Finally, Some Bailout for Homeowners

More than four months after the federal government claimed it was
moving to address a mortgage crisis that threatened to take away the
homes of millions of American families, steps are being taken to do
just that.

All that was required was the exit of a president (George Bush) and
a treasury secretary (Hank Paulson) who, in the best interpretation,
were too economically inept to do what was needed, and, in the worst
interpretation, used the crisis to steer hundreds of billions of
dollars into the accounts of their buddies on Wall Street.

Whatever the cause of the delay, President Obama on Wednesday offered the response that was needed -- or, at the very least, a piece of the response that was needed.

The president proposes to take administrative actions to spend $75
billion of the Financial Stabilization Fund on facilitating
modifications in existing loans and he wants to require lenders that
are accepting tax dollars to adopt foreclosure prevention protocols to
prevent unnecessary foreclosures. (The ultimate price-tag for this
initiative could go as high as $275 billion, according to some
estimates.)

These are meaningful steps.

Indeed, ACORN (Association of Community Organizations for Reform Now),
the national organization that has been in the forefront of the
struggle to keep working families in their homes -- and has taken a lot
of hard hits in the media and Washington for doing so -- refers to
Obama's move of Wednesday as "the first federal effort to fight
foreclosures since the crisis that brought down the economy began two
years ago."

The president's ambitious plan could help as many as nine million
American families that are currently struggling to make mortgage
payments or whose homes are now worth dramatically less than the amount
they paid for them. The housing plan uses incentives to homeowners and
lenders to ease and encourage the process by which home loans can be
restructured or refinanced to avoid foreclosure.

"The plan I'm announcing focuses on rescuing families who have
played by the rules and acted responsibly," says Obama, who added that
the plan would do this "by refinancing loans for millions of families
in traditional mortgages who are underwater or close to it; by
modifying loans for families stuck in sub-prime mortgages they can't
afford as a result of skyrocketing interest rates or personal
misfortune; and by taking broader steps to keep mortgage rates low so
that families can secure loans with affordable monthly payments."

That's the right sentiment, even if the precise strategy adopted by
Obama tends to reward banks and bankers that acted irresponsibly. (More
on savvier approaches in a moment.)

This is not a particularly new notion, however.

Federal Deposit Insurance Corporation (FDIC) chair Sheila Bair was promoting a plan to modify mortgages last fall.

Had the Bush White House and the Department of the Treasury listened
to Barr -- and to members of Congress such as California Democrat
Maxine Waters -- back then, hundreds of billions of dollars might have
been saved. And the dollars that were spent might have actually gone to
address the real crisis, as opposed to the demand from Wall Street for
money to pay bonuses, bail out speculators and keep stockholders happy.

"In the end, all of us are paying a price for this home mortgage
crisis. And all of us will pay an even steeper price if we allow this
crisis to continue to deepen," Obama explained in Phoenix, where he
announced his initiative. "But if we act boldly and swiftly to arrest
this downward spiral, every American will benefit."

We should have acted "boldly and swiftly" -- and in a
fiscally-responsible manner -- last fall. Hundreds of wasted billions
later, we finally are. For that, Barack Obama and his administration
deserve a good deal of credit -- just as George Bush and his
administration deserve a great deal of blame.

The lesson is an important one.

Focus on the people who are hurting -- not the bankers who are threatening them -- first.

To do that, Ohio Congressman Marcy Kaptur and economist Dean Baker have some smart ideas.
They argue that the proper role for the federal government is not to
fund mortgage negotiations but to insist that banks -- many of which
have already collected billions in taxpayer dollars -- carry them out.

Short of that step, ACORN head Bertha Lewis proposes a short-term
ban on mortgage foreclosures during the period when the Obama
administration is implementing its plan and seeking legislative
approval for key components of it.

"With 8 to 9 million Americans on the verge of losing their homes in
the next four years, the nation's housing crisis demands leadership
commensurate with its enormous scale, and we got that today from the
Obama Administration," says Lewis. "These effective sticks and carrots
will do the job that the previous all-voluntary efforts have failed to
do, and help prevent millions of unnecessary foreclosures once fully
operational and enacted in law. Until that time, however, there should
not be a single foreclosure on any family that could benefit from this
comprehensive housing plan, so we need a thorough, binding moratorium."