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A housing program blamed in part for high default rates on government-backed loans, derided as a “scam” by the Internal Revenue Service and targeted for years for elimination by the agency that ran it looked like it finally had reached its end this fall, after Congress finally banned it. But now, in a sign that some lessons of the housing crisis have yet to be learned, a movement is afoot to bring it back.

The program is called seller-funded down payment assistance. When U.S. Department of Housing and Urban Development Secretary Shaun Donovan told Congress last month that dramatic growth in seller-funded down payment assistance programs in recent years had added to high default rates on Federal Housing Administration-backed loans, it might have seemed like the final blow. The programs, initially intended to help low and moderate income people buy homes, had long been under fire, the subject of complaints from HUD, the General Accounting Office, and the IRS. And with FHA default rates threatening to trigger yet another taxpayer bailout, policymakers have plenty of motivation to steer clear of any lending approaches deemed risky or problematic.

       

Illustration by: Matt Mahurin

But supporters of seller-funded down payment assistance aren’t giving up. Despite Donovan’s stance, they’re still supporting a bill to revive the program — a measure now before the House Financial Services Committee. Sponsored by Rep. Al Green (D-Tex.), the bill has 17 co-sponsors, among them powerful lawmakers such as Rep. Maxine Waters (D-Calif.). Backers include builders and realtor groups, the Mortgage Bankers Association, and the Congressional Black Caucus. Committee Chairman Barney Frank, D-Mass., told the Wall Street Journal last year he wants to reform the program, not kill it. And supporters are continuing to pressure HUD to preserve it.

“We do agree there were problems with the previous program,” said David Ledford, senior vice president for housing policy at the National Association of Home Builders. “But we still support the legislation. HUD was somewhat at fault for not properly monitoring it. It can be done more carefully, and with tighter controls. But HUD is just throwing up its hands and saying things turned out badly and we shouldn’t do it at all.”

But Ledford’s views aren’t widely shared by many in the mortgage industry, and they simply don’t reflect reality, according to the program’s numerous critics. FHA’s seller-funded down payment assistance should have ended years ago, given ample evidence of its problems, said Guy Cecala, publisher of Inside Mortgage Finance, a Bethesda, Md. company that covers the lending industry. The GAO concluded that homes purchased using the programs were appraised at and sold for 2 to 3 percent more than comparable homes bought without the assistance. The IRS in 2006 revoked the tax-exempt charitable status of providers of seller-funded down payment assistance – and called the programs “scams.” HUD’s Inspector General and the FHA itself have complained the programs raise home ownership costs and lead to more foreclosures, saying homeowners using the assistance were two to three times more likely to default on payments than other borrowers.

Both the FHA and HUD allow homebuyers to receive downpayment money from third parties, such as relatives, employers, government agencies and independent nonprofits. But unlike much of the rest of the mortgage industry, the FHA also allowed homeowners to get downpayment help from nonprofits or charities funded in part by sellers. And that’s where the problems came in.

In a speech last summer, former FHA Commissioner Brian Montgomery called seller-funded down payment assistance programs “circular financing schemes.” Property sellers often raised the sales price of a home to cover the cost of downpayment “gift,” the GAO noted. The charity or nonprofit that supplied the down payment money was reimbursed by the seller for it, along with service costs and fees, once the deal closed. Borrowers unwittingly paid for it all. Critics contended some charities existed solely to funnel the downpayment money from the seller to the buyer. The program was especially popular with builders.

The Mortgage Lender Implode-O-Meter, an influential financial blog leading a blogosphere campaign against reinstating the downpayment program, explained that buyers qualified for FHA loans using grant letters from the charities as proof of downpayment. As far as the FHA was concerned, the grant was a charitable donation that came from an independent nonprofit, and not the seller.

Suckers!…Of course the losers in this scheme are the FHA (the taxpayer –who actually has to insure these loans), and ultimately the borrower — who is probably already underwater and overextended.

After buyer lawsuits, rising defaults, and other controversies, Congress finally ended the practice as part of the mortgage rescue package approved last summer, and the programs were banned as of Oct. 1. The bill to revive them is a long shot to eventually become law, given the past controversies. But the fact that a campaign even exists means one of the biggest lessons of the financial meltdown – that buying homes with no money down isn’t exactly a great idea – seems to be lost, at least on some.

