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After Bailing Out Banks, Don't Forget Homeowners

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The Tampa Tribune

Published: January 20, 2009

The federal rescue of the nation's financial industry has perplexed the average taxpayer, who cannot find out how the money has been spent or see how it's helping anyone in the neighborhood.

Congress and our new president can and must do better.

The Hope for Homeowners program, for example, has been a total bust. It was launched three months ago with the promise it would help up to 2 million homeowners avoid foreclosure. So far, it has helped only a few hundred families.

Banks, despite getting billions in bailout cash, have been more interested in building up cash reserves, buying up competitors, and refinancing rock-solid mortgages than in spending time helping their most troubled customers.

Exactly what's going on is hard to tell because the banks aren't required to say.

The Associated Press asked a number of banks several simple questions about the bailout money they've received: How much have you spent? What did you buy? How much of it did you save? What's your plan for spending the rest?

Not one single bank gave a helpful answer. Congress needs to add some accountability standards so the public can better understand who's benefiting from the bailouts.

At the layman's level, much of it doesn't add up. The other day the Treasury bought $20 billion in preferred stock in Bank of America. The stock is supposed to pay the government an 8 percent dividend at a time when the 30-year mortgage rate is less than 5 percent.

Borrowing at 8 and lending at 5 doesn't appear to be a great way to attract private investors to the bank, as the falling price of its stock indicates.

Several better ideas should be tried. One is to set up what officials call a "bad bank" run by the government to buy the bad assets of private banks. It would be expensive, but at least the process would be transparent.

Along with creating a bad bank, the government should hire thousands of work-out officers to help the banks' customers renegotiate loans, either with good private banks or the bad federal bank.

A recent column offering advice to homeowners trying to refinance at today's low rates urged them to be persistent: "Mortgage lenders have cut staff and are getting lots of calls, so you may have to be patient."

U.S. Rep. Kathy Castor of Tampa has proposed hiring a multitude of counselors, who would work at the front-lines of the credit crisis where some families are battling just to stay in their homes and protect their life savings.

The Treasury's Troubled Asset Relief Program may have been necessary to help the big economic players save their own assets. The next step is for a Troubled Homeowner Relief Program that really provides some relief.

The only approach that makes sense, and doesn't unfairly reward terrible decisions, is one like Castor described. The loan counselors would investigate each situation individually and apply consistent standards to the infinite number of personal situations.

They would help banks minimize losses, help families avoid foreclosure and give taxpayers some real bang for their bucks.

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