“Let me sketch some immediate actions that I believe would make the slowdown shorter and shallower…
Here are five short-term remedies:
- First, the Treasury Hope Now initiative is an important step. By helping a set of subprime borrowers to freeze their payments at the initial ARM rates, we can avoid creating a whole new class of distressed borrowers.
- Second, lenders and policymakers should pursue the most generous means possible to refinance ARM borrowers facing resets into long term, fixed-rate mortgages. This will require innovative high quality products that replace the sloppy credit that has been – appropriately – withdrawn from the market. There is now, for example, a 40-year mortgage designed to keep payments lower but level for the life of the loan…
- Third, public outreach is critical. It’s a senseless tragedy when people lose their homes just because they didn’t know what to do – and were afraid to ask.
- Fourth, banking regulators could give their institutions favorable CRA consideration for what you could call MRA – or Mortgage Reinvesment Act – loans. Banks would receive extra CRA credit for providing secure financing to borrowers who are facing exploding subprime loans and in communities suffering foreclosures.
- Fifth, in those cases where foreclosure appears inevitable, and the family cannot stay in the home, alternatives exist to leave the home in good condition and enable a quick exit with minimal financial damage to the family AND the lender.
- Here’s a not-to-do: Policies should not damage the credit markets by cramming down losses or abrogating the rights of lien or securities holders. Altering basic contracts would have a high price. Investors left with the losses would not easily return to the market. That inevitably would shrink the pool of credit. The Chamber has sounded the warning against regulating risk out of a system that relies on risk and reward as its foundation…”