“It’s a program that HUD doesn’t really want, the mortgage industry doesn’t really want and most community groups don’t really want,” Cecala said. “It’s got such a lousy track record. That anyone would want to resurrect it at all is astonishing.”

Added Cecala: “The fact that Congress would even consider this… are these guys serious? Did they do any research on this at all? It should have a skull and crossbones on it.”

Dean Baker, co-director of the Center for Economic Policy and Research, who warned before the financial crisis of a growing housing bubble, expressed similar sentiments. “I’d say it’s a bad idea that won’t go away,” Baker said. “I think it’s basically crazy. Arguably one of the lessons we were supposed to have learned is that we shouldn’t have been pushing homeownership, everywhere and always.”

“It’s a long shot to become law, but I wouldn’t rule it out. You have some big groups pushing it on the other side.”

Seller-funded down payment programs drew little attention earlier in the decade, when the FHA had a much smaller share of the mortgage market, and when helping low-income borrowers get into homes was an aggressive public policy goal, noted Patricia McCoy, a University of Connecticut law school professor who specializes in banking and securities regulation.

But use of the programs increased sharply, after the subprime meltdown led to an expansion of FHA-backed lending. And last month, HUD Secretary Donovan told Congress that while loans with seller-funded down payment assistance represented only 12 percent of the FHA portfolio at the start of 2008, they accounted for 30 percent of all foreclosures completed that year. He said the end of the program “should substantially reduce FHA losses on new originations in the years ahead.”

Some large down payment assistance providers, however, are countering with a campaign that contends the ban is hurting working class Americans, who want to buy homes but can’t come up with steeper downpayments because of tightened lending standards. A website sponsored by the bill’s supporters refers to the measure as “DPA Reform” and includes a running tally of the number of Americans denied access to homeownership since the programs officially ended.

Ann Ashburn, president of AmeriDream, a Gaithersburg, Md. provider, said in a statement last fall that “eliminating charitable down payment assistance will slam the door on over 100,000 teachers, firefighters, working families and others who rely on these programs annually to become homeowners.”

AmeriDream spokesman Henry Fawell said the company is “cautiously optimistic” about prospects for reviving the program. Helping buyers with downpayments would benefit the economy as a whole and could jump start the housing market, he said. Vacant homes are scarring neighborhoods with blight, but many borrowers can’t come up with downpayments on their own to buy them, he said.

Fawell acknowledge problems with the programs in the past, but said the new bill addresses them by including requirements for higher credit scores, fees for riskier borrowers, and penalties for inflated appraisals. “We have support on both sides of the aisle,” Fawell said.

The bill’s co-sponsors include one Republican, Rep. Gary Miller of California, a former builder.

With the Obama administration busy handling banks stress tests, bailouts and financial regulatory reform, the bill to reinstate seller-funded down payment assistance isn’t facing much active lobbying opposition. And down payment providers and housing lobbyists have a long history of successfully fighting off attempts to end the programs. HUD began trying to do so back in 1999 and again in 2007, when it was successfully sued by AmeriDream and by the Nehemiah Corp. of America, another large provider. Barely 24 hours after Congress approved the ban last summer, Rep. Green introduced a measure to bring it back.

One possibility is that supporters could slip in reinstatement of the program into a larger housing bill. But Cecala, of Inside Mortgage Finance, thinks it’s still a hard sell. Putting people in homes with no money down is a widely discredited idea, he said. Although civil rights groups still support the programs, the thinking has changed regarding the best approach to help minority borrowers.

“The Community Reinvestment Act and other programs are a much more sustainable way to get people into homes as opposed to subprime and no-downpayment FHA loans,” Cecala said. “But they also are a lot more work for both the lenders and borrowers.”

In the meantime, Ledford, of the builders’ association, said his group is working with HUD to see if first-time homebuyers can apply some of the new $8,000 tax credit toward downpayments. HUD is trying to make sure some of the same circular financing problems that plagued the seller-funded down payment assistance program wouldn’t affect that proposal, he said.

It seems that when it comes to seller-funded down payment assistance, the fight never really ends

Indeed, as Congress scrambles to shore up the mess on Wall Street with more than a trillion dollars in bailouts, many homeowners are still drowning in debt due to the nefarious lending practices that created the crisis in the first place. Not only will they be saddled with the increasing deficit and footing the bill for the trillion-dollar-plus Wall Street bailout, they’re stuck with bills they can’t pay and facing foreclosure and bankruptcy because of the shady lending practices that brought on the bailout.

