Congressional committee stresses the importance of reducing foreclosures

Rep. Barney Frank (D-Mass.), Chairman of the House Financial Services Committee, said he has seen “encouraging signs,” in efforts to reduce foreclosures in the U.S. During a Financial Services Committee hearing today, Frank said it would be very important to the economy to reduce foreclosures and to use the rescue plan to put money into the economy.

Chairman Frank stated that taxpayer dollars wouldn’t be used to help others “pay their mortgages,” believing there was “zero likelihood” that that would happen. Frank also felt that decisions on the housing crisis are “unmakeable” in government currently, adding, “Someone has got to have the authority to make a decision.”

Rep. Spencer Bachus (R-Ala.) said that while the U.S. should work to reduce foreclosures, “We need to be careful to prevent all foreclosures.” Bachus stated, "If a homeowner is under water, if the house is worth substantially less than the mortgage, it is predictable that many are going to walk away from their obligation. In fact, we are seeing a good percentage of foreclosures in which the homeowner is under water and they are walking away." He added, "I don’t see any practical way of preventing that."

While Bachus agreed that the government could not allow an economic collapse, he asked “Where does it stop?” Bachus did praise government’s intervention in the crisis to this point, saying “So far, we’ve made a terrible situation better,” but advocated the need for an "exit strategy."

Rep. Paul Kanjorsky (D-Pa.) made a reference to homeowners, saying that it was important to “keep them afloat.” He added that current foreclosure rates have “decimated some communities.”

According to Rep. Randy Neugebauer (R-Texas), it is important not to “encourage borrower behavior that is not appropriate.” He did think that if dialogue between borrowers and lenders is encouraged, “there will be some effort” to keep people in their homes.

Benjamin Allensworth, Senior Legal Counsel for the Managed Funds Association, said “the wave of foreclosures has placed downward pressure on home prices, which in turn has eroded home equity and consumer confidence in the mortgage market.” He advocated “effective mortgage modifications over foreclosure whenever possible.”

Thomas Deutsch, Deputy Executive Director of the American Securitization Forum, felt that government assistance in the crisis is vital and while mortgage lenders have made efforts to prevent “avoidable foreclosures,” “Macro economic forces bearing down on an already troubled housing market are simply too strong for private sector loan modification alone to counteract the nationwide increase in mortgage defaults and foreclosures.” Deutsch felt the housing crisis could not be resolved without government assistance.

McCain better for economic growth?

Former Housing Secretary Jack Kemp called on Sen. Obama "to lower taxes during a recession" in a teleconference today. Kemp said he didn't know any economist who advocated "for a tax increase" during such a time.

Kemp also said it was important to "stop the hemorrhaging" of home ownership. He claimed Sen. McCain will help homeowners in default by renegotiating their payments. Senior McCain Advisor Doug Holtz-Eakin said Obama's plan of a "90 day mortgage moratorium" doesn't fix the inherent problem of home ownership.

Holtz-Eakin said he had noticed "daily shifts in the Obama tax plan." He stated that while Obama started his campaign by saying that everyone making under $250,000 would get a tax cut, Obama said recently that only those making under $200,000 would see a tax cut. In addition, Holtz-Eakin said that Sen. Biden claimed that the tax cut would only be given to those making under $150,000.

Virginia Delegate Chris Saxman said in reaction to Obama's tax plan, "I don't want Joe the Plumber's money. I want him to invest."

Speaking about McCain's chances in the battleground state of Virginia, Saxman said that Mark Warner and Tim Kaine, current and former governors of the state, "both ran as centrist democrats." He said
Sen. Obama is not running as a centrist, as evidenced by his plan to raise taxes.

Foreclosure crisis is leaving neighborhoods in ruins

The Domestic Policy Subcommittee of the House Oversight and Government Reform Committee held a hearing on “Neighborhoods: The Blameless Victims of the Subprime Mortgage Crisis” to discuss the more widespread repercussions of foreclosures and vacant properties within concentrated areas, as opposed to effects on individual families and the economy.

