Meeks' Message From Capitol Hill
Hurricane season is a good metaphor for the housing and financial crisis that has brought ruin or near-ruin to millions of American families. Although the exact number of hurricanes can't be predicted, leading meteorologists anticipate as many as a dozen, with half that number actually coming ashore.
One of the amazing things about this season is that just when one hurricane finally blows itself out, another one is already making its way across the Atlantic Ocean or is looming somewhere out there in the Caribbean Sea. The banking and mortgage crisis follows this pattern. One week we're hit with the news that Fannie Mae and Freddie Mac are in deep trouble. These giant government sponsored enterprises account for nearly half of the $12 trillion in home mortgages in the United States. No sooner than the Treasury Department and Federal Reserve Bank stepped forward with a rescue package to keep them afloat, news broke that the California-based IndyMac Bankcorp had gone broke. Just after the Federal Deposit Insurance Corporation stepped in to take over IndyMac, another storm was brewing around the collapse of two other banks.
Every metaphor has limitations in drawing comparisons. For example, the hurricane season officially runs from the first of June to the first of November. The hurricane-force winds of the housing and financial crisis will be wreaking havoc much longer. Hurricanes are forces of nature, acts of God. The mortgage and financial crisis is largely man-made, the result not only of bad decisions both by many lenders and borrowers, but also predatory lending and speculation on a massive scale. On top of that, the federal government failed to properly regulate both the home lending industry and widely used complex investment instruments where thousands of mortgages were sold and repackaged as investment options in the global economy.
We all know what the federal government has to do when a hurricane threatens to make landfall: Communities in its path have to be evacuated. Hurricane shutters are closed. Supplies are stockpiled, generators readied, the National Guard put on alert, emergency medical personnel mobilized.
The Administration was initially about as prepared to handle the hurricane-like mortgage foreclosure and banking crisis as it was for Hurricane Katrina. Fortunately, Benjamin Bernanke, chairman of the Federal Reserve Bank, and U.S. Treasury Secretary Henry Paulson were able to overcome White House reluctance to aggressively intervene in the housing and credit markets and actually do "a heck of a job," even if one disagrees with some of their actions. The Democratic-led Congress has acted decisively, partnering with Bernanke and Paulson where possible and taking the initiative when necessary. Under the skilled leadership of Barney Frank, chair of the House Financial Services Committee, and Chris Dodd, chair of the Senate Banking Committee, Congress is focused not only on rescue and recovery but also prevention. Last week, Congress adopted the most far-reaching response to date to the mortgage crisis. The vote in the House was 272 to 152, and 72 to 13 in the Senate. President Bush says he will sign the bill.
The American Housing Rescue and Foreclosure Prevention Act will immediately help a significant number of families facing foreclosure refinance their homes with lower-cost government-insured mortgages they can afford to repay, at no cost to taxpayers. The bill gives cities and states the resources to buy up and rehabilitate many foreclosed properties that are currently driving down home prices, reducing state and local revenues, and destabilizing neighborhoods.
It expands homeownership opportunities for veterans and helps soldiers returning from Iraq and Afghanistan avoid foreclosure. The act also provides tax breaks to spur home buying and creates a new trust fund to boost the nation's stock of affordable rental housing in both rural and urban areas for low and very lowincome families and individuals.
The bill gives the Treasury Department standby authority for the next 18 months in case the housing GSEs need temporary federal financial intervention.
It also sets up a new independent regulator to oversee Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The new regulator must approve all executive compensation and taxpayers must be repaid before investors any time the new authority is invoked.