Here in Minnesota, home prices in some areas have plummeted by more than 20 percent. Nationwide, prices have dropped 18.4 percent since July 2006, according to the Standard & Poor’s/Case-Shiller 20-city index. And while Treasury Secretary Henry Paulson claims a “housing rebound” is around the corner, Minnesota’s housing market appears to be facing a long stretch of trouble.

For one thing, the Joint Economic Committee estimates that Minnesota will see another 27,871 foreclosures by the end of 2009. That’s due in part to the fact that 57,000 Minnesotans, or approximately 25 percent of those who still have Adjustable Rate Mortgages, will see their rates increase in the next year. Add to that the problem of declining home prices—which some experts predict could fall as much as another 25 percent in the next three years—negative equity, and more homes being dumped on the market, and that rebound looks more like a deep puncture.

In fact, the Center for Responsible Lending estimates that 8,000 families each day are going into foreclosure, and that over the next five years, about 1 in 8 mortgages in the U.S. will go into foreclosure. That’s 6.5 million foreclosures. And while the Bush Administration’s plan offers a handout to those responsible, it has yet to address the serious issues facing homeowners who were victims of egregious lending and grab-and-go greed.

“This is just absurd,” Cox says of the current bailout plan. “It’s like a reverse criminal action where you give restitution to the criminals and put the victims in jail.” Cox talks to MnIndy about how we got here and why the bailout needs to change.

MnIndy: With the Bush Administration’s current plan, it’s as if no one wants to discuss how the crisis happened and instead only wants a quick-fix cover-up. You know, there’s “no time for the blame game” kind of philosophy. So how did we get here? And who is responsible?

Prentiss Cox: The fact that we are spending a substantial part of the next generation’s income on this bailout is astounding. The people who were really responsible for this catastrophe are for the most part left wealthy, and in the case of Wall Street, feel the right to shape the terms of the bailout. Wall Street was one of the parties responsible for the problem. So it takes amazing shamelessness for Wall Street to demand that it has this bailout without any other restrictions or any help for homeowners who were victimized.

We got here in a fairly direct manner. First, we had massively irresponsible and unfair lending primarily by unregulated institutions. That lending was funded and to a large part shaped by Wall Street. And those Wall Street investment firms knew early on what they were dealing with. In the first major predatory lending case against a company called First Alliance Mortgage Company, Lehman Bros., who’s now in the news, had a memo saying, “If we want to deal with this company we have to check our morals at the door.” And that was over ten years ago. So Wall Street knew what they were dealing with when they were dealing with these subprime mortgage companies, and they financed them anyway.

Prentiss Cox

Then, there was a second wave that started around 2003 and 2004. In that wave, Wall Street flooded the market with massive amounts of money and helped shape the terms of the kinds of loans that would be made. And that lending spread far beyond the stand-alone subprime companies and became standard industry lending practice. It’s really that second wave that led to the scope of the catastrophe that we’re dealing with now.

MnIndy: So we’re talking here about the Alt-As and no-doc loans that still have to shake out of the market.

Cox: It allowed loans to be made without adequate underwriting for quick fees. The primary attributes were, number one, lending to homeowners with no down payment; number two, lending to homeowners with teaser rates that would explode even if the interest rates were stable; And number three, encouraging homeowners to use stated income. The worst borrowers encouraged borrowers to make up specific stories that you would see over and over again in loan documents.

Fourth, there were loans that trapped homeowners with pre-payment penalties and high fees that ate away substantial amounts of equity. And fifth, there was lots of fraud, including fraudulent appraisals. All of this was undergirded by the belief that home prices would continue to escalate and cover up all the sins.

So that’s how we got here. Wall Street firms funded it all. And banks and other major institutions also made and bought a substantial amount of these loans so that the pain is spread fairly large and wide.

MnIndy: We know this has been going on for years. And then finally, last August of 2007, we saw the height of the foreclosure crisis hitting homeowners. Why did it take so long for the Bush administration to finally call this a serious problem?

Cox: This was a disaster before it was a crisis. And what I mean by that is families and homeowners were being negatively affected by these unfair and imprudent loan products before the financial collapse. The reason we didn’t hear about it is because we treated them as individual tragedies. The homeowners were either able to sell their homes because of the rapidly appreciating prices or refinance into an even worse and riskier loan.
So the housing appreciation allowed a cover for the risky loans and made them appear better products than they were. So when the housing values started to fall everything went into reverse.

