Understanding The Issues: Subprime/Housing Crisis

[SmootSmack]

I'm sure you're all aware of the Housing/Subprime crisis. Here's a link to some news of arrests today that is probably much more serious than if Javon Walker should be spraying crowds with champagne

ABC News: Hundreds Arrested in FBI Subprime Sting

So which candidate has the right idea on how to handle this mess?

Obama

- Provide a tax credit to homeowners, which would cover 10 percent of the interest on their mortgage every year.

- Create a $10 billion fund, partly paid for by “increased penalties on lenders who act irresponsibly” to help middle-income "folks" buy their first home or avoid foreclosure, and develop affordable housing in mixed-income neighborhoods.

- Mandate accurate loan disclosure to ensure consumers understand their loan agreements. Create a standardized scoring system to quantify the borrower’s obligation.

- Backs legislation that would allocate 5 percent of Fannie Mae/Freddie Mac pre-tax profits to the trust fund, generating approximately $500 million per year, a campaign aid said. The money would then be distributed to state and local entities that would be responsible for selecting individual projects to assist.

- Create new F.H.A. program to provide meaningful incentives for lenders to buy or refinance existing mortgages and to convert them into stable 30-year fixed mortgages

- Fully fund the Community Development Block Grant program and engage with urban leaders across the country to increase resources to the highest-need Americans.

- Work to eliminate law “that prevents bankruptcy courts from modifying an individual’s mortgage payments.”

McCain

- Initially opposed large-scale federal assistance, but more recently called for the government to help qualified homeowners with subprime mortgages refinance and get federally guaranteed 30-year mortgages

- Eligible homeowners can apply to Federal Housing Administration to replace their existing “burdensome” mortgages for a F.H.A.-guaranteed “manageable loan that reflects their home’s market value. Homeowners would end up with a 30-year mortgage and an equity stake in their home. The new lender would receive a federal guarantee of the mortgage. And the taxpayer gets a benefit if the sale value ever recovers.

- Justice Department should investigate lenders

- Convene meetings with accounting professionals and top mortgage lenders. Says lenders should work together “to provide maximum support and help to their cash-strapped but credit worthy customers.”

- Adopt policies to ensure that homeowners “provide a responsible down payment of equity at the initial purchase of a home.”

- Opposes reducing the down payment requirement for Federal Housing Administration mortgages; believes the requirement should be increased “as conditions allow.”

- Create a task force in the Department of Justice to look into possible crimes related to mortgage backed securities and predatory lending and other practices.

- Favors taking a hard look at, and maybe changing, the controversial accounting rules that force big banks and others to "mark to market" their mortgage holdings -- that is, attempt to estimate the current value of loans and mortgage securities on their books -- in their public reports. Says when there are no good measures of the true value of mortgage bonds -- when no investors want to buy them and no index tracks them -- current accounting rules may make lenders' balance sheets look far worse than they really are.