Chairman Dennis Kucinich (D-Ohio) said that “when foreclosure leads to vacant and abandoned properties, surrounding neighborhoods and local municipalities suffer significant consequences.” Kucinich said these include falling neighborhood-wide property values, equity loss, decreased rental availability, lowered business rates for merchants, increased crime from arson and vandalism, increased building and demolition costs, increased legal expenses and reliance on governmental service programs, and loss of tax revenue. Kucinich called the neighborhoods “totally blameless” victims of the crisis who “had nothing to do with the transactions that resulted in the subprime mortgage meltdown.” He mentioned new pending legislation, the Neighborhood Stabilization Act of 2008, which would authorize $15 billion in grants and loans for local governments to spend on property acquisition, building rehabilitation and demolition. Kucinich said the bill faces a veto threat by President Bush, which he said he “just cannot understand.”

Rep. Diane Watson (D-Calif.) said that California foreclosures have surged by 327% from 2007 to 2008, which amounted to 517 foreclosures every day for three months. Witness Nancy Floreen of the Maryland Council said that Montgomery County experienced a 1,250% rise in foreclosures during the same year, from 68 in the first quarter of 2007 to 916 in the first quarter of 2008. Floreen expressed support for the Neighborhood Stabilization Act, saying that the market alone cannot fix the crisis. She also said the crisis has disproportionately impacted minority communities and that the market has “preyed upon” people who cannot afford subprime lending.

Witness Daniel Kildee, Genesse County Treasurer from Flint, Michigan, said in his written statement that vacant land is a “Tyhpoid Mary to a neighborhood struggling to sustain itself.” When asked by Kucinich about the lessons to learn from his county about non-interventionist government, Kildee said the government should not be allowed to treat high-value property differently from property whose value is “upside-down.”

Congress criticizes Mississippi use of Katrina relief funds

The House Subcommittee on Housing and Community Opportunity of the Committee on Financial Services held a hearing to assess the implementation of Community Development Block Grant funds for post-Hurricane Katrina reconstruction among the states impacted along the Gulf Coast.


A main concern of Chairwoman Maxine Waters (D-CA) and Rep. Al Green (D-TX) was that Mississippi has allegedly used an unapproved portion of CDBG funds on construction of their main port as opposed to directly funding housing relief for low-income hurricane victims. It is unacceptable, Green said, to “put the port above the people” when there are so many victims still in need.

Jack Norris, Director of the Mississippi Governor’s Office of Recovery and Renewal, asked Congress to “streamline or waive” environmental regulations that he said have been the “number one impediment” to building affordable housing, which Waters said he was “exaggerating.” When criticized by Waters and Green for spending $600 million on port reconstruction as opposed to housing relief, he said that the port was essential to economic and job recovery and that Congress initially allocated the funds for holistic recovery. Norris said the state has spent over 70 percent of its $5.4 billion in funds directly on housing, with only $1.4 billion on “job recovery.” Green proceeded to ask representatives from other states, including Florida, Texas, and Louisiana, if they were spending CDBG funds on ports, and all replied they were not.

Derrick Johnson, President of the Mississippi State National Association for the Advancement of Colored People, said that “discriminatory policies” towards hurricane victims are preventing a full recovery. He said that states should be required to track CDBG fund spending by zip code to determine how they are being allocated according to income and demographic.

Rep. Emanuel Cleaver (D-MO) said the public believes there was “intentionality” in how information about hurricane victims was gathered when considering relief appropriation and that since it was gathered online it targeted low-income people who did not have access to a computer. He also said relief was “badly skewed” towards the wealthy or better-off.

Witnesses Bill Johnson, Director of the Alabama Dept. of Economic and Community Affairs, and Deputy Executive Director of the Texas Dept. of Housing and Community Affairs, mentioned faith-based organizations that have provided substantial relief for victims, with Johnson requesting Congressional funding to these groups so they can deploy more aid.

IMF economists address the housing crisis

At a discussion on the Housing Crisis and Lessons for Monetary Policy at the Brookings Institute today, International Monetary Fund Economic Counselor and Director Simon Johnson predicted a “mild contraction” in the U.S. economy this year followed by a “relatively slow recovery” next year. Johnson discussed the link between housing and mortgage finance and said that the link between monetary policy and housing is stronger because of recent governmental intervention in the current crisis.

IMF Senior Economist Roberto Cardarelli said that over the last four quarters, residential investment has contributed 56% to the decline in U.S. GDP, “and by that standard, we are very much in a recession environment in the United States.” Cardarelli said another cause for concern is the impact of housing prices on the decline in consumption, which further stunts economic growth. He also emphasized that inflation rates need to change in order to stabilize inflation and minimize loss.