Time to restructure mortgages, bank system

Original source: The home foreclosure crisis and the implosion of the nation’s banking system are so closely linked the federal government must address both at the same time—and time is running out, says Damon Silvers, a member of the congressional oversight committee examining how the U.S. Treasury Department is spending taxpayer money in the Troubled Assets Relief Program (TARP) to help bailout the financial system.

At a field hearing of the Congressional Oversight Panel on Friday in Prince Georges (P.G.) County, Md., Silvers, who is associate general counsel of the AFL-CIO, pointed out that policy makers seem to forget that what happens on Main Street affects the rest of the world.

The family put on the street here in P.G. County is not simply a regrettable personal tragedy for that family—it is the beginning of a chain of events that leads to falling property values, collapsed mega banks, trillion-dollar government bailouts, frozen credit markets, 401-K meltdowns, political crises in foreign countries, closed factories, lost jobs from here to China and back.

The panel will release a report in coming days on foreclosure mitigation. In a recent report, the panel said the nation needs smart regulation to help prevent another financial crisis and protect our enomic future.

No one benefits from home foreclosures, Silvers says. Foreclosed homes typically yield less than 40 cents on the dollar to lenders, while destabilizing neighborhoods and driving down real estate values.

Foreclosure should be the last option after all else has failed. But it is impossible to look at the numbers nationwide…and not conclude that foreclosure is not just the first option lenders and servicers offer to homeowners in trouble—it is effectively the only option.

He says now is the time to act to reform the mortgage and banking systems. President Obama has proposed “spending real money to help homeowners in trouble,” and states like Maryland and New York have created models for action to encourage solutions other than foreclosure for struggling homeowners.

Maryland’s plan creates a “Homeownership Crisis Intervention Fund” to provide case-by-case interventions to prevent foreclosures and potential homelessness by assisting households to move to an affordable, stable monthly housing payment or allowing time for the sale of property. It also expands options for homeowners to refinance or restructure mortgages to prevent foreclosure and address affordability.