Harry Moroz
The Crisis That’s Still A Crisis
“There was no counterweight to that legislative muscle. Bankrupt homeowners do not have a political action committee or lobbyists.”
In today’s New York Times, Stephen Labaton revisits Senator Dick Durbin’s failed crusade to pass legislation allowing bankruptcy judges to modify the terms of mortgages on primary residences. The measure, which could have prevented about 800,000 foreclosures, would have encouraged mortgage holders, reluctant to submit themselves to the authority of bankruptcy judges, to modify the terms of mortgages for troubled homeowners outside of bankruptcy.
In part, Labaton explains, the failure resulted from the White House’s decision not to put its weight behind the measure, despite initial support from President Obama and HUD Secretary Shaun Donovan. Mostly, however, the banking industry used lots of lobbying, money, and questionable arguments to win opposition. In the end, homeowners really weren’t part of the equation. Arizona Senator Jon Kyl, more concerned with politics than productive policy, threatened the banking industry “not to make a deal with Durbin and then come looking to Republicans when they need help on something like regulatory restructuring.”
The article comes at the end of a week of renewed concern about the effectiveness of the Obama administration’s foreclosure prevention plan. The omnipresent economist Mark Zandi called for a foreclosure “Plan B”, reminding us that “The key threat is the still mounting foreclosure crisis, which appears set to overwhelm the Obama administration’s plan to stem it.” A New York Times editorial warned that “there’s little evidence, so far, that the Obama administration anti-foreclosure plan will be able to stop [a new wave of foreclosures].”
Arguments are frequently – and rightly – made about the importance of keeping homeowners in their homes to prevent individual homeowner suffering and to prevent the vicious spiral of more foreclosures causing declines in home prices and in turn spurring more foreclosures. But a failure to address the foreclosure crisis also creates a systemic problem in which state and local governments, instead of the federal government, must shoulder the burden created by the credit-damaged household with diminished wealth who is increasingly likely to rent rather than own and who may have left behind an abandoned property.
While the stimulus package directed significant resources to state governments to deal with budget cuts, the National Council of State Legislatures reports that “The national recession is pummeling state revenues” even as there is increased demand for public services. The faltering of the Obama administration’s foreclosure prevention plan means that more properties will be abandoned – which costs local government property taxes and resources to patrol these areas in which crime is more likely; that affordable (rental) housing will be in higher demand; and that households with diminished wealth will seek out public services to supplement their income.
In sum, a failure to expend significant resources – whether political or economic – on fixing the foreclosure crisis will result not only in pain for individual homeowners and delay economic recovery, but will further imperil the very state and local governments the stimulus package was designed to reinforce.
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Posted at 12:32 PM, Jun 05, 2009 in
Housing
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