Beyond the Mortgage Meltdown: Addressing the Current Crisis, Avoiding a Future Catastrophe

Source: James Lardner, Dēmos, June 25, 2008

One year into the story of the subprime mortgage meltdown, Washington stands almost ready to act. Congressional leaders have come to general agreement on a rescue plan championed by Christopher Dodd in the Senate and Barney Frank in the House. For months, the idea had seemed to be going nowhere. Now it appears to command broad bipartisan support. Its backers even include some legislators who, until mid-May, sounded like irreconcilable opponents of what was termed an unconscionable public bailout of lenders and speculators.

The breakthrough came when Dodd and two key members of the Senate Banking, Housing, and Urban Affairs Committee, which he chairs, worked out a funding arrangement that made it possible to claim that no tax dollars would be used. (The trick was to dip into a new affordable housing trust fund derived form the anticipated profits of the government-sponsored mortgage financing entities Fannie Mae and Freddie Mac.) On a deeper level, though, this may have been a case of reality overtaking ideology. As the magnitude of the subprime mortgage disaster sank in, the opposing camps came together in shared alarm, and then in shared determination. That convergence of opinion raises hopes for additional measures that may seem as unlikely today as the Dodd/Frank plan recently did.

Additional measures will surely be needed. The current legislation could allow upwards of half a million families to keep their homes. But it may not work (or work quickly enough) for many who need and deserve help. Some cases may call for a simpler approach, such as the loan pay-down plan proposed by Sheila Bair, chairman of the Federal Deposit Insurance Corporation. And foreclosure prevention is only one part of what should be a concerted national response to the housing market crisis. The mortgage industry cries out for new rules, both to protect homeowners and honest lenders in the here and now, and to guard against the next wave of predatory lending. As soon as possible, Washington needs to become an unstinting partner in the effort of beleaguered state and local governments, working with community- based nonprofits to contain the damage of a terrible human and economic tragedy.

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