The housing and credit crisis has left no community untouched. Odds are someone in your neighborhood has already fallen behind on their mortgage payments. For those whose mortgages have not stretched their budgets past the point of breaking, it’s tempting to rest in the belief that your neighbor’s struggles are no concern of yours.
But that would be a terrible mistake. If these hard times can teach us anything, it’s that our prosperity is, and always will be, bound up with the prosperity of our neighbors. Our nation’s financial crisis began close to home, with homeowners who saw their mortgage rates jump out of reach—sometimes because they didn’t understand the repercussions, but often because they were misled by unscrupulous, unregulated lenders. The consequences will be felt close to home, as well: If the struggling family on your block is foreclosed on—and an estimated 2 million American families will be—you’ll likely feel the effects. If your home is within an eighth of a mile, its value will drop by an average of $5,000.
Home prices are set to decline for the second year running, the first time that’s happened since the Great Depression. And sadly, the mortgage fiasco is just the beginning. It’s been the single biggest drag on our economy and the origin of the recession we’re now facing. We can’t get our economy back on track until we solve this foreclosure crisis.
Congress has been very active on these issues. In the short term, we’ve already passed a targeted economic stimulus package, which is expected to help create some 500,000 jobs. The package includes the recovery rebates that Americans have already begun to receive, financing options for families threatened by foreclosure, and incentives for small businesses to continue investing in their communities. Should further stimulus prove necessary, it could mean investing in our worn-down infrastructure, or temporarily extending unemployment and increasing food stamp benefits.
But when it comes to homes that have already been foreclosed on, bold action is needed to prevent a vicious cycle of foreclosures, falling property values, declining property tax collections, cutbacks in city services, rising crime, and more foreclosures. House Democrats have a plan to cut off that cycle with a neighborhood stability bill that will help cities and states buy up foreclosed properties and fight neighborhood blight.
Above all, our thoughts are with the millions of homeowners whose houses are hanging in the balance. They’re the reason Congress has just passed the American Housing Rescue and Foreclosure Prevention Act, landmark legislation that will enable hundreds of thousands—and possibly up to one million people refinance their homes, switching from risky subprime mortgages to safer loans backed by the Federal Housing Administration. It’s not a bailout: Lenders will have to take losses, and borrowers must agree to share with the government any profit from the resale of a refinanced home. Combined with counseling for low-income and minority homeowners and tax credits for first-time homebuyers, it can put the economy on sounder footing for years to come.
Federal Reserve Chairman Ben Bernanke put it well this week: “High rates of delinquency and foreclosure can have substantial spillover effects on the housing market, the financial markets, and the broader economy. Therefore, doing what we can to avoid preventable foreclosures is not just in the interest of lenders and borrowers. It’s in everybody’s interest.”
Our constituents’ needs outweigh any ideological demands. I hope that President Bush and Senate Republicans put partisanship aside, support this legislation, and join with us to protect homeownership and rebuild our economy.