Hello, I'm Martin Eakes, founder and head of Self Help, one of the nation's largest community development institutions, and I'm also the CEO of the Center for Responsible Lending. I appreciate the invitation from the Leadership Conference on Civil Rights to be here today.
The Paulson $700 billion bailout simply will not work to stabilize the economy if it does not address the underlying problem of home foreclosures and falling home prices. As proposed, the bailout has virtually nothing of benefit to middle-class homeowners facing distress.
According to Credit Suisse, 6.5 million homes will be lost to foreclosure over the next few years. These losses will be a huge economic blow. Already we've see the damage to property values, the job losses, and cities losing their tax base. If foreclosures continue unabated, there is much more of this ahead.
Congress has the power to implement a simple solution to stop the foreclosure epidemic. Today we urge them to finally allow homeowners access to courts, where abusive mortgages could be restructured in a fair and targeted way.
Allowing homeowners into the existing legal system would not cost taxpayers anything—not a single dime. So including this solution will help Main Street without taking any piece of the $700 billion dollar pie.
Even so, industry lobbyists have long opposed this solution, and now they are spreading at least two major misconceptions.
The first misconception: Because the government is buying distressed mortgage securities, they will be free to change the loan terms and make them affordable.
I wish this were true, but it's not. Under the proposed bailout, most of the government's acquisitions of failing financial assets will be commercial construction loans and complex slices of home loan securities, not individual loans. The government will own pieces of loans.
The other pieces are owned by investors from around the world, and all of them have rights under complex legal agreements. The government will not be able to fix the bad home loans themselves, which the Paulson bailout plan will not own.
Increasing the government's ability to buy mortgage-related assets will mean more of the same: lenders already are trying voluntary modifications, but they cannot modify in sufficient numbers because of obstacles in the securitization process. 67% of loan workout plans so far have been repayment plans—not changing terms of original loan.
The second misconception swirling around Congress is that giving homeowners access to courts would cause instability in the markets. We have taken this argument seriously in the past, but in light of today's mess, this claim is laughable.
The foreclosure epidemic is well less than half over. As it stands now, the bailout proposal not only leaves out 6.5 million homeowners, it risks the economic health of the entire housing sector. We can't continue to depend on permissive action from a lending industry that has displayed massive reluctance to modify loans with abusive features that should never have been made in the first place.
The provisions in the Senate and House bills that permit home owners to seek targeted court-supervised restructuring of their loans as a last resort will prove to be the only significant, direct benefit to the middle class in the $700 billion bailout program.
Thank you, and I'll look forward to your questions.
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