June 20, 2008


Note: The Housing and Economic Recovery Act being considered on the Senate floor this week includes many measures, such as the HOPE for Homeowners Act, the National Housing Trust Fund, the Capital Magnet Fund, and the Federal Housing Finance Regulatory Reform Act, all of which are referred to below. 
Information about each measure can be found in a summary of the Housing and Economic Recovery Act, available here: http://banking.senate.gov/public/_files/HousingandEconomicRecoveryActSummary.pdf
Ø  Alan S. Blinder, Former Vice Chairman, Board of Governors of the Federal Reserve System:
“I think the HOPE for Homeowners bill is the most important piece of economic legislation before the Congress today. The financial markets will not cure themselves until the housing crisis wanes, and the housing crisis will not be resolved until we get a handle on the foreclosure problem. This bill is an excellent first step. We need it—now.”
Ø  Sheila Crowley, President and CEO, National Low Income Housing Coalition:
“On behalf of the 5,700 endorsers of the National Housing Trust Fund campaign, I want to express our deepest appreciation for your leadership on what we think is the most important housing bill of our time.  You, along with Senator Jack Reed, should be commended for negotiating a compromise for the overall bill that garnered strong bipartisan support in the committee.
“The National Housing Trust Fund Campaign supports the Housing Trust Fund established by this bipartisan bill, the Federal Housing Finance Regulatory Reform Act of 2008.  This provision will allow the housing trust fund to continue to grow over time so that more housing affordable to extremely and very low income people can be produced and preserved.  These provisions will help ensure that the housing trust fund focuses on the very lowest income households, who have the greatest housing affordability problems.”
Ø  Michael Rubinger, President and CEO, Local Initiatives Support Corporation:
“This is the most important housing legislation in this decade. Struggling families and communities and the nation's economy urgently need this bill to help prevent mortgage foreclosures, stabilize neighborhoods undermined by foreclosures and vacant properties, and provide new capital essential to home ownership, affordable rental housing, and community revitalization."
Ø  Alex Pollack, Resident Fellow at the American Enterprise Institute for Public Policy Research and Former President and CEO of the Federal Home Loan Bank of Chicago:
“I do in particular support the troubled loan refinancing program, HOPE for Homeowners, combined with GSE regulatory reform.  HOPE for Homeowners uses the historically successful principles of the Home Owners’ Loan Corporation to create a temporary program to put borrowers on a sustainable basis while reliquifying mortgage investors with realization of loss for the investors.  This is an appropriate and targeted approach to the downward spiral caused by the deflation of the great housing and mortgage bubble of the 21st century.  The creation of a combined housing GSE regulator is a good idea, long overdue.  The use of fees from the GSEs to help fund the refinancing program so that the overall package supports itself is a very good idea.”
Ø  Mark Pinsky, President and CEO, Opportunity Finance Network, Philadelphia, PA:
“Chairman Dodd’s bipartisan leadership has produced legislation that can transform America’s mortgage industry and plant the seeds of growth in financial markets. The bill’s multifaceted solutions for housing for our nation’s neediest and the regulatory reform of the GSEs is innovative and smart; these solutions will help bring stability and expansion to the home ownership market. The Capital Magnet Fund is an unprecedented high-value investment in long-term growth and housing expansion, while the National Housing Trust Fund is a sound strategy for ensuring quality, affordable housing for extremely low-income people. This country, especially those in low-income urban, rural, and reservation-based markets owe a word of thanks to the Chairman.”
Ø  Nancy O. Andrews, President, Low Income Investment Fund, San Francisco, CA:
“We applaud Chairman Dodd's leadership in creating bipartisan support for the National Housing Trust Fund and the Capital Magnet Fund. This is one of the most important pieces of legislation for low-income people and communities in the past 20 years. The Capital Magnet Fund will leverage billions of dollars in additional private investment for low-income communities across the United States. Chairman Dodd is a real champion on behalf of America's communities.”
Ø  Elyse Cherry, CEO, Boston Community Capital, Boston, MA:
“A strong, efficient GSE system is critical to ensuring smooth flows of capital to communities and people underserved by mainstream markets. The Federal Housing Finance Regulatory Reform Act of 2008 moves GSEs forward to a new level of efficiency and service by strengthening the partnerships that will help them lead the way in providing financing for affordable housing and low-income communities. We commend Chairman Dodd for his unwavering support and for this legislation and look forward to its passage by the Senate.”
Ø  Fran Grossman, Senior Vice President, Shore Bank Corporation, Chicago, IL:
"The housing crisis and mortgage meltdown pose the greatest threats to the stability and well-being of our communities since redlining more than 40 years ago. With millions of hard working Americans torn between looking for work and putting gas in the tank or paying the mortgage, we must enact legislation that will provide access to the resources that will help families to hold onto the American Dream and get the economy moving again. Chairman Dodd’s Federal Housing Finance Regulatory Reform Act of 2008 does just that.”
