The S&L Crises
As many as 1,500 savings and loans went under during the country's last financial crises and real estate mess. We the people lost 160 billion on that one and Of course this is already at 1.1 trillion and climbing. Ultimately, a government-created entity, the Resolution Trust Corp. (RTC), sold off the bad real estate for as little as 10 cents on the dollar. This sell off was done over a four year period and may not have been the best return on investment possible.
Once taxpayers are in charge of these assets, will distressed borrowers be more likely to get loan modifications or workouts to keep them in their homes? If the government becomes the owner of hundreds of thousands of foreclosed homes, will it sell them quickly at fire-sale prices to investors?
The Center for Responsible Lending issued a press release which I am passing on because its a well thought out position. This is a word for word copy of the press release
September 20, 2008
The government plan announced by Treasury Secretary Paulson and Fed Chairman Bernanke fails to deal with the root cause of the crisis---families in foreclosure----and instead is purely and simply a bailout of the lenders who created this disaster. The bailout will not solve our economic problems because it will do virtually nothing to stop the foreclosure epidemic. Continuing foreclosures will drag down the economy even further.
A truly comprehensive plan must also benefit ordinary, hard-working Americans, the ones who already are bearing the brunt of Wall Street’s excesses. If it doesn't, then any new plan is more of the same----only with more taxpayer money at stake.
By forcing taxpayers to buy abusive and reckless loans from irresponsible lenders,taxpayers are funding a multi-billion dollar subsidy to private corporations. Yet the millions of families who have been unfairly pushed to the financial brink by these mortgages get nothing. Only by preventing the 6.5 million foreclosures expected in the next few years---and the $356 billion drop in surrounding property values that will result for an additional 46 million families----will the economy begin to recover.
Don't let anyone tell you the government will be able to prevent foreclosures by buying this troubled debt. Wrong. Mortgages of questionable value have been sold into highly complex securities, which have been carved up and sold to thousands of investors around the world. The government can't put these Humpty Dumpty slices back together again because it won't own or even control them all. Bailing out financial institutions is NOT the same thing as providing relief to foreclosure-plagued American families.
Regulators and lawmakers must implement solutions that benefit American families at least as much as banks, or nothing will change. Stopping the flood of foreclosures and adopting common-sense protections against predatory lending are the only lasting solutions.
A plan that addresses root causes must:
Lift the ban on judicial loan modifications. Voluntary loan modifications are not working, as the as mounting crisis attests. Today homeowners are barred from applying for loan changes through the bankruptcy courts if the loan is on their one and only home. Bankruptcy courts provide an existing infrastructure for supervising court-ordered loan modifications and addressing the many hurdles that prevent voluntary modifications. Judicial modifications are the best solution for preventing foreclosures that will drag down the economy further. This provides a fair, targeted way to make a real impact without requiring any tax dollars.
Cap consumer loans at 36% interest. This stops abusive interest rates that push vulnerable families back even further, and it also protects responsible lenders from unfair competition from abusive payday lenders charging 400% interest. This action alone would save America’s working middle class billions of dollars.
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