MnIndy: Regardless of the Wall Street bailout, homeowners still have falling home prices to contend with. Yet Paulson says a “housing rebound” will ensure that taxpayers won’t be stuck with the nearly trillion dollar bailout package for Wall Street. Is that even feasible that taxpayers won’t be stuck with it given that a rebound looks dubious?

Cox: I think it’s really unclear. I think that anyone who thinks they know the answers to this has a crystal ball I don’t have. Of course the Treasury Secretary is going to say that we can expect a rebound because he is trying to get the biggest bailout in U.S. history by a fairly wide margin, and he wants it done with almost no strings or regulations. And most importantly, he wants it done in a way that harms homeowners. He calls that a “clean” bill. Anyone who wants to do anything to help the victims is complicating the “clean” bill.

But I don’t think that it’s realistic to say that we will recoup the money. There’s a chance it could happen, it happened in Sweden when that market faced a collapse in the early nineties. But there’s a key difference here: They drove a much stronger bargain with the collapsed industries. This is simply a “we’re giving all this money to Wall Street and trust us” bill. This isn’t a thought-out policy. This is a “we have such a good track record with these things, trust us,” which gives one pause.

MnIndy: What can homeowners expect from the bailout? The Democrats’ bankruptcy provisions aside, under Paulson’s plan, is there any chance the bailout could affect homeowners positively, like opening up more loans and allowing them to refinance? Or are we just talking about a bailout for the investors who caused the crisis and leaving homeowners and taxpayers footing the bill once again?

Cox: That’s the real question. Look, this is outrageous. I mean, is it necessary to do a $700 billion bailout? Probably. We probably needed to do all of these bailouts. They tried to contain it. It wasn’t containable. So they probably need to do an incredibly bold stroke like this in order to restore the market, pull out the assets, and deal with them rationally. While it’s unbelievable that we got to this place, given that we’re here, a bailout seems to be a rational policy choice.

What makes my jaw drop is we’re doing this in a way that completely ignores any possible assistance for homeowners who were victimized by this. And in fact, just to rub salt into the wounds, the bill probably will result in limiting existing defenses to foreclosure and protections that individual homeowners have under existing law when they default on their mortgage, because it’s a federalization and federal law would preempt many of those protections and wipe out those defenses, as sometimes happens when the FDIC takes over an institution.

So that is incredible. This is just absurd. This is like a reverse criminal action where you give restitution to the criminals and put the victims in jail. I have been astounded from day one that so many people are so comfortable basically socializing business risk to a degree never seen before in our country while at the same time completely ignoring any help, I mean any help, for homeowners.

MnIndy: You mentioned earlier that home declines were seen as an individual crisis and not necessarily a systemic problem. Is it a type of thinking that foreclosures and home-price declines are individual cases, or “individual responsibilities,” part of the reason homeowners are being ignored the victims in this case?

Cox: It’s that homeowners don’t rate. They don’t rate a thought or a mention here. When you do try to help, like we did with the Foreclosure Deferment Bill last year, which is looking pretty darn good at this point, you get these ridiculous lines like, ‘We don’t want to interfere in the market.’ Take a step back, folks! We’re giving a trillion dollars to these institutions that caused these problems.

We’re socializing our financial system. We’re socializing the wealthiest and largest players in our financial system to an unbelievable degree. But we don’t want to help the homeowners and families who were victimized by these loans. It boggles the mind. It truly boggles the mind that people can hold those principles together in their mind and not cringe.

MnIndy: It goes back to the decades’-old idea of the “invisible hand” of the market that’s been at the center of discussions about the foreclosure crisis from the beginning. Let it work itself out, except when it affects Wall Street. How much of this is about politics and clinging to a philosophy than addressing the reality of the situation?

Cox: It absolutely has become about that. If you’re truly a real free marketer, how can you suddenly support all these bailouts? It’s comfortable for me to support both, because I don’t believe markets have much capacity to exist outside of reasonable public control and limits. So for me, subsidizing the markets was a result of our terrible thinking over the last 25 years. I would use the word “childish” thinking about the ability of financial markets to police themselves.

So it doesn’t surprise me that we need to do this. But the idea that we need to enact socialism for business risk, but believing basic government protections–even when they don’t cost money to the public–for homeowners who were caught in this disaster is somehow an affront to the free market and availability of credit is a ludicrous and contradictory position. It speaks not well of our politics that people can hold that position without having to defend themselves from questions about the obviously discordant nature of their views.

