The financial crisis we have been living through has an all-too-human face. Whether it is people out of work, pensions undermined by severe investment losses, or the nights and weekends many financial services executives have devoted to fixing the problems, almost everyone in finance feels the pain.
What many of us in finance do not feel, at least directly, is the loss of a home. Yet for many Americans, losing a home is a real and tragic event. Too many Americans have seen their neighborhoods damaged and watched their home values plummet as boarded-up, foreclosed houses sprout up on every street and in some cases at multiple addresses on the same street.
The financial crisis will not end, and consumer confidence will not come back, as long as foreclosures stay at uncommonly high rates, housing prices continue to fall, and unsold housing inventory keeps rising.
Federal Deposit Insurance Corp. Chairman Sheila Bair is to be commended for championing the idea that the government play a lead role in keeping people in their homes. Furthermore, a number of financial executives have advanced thoughtful ways to restart housing, such as the housing tax credit being wisely proposed John Allison, BB&T Corp.'s chairman. And the American Bankers Association's four-pronged plan to stabilize the housing market and control foreclosures merits attention.
No plan will be perfect. There will be some people who will take advantage of any program, as well as some who will be unfairly frozen out. Any program will cost federal dollars at a time when the budget deficit is soaring. Furthermore, no single programmatic change is likely to resolve such a large and complex problem.
However, while we work to minimize the unfairness and the cost, we must recognize time is not on our side. A good plan today is better than a perfect plan tomorrow.
I continue to maintain that the solution should include government purchases of the toxic home mortgage paper from financial services companies at prices that help put a floor under the market. This was the original purpose of the Troubled Asset Relief Program, and it should not be abandoned. The Treasury can hire mortgage servicers and empower them to amend loan terms to keep people in their homes. In this way, the Treasury could supplement the modification work that is already being undertaken by banks and other holders of whole loans.
Establishing new market prices for mortgage paper is a prerequisite to restoring the health of our capital markets, and ultimately that means finding a way to modify loans in securitized pools. This is clearly more challenging than reworking whole loans, but it must not be written off as impossible.
Two options that have not been tried are creating a mechanism through which the Treasury could buy delinquent loans directly out of securitization trusts and having the Treasury purchase all the securities pertaining to an individual pool of mortgages, which, as the owner, it could then modify.
Also, an expansion of the Federal Housing Administration program enacted under the leadership of Sen. Chris Dodd and Rep. Barney Frank should be accomplished as soon as possible. These programs can be advanced in conjunction with other programs such as the ones proposed by Chairmen Bair and Allison.
Now is the time to act. Every day that goes by, more citizens and neighborhoods face disruptions that will take years to set right, if they are ever set right. As is often the case, compassion and relationship building is also good banking.