Senate Presses Banks, Homeowner Advocates on Next Step in Financial Crisis
Feature Story by Karen Tanenbaum - 11/19/2008
The Senate Banking Committee held its first post-election hearing on November 13 to discuss the status of implementation of the Emergency Economic Stabilization Act, a $700 billion financial industry bailout enacted on October 3.
Along with a discussion of the need for greater oversight of banks' lending habits, the committee pressed witnesses from banks and homeowner advocacy groups about strategies to help struggling homeowners facing foreclosure keep their homes.
"I think I speak for many members of the Committee and the Senate in saying that we want to see more progress from our friends in the financial sector – more progress in foreclosure mitigation, in affordable lending, and in curbing excessive compensation. And if that progress is not forthcoming, we are prepared to legislate," said Sen. Christopher Dodd, D. Conn., committee chairman, in his opening statement.
Representatives from financial institutions Bank of America, JPMorgan Chase, Wells Fargo, and Goldman Sachs testified at the hearing, as well as witnesses from the Center for Responsible Lending, University of Pennsylvania's Wharton School of Business, and the Leadership Conference on Civil Rights (LCCR).
Many of the witnesses voiced support for Federal Deposit Insurance Corporation (FDIC) Chairman Sheila Bair's plan, in which participating lenders would lower delinquent borrowers' housing payments to 31 percent of their gross monthly income by reducing interest rates, extending the length of loans, or deferring part of the loan balance. To encourage lenders to lower payment amounts, the government would share up to 50 percent of the losses if a borrower defaulted after the adjustment.
"Passing the Bair proposition is an absolute no-brainer," said Martin Eakes of the Center for Responsible Lending.
Nancy Zirkin, executive vice president of LCCR, said the plan could be "a great improvement over existing efforts" if implemented quickly.
More contentious was a separate bankruptcy proposal, which would give homeowners the opportunity to restructure and, in some cases, lower their loan payments with a bankruptcy judge.
Zirkin said that the proposal would "give desperate homeowners badly-needed leverage to negotiate…and it would provide them with an important last resort when servicers are unwilling or unable to provide lasting, sustainable alternatives to foreclosure."
Civil rights groups have been urging Congress to pass the homeowner bankruptcy provision all year. It was dropped from legislation in the Senate aimed at slowing the foreclosure crisis earlier this year, due to opposition from the lending industry, which argues that the provision would make credit more expensive.
Civil rights groups counter that current market instability and expensive credit, however, make the bankruptcy provision a necessary option.