MnIndy: Out of this, too, it seems it’s only fueled the same political rhetoric and denial. But a clear analysis and call for action beyond the market crisis seems to still be missing.

Cox: It’s become out of control. McCain’s people have this rhetoric about greed on Wall Street and firing the SEC commissioner? Why don’t they jut fire the Idaho health-department commissioner? It’d be the same thing. It is not how we got into this mess. It is just absurd rhetoric. And, again, we have a poverty of political discourse that a comment like that that isn’t met with howls of incredulity. It’s an absurd statement. And underlying it is a total lack of a policy that will deal with this in any way that will actually help people.

And Obama’s plan is timid. It’s been timid since the beginning. It’s a little more of a step in the right direction. But it never grasped the magnitude of the problem or the need for strong public control over the process to protect the most number of homeowners. All of which is entirely doable. It’s simply a matter of political will. And I really hope that Democrats finally get a backbone and put in provisions that will actually help homeowners.

MnIndy: What is it that the candidates—and especially the Paulson bailout—is missing? Are we talking simply about a provision that would help homeowners in bankruptcy? Are we talking about allowing homeowners facing foreclosure to refinance? What about those facing negative equity?

Cox: If we’re talking about a national solution, helping homeowners means enforced loan modification. That’s number one. So we just have to take the people who are in trouble or in default on their mortgages, and we have to rewrite these loans in a way that’s fair. You can’t save everybody. You can’t save more than half the people at most.

But these risky loans a huge part of the part of the problem. And you’ve saved a lot of homeowners, you’ve prevented properties from being dumped on the market. The homeowners aren’t going to get a bail out. No matter how you do it, they will still pay for their mortgage. But they might get some balancing of the leverage, so that homeowners have something to come to the table with that will allow them to survive.

The second thing that should happen is preserving and creating more rights for homeowners who were victims of the worst kinds of lending to allow them to recoup their losses. And the third thing, and most important in the long run, is effective regulatory structure. These kinds of things are happening not only with mortgages, but the underlying causes that drove refinancing and the crisis, which is consumer debt in America and they way we don’t regulate consumer debt.

We’ve lost critical years since this crisis started. In the year and a half since we’ve been deep in it, we have done zero, in capital letters, ZERO, to force lenders to force lenders to enter in to reasonable accommodations with homeowners. We have press release after press release after press release about voluntary measures, none of which have done anything to end the problem. They’re just a lot of press releases. And homeowners are still the real victims in all of this.

The press response in the US is decidedly vague and sanguine compared to the reaction in the UK. Let’s compare.

Here are the wire summaries [1] [2] that readers of the New York Times got today.

And here are a pair of highly recommended pieces from today’s Guardian [1] [2].

Below the jump, an excerpt of Heather Stewart’s report in the Guardian (link #1 above).

Continued: Click “Read More”

As finance ministers and central bankers arrived in Washington to discuss ways of tackling the crisis, the IMF warned, in its twice-yearly World Economic Outlook, that governments might be forced to step in with more public bailouts of troubled banks and cash-strapped homeowners before the crisis was over.

“The financial market crisis that erupted in August 2007 has developed into the largest financial shock since the Great Depression, inflicting heavy damage on markets and institutions at the core of the financial system,” it said.

After warning this week that the world’s financial firms could end up shouldering $1trn (

]]> http://minnesotaindependent.com/3610/us-media-relatively-mum-on-1-trillion-imf-report/feed 0 http://minnesotaindependent.com/3510/mccain-clinton-advisers-have-ties-to-subprime-lenders http://minnesotaindependent.com/3510/mccain-clinton-advisers-have-ties-to-subprime-lenders#comments Tue, 01 Apr 2008 16:11:51 +0000 Steve Perry http://www.minnesotaindependent.com.php5-9.websitetestlink.com/?p=3510 NY Daily News: “Key McCain advisers were lobbyists for shady lender”: “John Green, the senator’s chief liaison to Congress, and Wayne Berman, his national finance co-chairman, billed more than $720,000 in lobbying fees from…]]>

NY Daily News: “Key McCain advisers were lobbyists for shady lender”:

“John Green, the senator’s chief liaison to Congress, and Wayne Berman, his national finance co-chairman, billed more than $720,000 in lobbying fees from 2005 through last year to Ameriquest Mortgage through their lobbying firm, disclosure forms reviewed by the Daily News show.”

