“We the People” of the United States are desperate for help. It is a priority to create realistic programs to stabilize the residential mortgage market and reduce the rising tide of foreclosures throughout the nation.
At the end of 2008, almost 10 percent of all mortgages in the United States were either delinquent or in foreclosure, according to the Mortgage Bankers Association. These are ominous signs for real estate values across our country. As home-ownership rates plunge and equity evaporates, we all suffer the negative effects on our quality of life.
As the magnitude of the foreclosure tsunami grew, the federal and state governments adopted programs encouraging lenders to modify troubled loans. These efforts failed miserably; they did not stop the free fall in home values, keep owners in their homes, or stop the plunging equity markets. Even with loan-modification relief, many borrowers are suffering severe financial hardship due to job loss and still cannot afford their payments.
Industry statistics indicate that within six months, 50 percent of all loan modifications fail to prevent foreclosure. The relief offered by lenders to borrowers in distress is little more than Band-Aid relief instead of what's really needed -- reconstructive surgery to remove and replace a loan's toxic terms with terms commensurate with the borrower's ability to repay and proportionate to the home's current true value.
The federal government can’t solve this crisis on its own. Last September’s Troubled Asset Relief Program (TARP) giveaway of $350 billion to both healthy and troubled banks did nothing to stop the dual downward spiral of foreclosures and consumer confidence (other than to provide funds for exorbitant year-end bonuses for bankers). President Obama and the Congress now have a rare second chance to do this right.
Economic history shows that success in ending this crisis will come only from a new public-private partnership. The nonprofit sector has long been the source of success to help achieve national priorities. Today, nonprofit housing and mortgage counseling groups have the technical financial experience, entrepreneurial approach, market sophistication, and on-the-ground relationships to make quick progress in reversing the current grave trend in foreclosures.
As an example, the Society for the Preservation of Continued Homeownership (SPOCH), a New Jersey nonprofit for which I serve as the Executive Director, has the capacity, experience, and passion to keep people in their homes, stabilize market values, and improve the likelihood of success of the TARP II legislation.
Currently most loan modifications don't go far enough to restore sustained affordability for owners who are at risk of job loss, rising utility and food prices, and uninsured medical bills. If mortgage holders refuse to grant meaningful loan relief, let's replace them with efficient, nonprofit organizations whose corporate objective is to preserve continued homeownership and work for the best interests of the owners.
How? Pay 'em off and buy 'em out. Instead of spending taxpayer dollars to fund the purchase of corporate jets or luxurious retreats (never to be repaid) let's put the dollars to work serving the needs of our economy and ensuring that taxpayers continue to believe in the great American dream of homeownership. To initiate this program, funds could come from the Federal Home Loan Bank System or the Federal Reserve Banks, from Treasury Department programs, or from state programs distributing federal funds.