addition, unemployed homeowners can possibly qualify for a three-to-six month break on mortgage payments.

Incentives driven

The main problem with the plan is it is again driven by incentives; it does not mandate that the banks do anything. They don’t have to rework a single loan; it is all voluntary.

The Obama administration must do more.

It should push legislation that would grant bankruptcy judges the power to lower the principal owed by homeowners in bankruptcy proceedings. The administration must also mandate that banks lower the principal amounts consumers owe on their loans or simply purchase the loans from the banks and lower the principal the consumer would then owe to the government.

Too many Americans have suffered already. And I can’t stand to turn one more away.

Brian Gilmore is a writer for Progressive Media Project, a source of liberal commentary on domestic and international issues; it is affiliated with The Progressive magazine. Distributed by McClatchy-Tribune Information Services.