NY Newsday: “Clinton campaign head made $200,000 with subprime lender”:

“Hillary Rodham Clinton’s campaign manager, Maggie Williams, earned about $200,000 on the board of a Long Island subprime lender that charged prepayment penalties – a practice that Clinton, a critic of the subprime industry, now seeks to eliminate. Williams, who took over the reins of Clinton’s campaign in early February, served as a director on the board of the Woodbury-based Delta Financial Corp. from April 2000 until the firm declared bankruptcy in December, according to Securities and Exchange Commission records.”

And this postscript from Glenn Thrush at the LA Times’ Top of the Ticket blog:

“The 53-year-old Williams isn’t the only Clinton campaign insider who made money from an industry that their candidate boss demonizes on the political trail. A month ago, the Wall Street Journal reported that Clinton ally and former secretary of Housing and Urban Development Henry Cisneros grossed more than $5 million in stock sales and board compensation from Countrywide Financial, one of the nation’s largest subprime lenders.”

]]> http://minnesotaindependent.com/3510/mccain-clinton-advisers-have-ties-to-subprime-lenders/feed 0 http://minnesotaindependent.com/3464/mccain-on-housing-crisis-answer-is-less-regulation http://minnesotaindependent.com/3464/mccain-on-housing-crisis-answer-is-less-regulation#comments Wed, 26 Mar 2008 14:24:30 +0000 Steve Perry http://www.minnesotaindependent.com.php5-9.websitetestlink.com/?p=3464 As we noted recently, all three remaining major party presidential candidates have largely avoided the subject of the housing bust and the financial crisis that it’s engendering. Yesterday John McCain (who has said in more than…]]> As we noted recently, all three remaining major party presidential candidates have largely avoided the subject of the housing bust and the financial crisis that it’s engendering. Yesterday John McCain (who has said in more than one setting that he doesn’t really understand economics [1] [2]) finally weighed in with a policy speech of sorts on the subject.

McCain’s description of the problem is one we might plausibly have heard from any of the candidates:

“The other part of what happened was an explosion of complex financial instruments that weren’t particularly well understood by even the most sophisticated banks, lenders and hedge funds. To make matters worse, these instruments – which basically bundled together mortgages and sold them to others to spread risk throughout our capital markets – were mostly off-balance sheets, and hidden from scrutiny. In other words, the housing bubble was made worse by a series of complex, inter-connected financial bets that were not transparent or fully understood. That means they weren’t always managed wisely because people couldn’t properly quantify the risk or the value of these bets. And because these instruments were bundled and sold and resold, it became harder and harder to find and connect up a real lender with a real borrower. Capital markets work best when there is both accountability and transparency. In the case of our current crisis, both were lacking.

“Because managers did not fully understand the complex financial instruments and because there was insufficient transparency when they did try to learn, the initial losses spawned a crisis of confidence in the markets. Market players are increasingly unnerved by the uncertainty surrounding the level of risk, liability and loss currently in the financial system. Banks no longer trust each other and are increasingly unwilling to put their money to work. Credit is drying up and liquidity is now severely limited – and small business and hard-working families find themselves unable to get their usual loans.”

If you think this sounds like a preface to calling for new regulations to preempt a new generation of financial shenanigans, however, think again. McCain scolds both lenders and borrowers and talks about what they should do, but without pledging any government intervention to fix the underlying problems. His bottom line from a policy standpoint seems to come in this summation near the end (emphasis added):

“In financial institutions, there is no substitute for adequate capital to serve as a buffer against losses. Our financial market approach should include encouraging increased capital in financial institutions by removing regulatory, accounting and tax impediments to raising capital.“

The full released text of the speech follows the jump.

Continued: Click “Read More”Advance text of speech from McCain campaign:

Thank you for joining me here today. I just returned from a trip overseas that included assessing the state of affairs in Iraq, the Middle East, and Europe. I will have more to say on those important issues in the days and weeks to come.

While I was traveling overseas, our financial markets experienced another round of upheaval. This market turmoil leaves many Americans feeling both concerned and angry. People see the value of their homes fall at the same time that the price of gasoline and food is rising. Already tight household budgets are getting tighter. A lot of Americans read the headlines about credit crunches and liquidity crises and ask: “How did we get here?” In the end, the motivation and behaviors that caused the current crisis are not terribly complicated, even though the alphabet soup of financial instruments is complex. The past decade witnessed the largest increase in home ownership in the past 50 years. Home ownership is part of the American dream, and we want as many Americans as possible to be able to afford their own home. But in the process of a huge, and largely positive, upturn in home construction and ownership, a housing bubble was created.

