September 23, 2008: Paulson’s Proposal Gives $700 Billion to the Wrong People

Federal bailout won’t solve economic crisis unless it stops foreclosures

The bailout plan being rushed through Congress will not solve the economic crisis unless it addresses the root of the problem – defaulting mortgages and home foreclosures.

The California Reinvestment Coalition (CRC) sent letters today to leaders of the House and Senate Banking Committees and the Speaker of the House urging them to approach the Administration’s $700 billion plan to bail out the banking system with caution. Millions of taxpayers are losing their homes, while the companies who sold them predatory loans are being let off the hook in this proposal.

The bailout plan is being pushed by Treasury Secretary Henry M. Paulson, who until now denied the existence and impacts of the subprime meltdown. In California, we are seeing city deficits increase by millions of dollars as neighborhoods are devastated by foreclosures that are the direct result of predatory subprime lending. All solutions to this crisis must aim to stop spiraling home foreclosures and alleviate the impact they are having on cities and neighborhoods.

In order to ensure that communities are protected from further devastation wrought by the current crisis, Congress must not pass Paulson’s plan unless it includes measures to:

•    Impose a six-month moratorium on foreclosures to allow families to remain in their homes while working with housing counseling agencies and their loan servicers to negotiate an affordable workout plan that will keep them in their homes.
•    Reform the Bankruptcy Code to allow judges to modify all home loans. Judges are allowed to modify the loans on second homes, so there is no reason why they should not be able to do this for first-time homeowners.
•    Ensure that long-term, affordable loan modifications are given to borrowers struggling to make their payments, along the lines of what FDIC Chair Sheila Bair is doing with Indymac Bank, FSB. In addition, homeowners should have their principal brought down to an amount that equals the current value of their home (if there is evidence of predatory lending in the making of their loan).
•    Reform our regulatory structure so that financial firms are subject to meaningful oversight that will deter abusive practices that maximize profit but destroy neighborhoods.

For more information, contact Alan Fisher, executive director of the California Reinvestment Coalition at (415) 864-3980 or afisher@calreinvest.org, or Victoria Leon Guerrero, media coordinator at (415) 864-3980 or victoria@calreinvest.org.