Ø  Allen Fishbein, Director of Housing and Credit Policy, Consumer Federation of America:
“With foreclosures on the rise a stepped-up federal lifeline is desperately needed if many hard pressed families are to save their homes.  Consumer Federation of America is pleased that the “Housing and Economic Recovery Act” includes new tools aimed at averting foreclosures, such as by making greater use of the FHA program to refinance those facing foreclosure into long-term sustainable mortgages.  Provisions for enhancing the affordable housing mission of the Government Sponsored Housing Enterprises should also help to encourage the reliable flow of responsible home loan credit to underserved markets.  We appreciate the diligence and commitment shown by Chairman Dodd and Ranking Member Shelby in forging bi-partisan consensus in support of this legislation and for the need for congressional action on the foreclosure crisis.”
Ø  Robert J. Shiller, Arthur M. Okun Professor of Economics and Professor of Finance, Yale University and Chief Economist, MacroMarkets LLC:
“I support the Hope for Homeowners Act which will help homeowners who are having trouble making their mortgage payments. The reasons for my support is indicated in my May 18, 2008 New York Times column. The column is reprinted below.”
Economic View: The Scars of Losing a Home
Published: May 18, 2008, New York Times
ACROSS the United States, there were 243,353 foreclosure filings in April alone, nearly three times the total in the same month just two years ago, according to RealtyTrac, a company that follows the numbers. The trend is unmistakable, and suggests that, without government intervention, many millions of American families will be losing their homes before long.
What would this mean in human terms? Picture a line of moving trucks extending for hundreds of miles: they are taking the furniture of countless families to storage lockers. Picture schoolchildren saying goodbye to their classmates. They aren’t going on vacation: they are being abruptly moved to the other side of town.
It’s easy to take a stern view of this spectacle. The arguments go something like this: Foreclosure is not the end of the world. There are valuable lessons to be learned from such a life experience. After all, we live in a capitalist economy that thrives on the sanctity of contracts. The founders of our nation put the contract clause into the Constitution to make it clear that people need to live up to the documents they sign.
This stern view may, in fact, be winning the battle of public opinion. On May 9, the House approved legislation aimed at helping some of the people facing foreclosure, but the president has said he would veto it.
This legislation, sponsored in the House by Representative Barney Frank, Democrat of Massachusetts, and in the Senate by Christopher J. Dodd, Democrat of Connecticut, is the only substantial proposed fix for the foreclosure mess that has gone anywhere. It would guarantee up to $300 billion in mortgages of troubled owner-occupants. But, right now, the bill’s prospects are bleak, and the troubled homeowners may be left with virtually no help at all.
Now, let’s take the other perspective — and examine some arguments against the stern view. They have to do with the psychological effects of strict enforcement of a mortgage contract, and economists and people in business may need to be reminded of them. After all, too much attention to abstract economic statistics just might make us overlook what is really important.
First, we have to consider that we cannot squarely place the blame for the current mortgage mess on the homeowner. It seems to be shared among mortgage brokers, mortgage originators, appraisers, regulatory agencies, securities ratings agencies, the chairman of the Federal Reserve and the president of the United States (who did not issue any warnings, but instead has consistently extolled the virtues of homeownership).
Because homeowners facing foreclosure must bear the brunt of the pain, they naturally feel indignation when all of these other parties continue to lead comfortable, even affluent lives. Trying to enforce mortgage contracts may thus have a perverse effect: instead of teaching homeowners that they should respect the contracts they sign, it may incline them to take a cynical view of the whole mess.
But instead of having sympathy for these homeowners, many people blame them for their predicaments. That isn’t surprising. It’s an example of a general tendency that was documented by social psychologists decades ago.
In his 1980 book, “The Belief in a Just World: A Fundamental Delusion,” Melvin Lerner, a social psychologist, argued that people want to believe in the inherent justice of the economic system in which they live, and want to believe that people who appear to be suffering are in fact responsible for their own situations. He provided empirical evidence, derived from experiments, that after an initial pang of sympathy, people tend to develop negative views toward others who are suffering. That negative tendency seems to be at work today.
Second, it is important to consider the psychological trauma of foreclosure. No one is likely to starve or sleep on the streets as an immediate result of a foreclosure, and the authorities no longer dump a family’s furniture on the sidewalk when it happens. Nonetheless, there is deep trauma.
Homeownership is fundamental part of a sense of belonging to a country. The psychologist William James wrote in 1890 that “a man’s Self is the sum total of all that he CAN call his, not only his body and his psychic powers, but his clothes and his house, his wife and children, his ancestors and friends, his reputation and works, his lands and horses, and yacht and bank account.”
Homeownership is thus an extension of self; if one owns a part of a country, one tends to feel at one with that country. Policy makers around the world have long known that, and hence have supported the growth of homeownership.
MAYBE that’s why President Bush’s “Ownership Society” theme had such resonance in his 2004 re-election campaign. People instinctively understand that homeownership conveys good feelings about belonging in our society, and that such feelings matter enormously, not only to our economic success but also to the pleasure we can take in it.
But we are now seeing the president’s Ownership Society plan operate in reverse. Already, the homeownership rate has fallen — from 69.1 percent in the first quarter of 2005 to 67.8 percent in the first quarter of 2008. That’s almost back to the 67.5 percent level where it stood when Mr. Bush took office in 2001. And it is likely to fall further.
The pain of this reverse movement could leave a psychological scar that will be with all of us for the rest of our lives.