A bubble occurs when prices are driven up too quickly, speculators move into markets, and these players begin to suspend the normal rules of risk and assume that prices can only move up – but never down. We’ve seen this kind of bubble before – in the late 1990s, we had the technology bubble, when money poured into technology stocks and people assumed that those stock values would rise indefinitely. Between 2001 and 2006, housing prices rose by nearly 15 percent every year. The normal market forces of people buying and selling their homes were overwhelmed by rampant speculation. Our system of market checks and balances did not correct this until the bubble burst.

A sustained period of rising home prices made many home lenders complacent, giving them a false sense of security and causing them to lower their lending standards. They stopped asking basic questions of their borrowers like “can you afford this home? Can you put a reasonable amount of money down?” Lenders ended up violating the basic rule of banking: don’t lend people money who can’t pay it back. Some Americans bought homes they couldn’t afford, betting that rising prices would make it easier to refinance later at more affordable rates. There are 80 million family homes in America and those homeowners are now facing the reality that the bubble has burst and prices go down as well as up.

Of those 80 million homeowners, only 55 million have a mortgage at all, and 51 million are doing what is necessary – working a second job, skipping a vacation, and managing their budgets – to make their payments on time. That leaves us with a puzzling situation: how could 4 million mortgages cause this much trouble for us all?

The other part of what happened was an explosion of complex financial instruments that weren’t particularly well understood by even the most sophisticated banks, lenders and hedge funds. To make matters worse, these instruments – which basically bundled together mortgages and sold them to others to spread risk throughout our capital markets – were mostly off-balance sheets, and hidden from scrutiny. In other words, the housing bubble was made worse by a series of complex, inter-connected financial bets that were not transparent or fully understood. That means they weren’t always managed wisely because people couldn’t properly quantify the risk or the value of these bets. And because these instruments were bundled and sold and resold, it became harder and harder to find and connect up a real lender with a real borrower. Capital markets work best when there is both accountability and transparency. In the case of our current crisis, both were lacking.

Because managers did not fully understand the complex financial instruments and because there was insufficient transparency when they did try to learn, the initial losses spawned a crisis of confidence in the markets. Market players are increasingly unnerved by the uncertainty surrounding the level of risk, liability and loss currently in the financial system. Banks no longer trust each other and are increasingly unwilling to put their money to work. Credit is drying up and liquidity is now severely limited – and small business and hard-working families find themselves unable to get their usual loans.

The net result is the crisis we face. What started as a problem in subprime loans has now convulsed the entire financial system.

Let’s start with some straight talk:

I will not play election year politics with the housing crisis. I will evaluate everything in terms of whether it might be harmful or helpful to our effort to deal with the crisis we face now.

I have always been committed to the principle that it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers. Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy.

In our effort to help deserving homeowners, no assistance should be given to speculators. Any assistance for borrowers should be focused solely on homeowners, not people who bought houses for speculative purposes, to rent or as second homes. Any assistance must be temporary and must not reward people who were irresponsible at the expense of those who weren’t. I will consider any and all proposals based on their cost and benefits. In this crisis, as in all I may face in the future, I will not allow dogma to override common sense.

When we commit taxpayer dollars as assistance, it should be accompanied by reforms that ensure that we never face this problem again. Central to those reforms should be transparency and accountability.

Homeowners should be able to understand easily the terms and obligations of a mortgage. In return, they have an obligation to provide truthful financial information and should be subject to penalty if they do not. Lenders who initiate loans should be held accountable for the quality and performance of those loans and strict standards should be required in the lending process. We must have greater transparency in the lending process so that every borrower knows exactly what he is agreeing to and where every lender is required to meet the highest standards of ethical behavior.

Policies should move toward ensuring that homeowners provide a responsible down payment of equity at the initial purchase of a home. I therefore oppose reducing the down payment requirement for FHA mortgages and believe that, as conditions allow, the down payment requirement should be raised. So many homeowners have found themselves owing more than their home is worth, because many never had much equity in the house to begin with. When conditions return to normal, GSEs (Government Sponsored Enterprises) should never insure loans when the homeowner clearly does not have skin in the game.

