Issue Position: Housing Crisis

Issue Position

We cannot escape our current economic doldrums without revitalizing the housing sector and dealing with the foreclosure and housing crisis currently bedeviling our economy. In the new 8th Congressional District alone, over 7,000 homes are in foreclosure. Since the collapse of the housing bubble, 9 million foreclosures have occurred nationwide, and millions of these cases are still unresolved. Families, neighborhoods, and lenders all lose when foreclosures happen. Big banks that turned mortgages into exotic financial products were bailed out, but homeowners and communities did not receive comparable assistance. While local governments have made strides in mortgage modification programs and in addressing the blight caused by vacant properties, the federal government ought to do more. More help is needed for families facing foreclosures, and we should explore creative ways to help struggling homeowners and communities as they deal with the consequences of the sub-prime mortgage crisis. To address problems faced by individual homeowners and entire communities, I am proposing the following:

Principal Write-Downs for Underwater Homeowners:

Out of the 55 million home mortgages in the United States, about 11 million are currently "underwater", meaning that the borrower owes more than the home is worth. These mortgages are at risk of going into foreclosure.
When homeowners default, all homeowners lose. Foreclosures drive up the number of vacant properties, which causes property values to fall furthermore, forcing more families underwater.

To avoid this housing death spiral, it is time for lenders to forgive a portion of principal on underwater loans in certain cases. I will sponsor new legislation which will give judges the power to broker principal forgiveness agreements between lenders and homeowners who have missed at least two monthly payments and owe at least 121% of the appraised value of their home.

Mechanisms such as sharing home appreciation between borrowers and lenders (as well as the negative effect on borrowers' credit history and other measures) will deter borrowers who are meeting their payments from voluntarily defaulting.

Principal write-downs make economic sense and are the right thing to do. Many lenders have already written down losses associated with underwater homes. In addition, lenders will receive more than the home could be sold for in foreclosure, and the consequences of foreclosure to the homeowner and neighborhood will be avoided.

Third-Party mediation on mortgages in foreclosure:

Many homeowners whose properties fall into foreclosure could remain in their homes if the mortgages are modified. However, the modification process does not move quickly enough, and federal efforts so far have been insufficient to alleviate foreclosures.

I would co-sponsor a new version of H.R. 200 that will give judges the authority to more aggressively modify mortgages on homes which would otherwise enter foreclosure. Modifications could include reducing the principal owed, reducing monthly payments, or fixing a low interest rate on an adjustable rate mortgage.

Incentives to maintain vacant properties:

Too many foreclosed properties go un maintained. Local government ordinances can help address the blight of vacant properties, but Congress can help too and I will take the lead on introducing new legislation to address the blight caused by vacant properties.

Since many vacant properties are in disrepair it will require significant investment to make them fit for occupancy. Purchasers should receive tax incentives to invest in foreclosed properties. The federal government should find ways to offer such incentives.

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