New York Times editorial page today (bold type added):
The foreclosure crisis is rooted in reckless — and shamefully underregulated — mortgage lending. Many homeowners — mainly subprime borrowers with low incomes and poor credit — are now stuck in adjustable-rate loans that have become unaffordable as monthly payments have spiked upward. Their predicament is not entirely of their own making, and even if it were they would need to be bailed out because mass foreclosures would wreak unacceptable damage on the economic and social life of the nation.
The relief efforts so far have been too little, too late. In August, the White House established a program to allow an additional 80,000 borrowers to refinance their loans through the Federal Housing Administration — on top of 160,000 who were already eligible. That’s not enough. Foreclosure filings soared to nearly 244,000 in August alone.
Federal regulators and Treasury officials are urging mortgage lenders and mortgage servicers to do their utmost to modify loan terms for at-risk borrowers, but saying “please” hasn’t worked. To be effective, modifications must reduce a loan’s interest rate or balance or extend its term, or some combination of the three. Gretchen Morgenson reported recently in The Times that a survey of 16 top subprime servicers by Moody’s Investors Service found that in the first half of the year, modifications were made to an average of only 1 percent of loans on which monthly payments had increased.
What’s missing is executive leadership to bring together many players, including lenders, servicers, bankers and various investors. All of them are affected differently depending on whether and how a borrower is rescued, which makes it difficult to agree on a rescue plan. But all of them also made megaprofits during the mortgage bubble. Under firm leadership, they could come up with a way to modify many loans that are now at risk.
In a recent PD op-ed, CSU law professor Kathleen Engel wrote that the Federal Reserve Bank of Cleveland should take on that leadership job, in partnership with County Treasurer Rokakis and Cleveland Mayor Jackson.
Could this be pulled off effectively in just one community or region? Does FRBC President Sandra Pianalto have the clout to bring Countrywide, Wells Fargo, US Bank, Deutsche Bank and JP Morgan Chase to a real bargaining table in Cleveland?
I’ve talked to a number of local anti-foreclosure activists in the past week who think the sttrategy is worth a shot. Of course that would require Pianalto to step up in a big way. I guess it would also mean her Board of Directors (like KeyCorp’s Henry Meyer) would have to support her stepping up, or at least tolerate it. Will she? Will they?
It certainly wouldn’t hurt if our daily paper’s editorial writers, who understand the horrible community impact of foreclosures as well as anyone in town, started getting on the Fed’s case.
Another angle on the Fed’s role, in a recent email from Liz Kropp of Cleveland ACORN:
… last month ACORN worked to get Cleveland City Council to pass a resolution calling on the Federal Reserve to use its authority under the Home Ownership and Equity Protection Act to make regulations banning many of the worst predatory lending practices — our city council passed the resolution as well as city councils of Toledo, Philadelphia, Kansas City, Denver, and others. We are planning on having an event at the end of October in all of these cities (hopefully 15 by then) where we hand deliver the resolutions…
(Cross-posted from Cleveland Diary)