We will not effectively stabilize the nation's banks and financial system until we stop the wave of foreclosures that continues to drive down the economy and harm millions of families. At least 8 million families risk losing their homes to foreclosure in the next four years. These foreclosures drive down the value of all homes, and in turn prevent a recovery of the housing and financial markets. The financial crisis will not end unless these foreclosures are reduced.
This year alone there will be 2.4 million foreclosures. The 75 million families who happen to live near those properties will see their home values drop an additional $435 billion. That amount could more than triple over the next four years to nearly $1.5 trillion. Declining property values means less tax revenue to support schools, police, and other essential local services. The negative effects from foreclosure losses are cascading through the economy and harming us all.
We understand that Treasury Secretary Geithner will soon outline a plan to help prevent foreclosures. We eagerly await this plan. For it to be effective, it must be ambitious and must include a combination of carrots and sticks to stop preventable foreclosures and keep families in their homes.
Several steps are essential:
1) Homeowners facing foreclosure must be allowed access to the court system to seek reasonable adjustments on their home loans. This solution will notcost taxpayers a dime, and, conservatively, would prevent 800,000 foreclosures.
2) Incentives such as the FDIC's loan guarantee program must be adopted to give industry an incentive to modify more of the unaffordable loans it made;
3) The federal government should obtain clarity on accounting rules and buy delinquent loans from private-label mortgage-backed securities or take other direct action that will break through the obstacles that are currently preventing badly needed home loan modifications; and
4) The full $100 billion of TARP funds targeted by Congress for foreclosure relief must be used to directly help homeowners.