Taking The Crisis Seriously

The Bush Administration is actually recognizing this major crisis in the housing market, albeit a little late. But this would help some people:

WASHINGTON -- The Bush administration and major financial institutions are close to agreeing on a plan that would temporarily freeze interest rates on certain troubled subprime home loans, according to people familiar with the negotiations.

An accord could reassure investors and strapped homeowners, both of whom are anxious as interest rates on more than two million adjustable mortgages are scheduled to jump over the next two years. It could also give a boost to the Bush administration, which is facing criticism for inaction amid the recent housing turmoil.

The plan is being negotiated between regulators including the Treasury Department and a coalition of mortgage-related companies including Citigroup Inc., Wells Fargo & Co., Washington Mutual Inc. and Countrywide Financial Corp. People familiar with the talks say the individual members have agreed to follow any agreement reached by the coalition, which is called the Hope Now Alliance.

The early reaction is generally positive, although it's about a year late. Clearly, as the mortgage mess began to threaten economic growth by tightening credit markets, something had to be done. The big issue here, of course, is that the problem is not limited to "subprime mortgages," which has become code for any mortgage that goes into foreclosure. Actually the problem is irresponsibility in the lending markets, and this deal would force the bankers to bite the bullet.

Now, the next step is getting the Bush Dogs to understand what the Administration understands, that something must be done immediately at the federal level.

In the midst of the housing crisis, a cadre of self-described "conservative" Democrats called the Blue Dog Coalition is demanding congressional leaders delay legislation designed to help people trapped in high-interest loans stay in their homes and avoid foreclosure. The bill, House Resolution 3609, allows judges to ameliorate the terms of abusive "subprime" mortgages. Rep. Brad Miller, D-N.C., is championing it -- a gutsy move for a lawmaker whose state domiciles major lenders.

The Blue Dogs say they oppose Miller's initiative out of concern for the integrity of the 2005 Bankruptcy Bill -- a telling justification. Under that odious law, millionaires can shield their mansions from creditors, and corporate executives (think: Enron guys) can prevent ripped-off shareholders and employees from seizing their holdings. Harvard's Elizabeth Warren notes that the law also "permits people with vacation homes and investment property to rework their mortgages in bankruptcy."

But regular homeowners? Sorry -- without Miller's legislation, judges are barred from defending you against the vultures.

This is just the fruits of expansive lobbying by the banking industry, and is a textbook example of Bush Dogs prioritizing lobby money over the concerns of their districts, which are some of the hardest hit by the mortgage crisis. The concern for protecting the bankruptcy bill, too, is charming. Fortunately Chris Dodd is stepping up and offering a real reform of that horrible bill, which I hope he will push in the Congress as well as on his campaign platform, especially since he chairs the committee that would have jurisdiction.

In a Dodd Administration, hardworking people who have fallen on hard times will be afforded a new beginning that re-establishes a safety net and helps families get back on their feet. As President, he will:

• Modify the means test to ensure families have sufficient resources to live on

• Protect children, not creditors

• Ensure all medical debts are dischargeable

• Permit bankruptcy courts to restructure mortgages so families can stay in their homes

• Allow private student loans to be dischargeable

I do think there's a commitment to take this seriously. Eventually the banks will probably be bailed out in the most horrific way imaginable, either through fishy means like the Countrywide situation or foreign capital. But for now, there is at least a small commitment on the people who are losing their homes.