A foreclosure moratorium and other fixes for the housing market

Sometime in 2006, the U.S. housing market began to decline. By October 2007, the nation's housing crisis was so bad that the U.S. treasury secretary called it "the most significant risk to our economy." Until the housing crisis ends, the Great Recession cannot end. The same kind of bold government action that saved the banking system during the Great Depression is necessary to allow the U.S. economy to fully recover now.

The housing crisis not only continues, but it is worsening. The litany of housing disasters is astounding: record foreclosures, home sales at all times lows, proliferating underwater mortgages, housing abandonment and walkaways, and now the tax credits for buying a new homes have expired. There even seems to be no recognition that housing has been a key driver in many economic markets in places from California to Florida and certainly Las Vegas and Phoenix. If something drastic isn't done soon, it may be too late.


A bold set of proposals is needed. We propose just four, the last two of which have not yet been seen on the floor of Congress:

•Reinstitution of the homebuyers tax credit: This is a no-brainer. It's hard to believe that it hasn't been already done, as it was the only thing propping up home buying until this summer.


•Finally making the mortgage loan modification program work: To date, the program has been at best the butt of jokes and at worst tragic in terms of the dashed hopes of millions of families. Of the $78 billion from the Troubled Asset Relief Program for this purpose, only slightly more than $300 million has been spent, and the modifications promised have not even reached 10 percent of the original goals set. This is a farce. The banks are running the program; the government needs to do it, not through the compromised Treasury Department, but rather, perhaps, the Department of Housing and Urban Development.

•Moratorium on all new foreclosures until the crisis is over: Drastic, but necessary. Otherwise, who is going to buy? What is going to stop the hemorrhaging of average homeownes' diminishing assets and wealth? States mandating mediation before foreclosure — such as Maryland — are showing huge success rates compared to the federal program. Furthermore, potentially fraudulent handling of the bank paperwork has now created a stalemate on all sides of the crisis, implicating GMAC, Chase and Bank of America so far and freezing all parties in place.

•Federal home mortgage insurance (similar to FDIC insurance provided to banks): Our most important proposal. This would be homeowner specific, that is, while general market prices could fall, the government would guarantee to make up any loss to the homeowner through this new insurance program. People, then, will no longer be scared to buy. A homeowner would pay the insurance against value and equity. Ironically, some experts have advised us that the best way to finance this program might be through an insurance program provided by derivatives.

We believe all Americans need to be concerned about creating real and permanent protection for homeowners. Banks have private mortgage insurance to protect them against defaulting borrowers; why can't homeowners have the same thing to protect against a broad market failure?

If politicians won't act to do what is clearly necessary, the American people should demand these programs at the polls and in protests on the streets. Something has to be done now.

Steven Soifer is an associate professor at the University of Maryland School of Social Work. His e-mail is Wade Rathke is chief organizer of ACORN International. His e-mail is