[Marxism] Hoping for credible "bailout, " Times presses needs of 6 million mortgage victims

[Fred Feldman]

http://www.nytimes.com/2008/10/02/opinion/02thu1.html

October 2, 2008
Editorial
Show Us the Hope 
Falling house prices are driving the collapse of the financial system. But
the bailout bill, even the “sweetened” version that was approved by the
Senate Wednesday night, does little to avert the defaults and foreclosures
that are pushing house values ever downward. 

At last count, six million people were expected to default on their
mortgages this year and next, putting them at risk of losing their homes
unless they can catch up in their payments or catch a break on their loan
terms. And they’re not the only ones at risk. As prices drop, millions of
people who have never missed a mortgage payment stand to lose their home
equity.

Leaving these Americans out of the bailout bill is unwise and unfair, but
neither Congress nor the Bush administration has ever shown anywhere near
the sense of urgency to rescue homeowners at the bottom of the collapse as
they have for the financiers at the top of it. 

Take, for example, a new government program that took effect on Wednesday
with the aim of helping as many as 400,000 struggling homeowners keep their
homes. Even before it got started, the program — called Hope for Homeowners
— was looking like a lead balloon. 

Under the program, the government will insure up to $300 billion in new,
more affordable loans for troubled borrowers. For the insurance to kick in,
however, lenders must first voluntarily refinance the delinquent mortgages
by reducing the loan balances to 90 percent of the home’s current market
value. 

In exchange, lenders would avoid the expense of foreclosure and uncertainty
about being repaid. The government would stem the social and economic damage
of more foreclosures, at presumably little risk to taxpayers.

There’s just one problem. At a Congressional hearing in September, lenders
were lukewarm about participating in the new program — reluctant, it seems,
to take the loss that comes with reducing loan balances.

The lenders, including JPMorgan Chase, Bank of America, Wells Fargo and
CitiMortgage, a unit of Citigroup, all said they were taking other steps to
help troubled borrowers, like reducing a loan’s interest rate or extending
its term. That’s helpful, but the industry’s efforts don’t go far enough:
defaults and foreclosures continue to outstrip efforts to rework bad loans. 

As home prices fall, the most effective modification is to reduce the loan
balance; otherwise, borrowers are in the position of repaying a loan higher
than the value of the property. That burden can become unbearable when
combined with unemployment or reduced work hours or unexpected expenses like
medical bills.

There are two sides to the mortgage mess. The mortgage industry, in pursuit
of upfront fees, deliberately made loans to people who could not afford the
payments over time. They justified their actions on the self-serving and
unsound basis that rising home values would forever postpone a day of
reckoning. 

Many borrowers — naïvely, foolishly or selfishly — took on those loans. Yet
well over a year into the housing bust, the mortgage industry still calls
the shots, as if it is a victim of the borrowers.

Congress could change that dynamic, by amending the bankruptcy code to allow
the court to modify troubled mortgages. But lawmakers still are afraid to
hold the industry accountable. Instead, they are offering Hope for
Homeowners that looks to be anything but.