Solutions for the Economy
We believe that restoring the economy requires (1) halting the flood of home foreclosures, and (2) stopping high-cost lending that strips families of wealth. Here’s why:
- Foreclosures are high and continue to climb. The problem started with subprime loans (which CRL predicted back in 2006) and has now spread to “Alt-A” and prime loans as well. Today, 1 in 12 home loans (and 1 in 4 subprime loans) are either delinquent or in foreclosure.
- High foreclosures have caused a "credit crunch" as many lenders have been bankrupted and other banks have scaled back lending to use their capital for loan losses.
- Foreclosures also are hurting ALL homeowners by reducing home values. Today, about half of all home sales are foreclosures and short-sales (for less than the amount of the mortgage on the home), and they are pulling down the values of surrounding homes. CRL has estimated that 92 million families who are paying their mortgages on time will see the value of their homes drop $502 billion because of mortgage foreclosures. And the impact could be even higher as more Alt-A and prime loans fail.
- Lower home values mean families have less home equity. Homeowners who had counted on using their home equity to finance their retirement, cover tuition costs, start a small business, or pay medical bills in many cases no longer have this option. And because of the credit crunch, they often can’t get a loan from a bank for these purposes either.
- The loss of household wealth has eroded consumer confidence. And combined with the credit crunch, lower consumer confidence and spending has led to today’s economic recession.
- Job losses and the stock market decline are reducing household wealth further and making even more families vulnerable to losing their homes. Some observers estimate
households have lost over $10 trillion in wealth as a result of the financial crisis. U.S.
- Loans with high rates or excessive fees make things even worse for families struggling to make ends meet. A few all-too-common examples: Payday loans at 400% APR, $34 overdraft loan fees on a $3 debit card charge, credit card rates that jump from 12% to 29% with one late payment.
- The combination of lower property values and recession has decimated state and local tax bases and revenue. At the same time, these factors are also causing higher demand for state/local services by struggling families who’ve been foreclosed on, have lost rental housing, or are suffering economic stress or job loss. The shortfall in state revenues through 2011 is estimated to total $350 billion or more.
What our nation must do to...
- With a new foreclosure starting every 13 seconds, we must help qualified homeowners restructure their mortgages either through a streamlined, fair modification process or through bankruptcy court supervision. This is not a “bailout”, but rather an effort to help millions of families who are struggling to afford their mortgage payments because of the current recession and who cannot sell their homes because home prices have dropped significantly. This will also help stabilize home values for ALL homeowners in a community.
- We must strengthen mortgage lending practices to restore confidence in the housing market and ensure the current financial disaster never happens again. We have an unprecedented opportunity to learn from mistakes that have been made. Let’s pass a strong, common-sense mortgage reform bill that prohibits reckless lending practices and prevents Wall Street from funding loans that put borrowers at serious risk of foreclosure.
- We must protect the wealth and earnings of hard-working families by reining in high-cost lending such as payday and overdraft loans. These loans carry triple-digit annual interest rates, meaning households often pay much more interest than they originally borrowed. Over 70% of U.S. consumers support limiting loan rates to 36%, a generous rate by any calculation. Congress has already set this rate cap for military personnel; shouldn’t other people have this protection too?
What YOU can do…
- Get educated. Our website offers resources for consumers, policymakers, community advocates, and litigators on how to deal with the financial crisis, and you can sign up for CRL email updates to stay informed about new developments.
- Get involved. Your support for strong, fair lending practices can make a difference; check out the “take action” section of this website to see how you can lend your voice to this important work