The third candidate to outline his plans for ending the housing market meltdown was Senator Barack Obama.
Speaking at Cooper Union in New York recently the senator addressed the need for tightening regulations and reforming the financial regulatory system as well as presenting a proposal for a second economic stimulus package.
His economic blueprint included:
I. Modernizing the Financial Regulatory System.
Senator Obama said that the government has let the special interests set the regulatory agenda and it is time to reconsider how we oversee the financial markets. He laid out six principles necessary to this reform.
- Provide the Federal Reserve with basic supervisory authority over any financial institution to which it makes credit available as a lender of last resort. Saying that the Fed exists to ensure stability not to bail out financial institutions, he emphasized that any institution that has access to the discount window or similar facilities must be subject to prudent oversight to make sure it is not taking excessive risks with taxpayer money.
- Capital, liquidity and disclosure requirements should be developed and strengthened for all financial institutions and there must be examination and reform of credit rating companies.
- End our balkanized framework of overlapping and competing regulatory agencies. Large and complex financial institutions no longer fit under a single regulatory authority. The system must be streamlined and capable of identifying where risks actual reside in the system.
- Regulate financial institutions for what they do, rather than who they are. Current regulation is rooted in the legal status of financial firms � banks fall under the authority of several regulators, investment banks under yet another set, even though they may operate in the same business.
- Crack down on trading activity that crosses the line to market manipulation.
- Identify systemic risks to the financial system. The Senator said that we should create a financial market oversight commission which would report regularly to the president, his Financial Working Group, and Congress on important issues to be addressed before they deteriorate into crisis.
II. Help Homeowners facing Foreclosure and Ease the Credit Crunch.
Senator Obama said he would take the following steps to solve the current foreclosure and credit liquidity problems.
- Create a new Federal Housing Administration Housing Security Program. The Senator supports the efforts of Senate Banking Committee Chairman Chris Dodd (D-CT) to create a new program that will incentivize lenders to buy or refinance existing mortgages and convert them into stable 30-year fixed mortgages with a federal guarantee provided for the resulting loans. Senator Obama called this a "backstop" not a "bailout."
- Ask lenders to write down loan amounts for more conventional borrowers. Lenders should take action to restructure loans as early as possible when borrowers are at risk of financial trouble or when housing prices plummet. To alleviate lender concerns over tax and legal issues, the Senator's plan also calls for legislation that will clarify the ability of servicers to act on behalf of the loans investors/owners.
- Closing the bankruptcy loophole for mortgage companies. Under current Chapter 13 rules, judges cannot modify the terms of home mortgages, even if the loan was unfair or predatory. Making this change could prevent as many as 600,000 foreclosures.
- Create a new mortgage interest tax credit which will assist homeowners who do not itemize their taxes. This would involve a 10 percent universal mortgage credit which will, effectively, cut 10 percent off of the interest rate paid by 10 million, mostly low income, home owners.
- Provide an additional $10 billion of Mortgage Revenue Bond (MRB) authority. These are used to refinance subprime loans and provide mortgages for first-time homebuyers but are currently over-subscribed in most states.
- Combat mortgage fraud and predatory subprime lending by defining mortgage fraud on the federal level, increasing funding for federal and state law enforcement programs and creating new criminal penalties for fraud.
- Require more accurate and understandable loan disclosure documents.
III. Enact a second $30 billion stimulus package specific to the mortgage crisis.
The $30 billion amount would include a $10 billion foreclosure prevention fund to help Americans keep their homes. Aimed only at homeowners (not speculators or vacation home owners) the fund will increase pre-foreclosure counseling resources, help offset the costs of selling a home, and help low-income borrowers get additional time and support to pay back any losses from the sale of their home. The fund will also allow the federal government to pair with state governments and local organizations and lenders to ensure fair loan modifications can be made in a timely manner that avoids the need for foreclosure or bankruptcy.
A second $10 billion would be used to assist state and local governments that are facing revenue shortfalls because of the housing crisis and the slowing economy. This fund would help ensure that a decline in property values will not force governments to slash critical public services and infrastructure spending.
Finally, Senator Obama called for an extension of unemployment benefits to temporarily cover workers who have exhausted their current eligibility and extend eligibility to more workers including many part-time and non-traditional workers who are not currently included in the system.