In financial institutions, there is no substitute for adequate capital to serve as a buffer against losses. Our financial market approach should include encouraging increased capital in financial institutions by removing regulatory, accounting and tax impediments to raising capital.

I am prepared to examine new proposals and evaluate them based on these principles. But I think we need to do two things right away. First, it is time to convene a meeting of the nation’s accounting professionals to discuss the current mark [sic] to market accounting systems. We are witnessing an unprecedented situation as banks and investors try to determine the appropriate value of the assets they are holding and there is widespread concern that this approach is exacerbating the credit crunch.

We should also convene a meeting of the nation’s top mortgage lenders. Working together, they should pledge to provide maximum support and help to their cash-strapped, but credit worthy customers. They should pledge to do everything possible to keep families in their homes and businesses growing. Recall that immediately after September 11, 2001 General Motors stepped in to provide 0 percent financing as part of keeping the economy growing. We need a similar response by the mortgage lenders. They’ve been asking the government to help them out. I’m now calling upon them to help their customers, and their nation out. It’s time to help American families.

More important than the events of the past is the promise of the future. The American economy is resilient and diverse. Even as financial troubles weigh upon it other parts of the economy hold up or even continue to grow. I have spoken at length in other settings about the need to keep taxes low on our families, entrepreneurs, and small businesses; to make the tax code simpler and fair by eliminating the Alternative Minimum Tax that the middle class was never intended to pay; to improve the ability of our companies to compete by reducing our corporate tax rate, which today are the second highest rates in the world;to provide investment incentives; to control rising health care costs that threaten the budgets of our businesses and families; to improve education and training programs; and to ensure our ability to sell to the 95 percent of the world’s customers that lie outside U.S. borders.

These are important steps to strengthen the foundations of the millions of businesses small and large that provide jobs for American workers. There is no government program or policy that is a substitute for a good job. These steps would also strengthen the U.S. dollar and help to control the rising cost of living that hurts our families. These are important issues in this campaign and the debate with my Democrat rivals. But I will get my chance to talk further another day. Now I look forward to hearing from our small business owners – the very lifeblood of our economy.

]]> http://minnesotaindependent.com/3464/mccain-on-housing-crisis-answer-is-less-regulation/feed 0 http://minnesotaindependent.com/3450/news-flash-presidential-candidate-talks-about-economy http://minnesotaindependent.com/3450/news-flash-presidential-candidate-talks-about-economy#comments Tue, 25 Mar 2008 14:32:16 +0000 Steve Perry http://www.minnesotaindependent.com.php5-9.websitetestlink.com/?p=3450 All three of the remaining major party candidates for the White House have assiduously avoided talk of the present economic mess, so it seems noteworthy that Hillary Clinton broke the official silence yesterday in a speech…]]>

All three of the remaining major party candidates for the White House have assiduously avoided talk of the present economic mess, so it seems noteworthy that Hillary Clinton broke the official silence yesterday in a speech at Penn, where she touted a $30 billion package that would have the FHA buy and restructure non-viable mortgages and offer federal funding to state and local governments to help them ameliorate the situation on the ground.

The Boston Globe summarized the proposals. And below the jump, you’ll find the transcript of Clinton’s talk.

Continued: Click “Read More”Text of Hillary Clinton’s Pennsylvania speech on the mortgage crisis, 3/24/08

As the headlines of the past months have made clear, we are experiencing a crisis of confidence in our country. We have a crisis of confidence in our leadership with respect to Iraq and we have a crisis of confidence in our economy. What started out as a subprime mortgage crisis has now become a national credit crisis, rippling out from banks and boardrooms to businesses and living rooms across America. We’ve had three straight months of private sector job losses. Consumer confidence is down and falling. The dollar has hit record lows and gas prices, record highs. And last week the Federal Reserve took unprecedented measures to rescue Wall Street, the likes of which we haven’t seen since the Great Depression. These are not just red flags or warning signs – they are indisputable indicators that our economy is in serious trouble. And now we face an urgent question: how do we keep today’s turmoil from spiraling into a long and painful recession? This is no easy task.

The 21st century American economy is more complex and more interconnect with the global economy than ever before. It is shaped each day by billions and billions of individual transactions and interactions on every continent. Subject to crises or even just speculation in one country can move markets in dozens of others with the blink of an eye or a flick of a mouse.

In today’s economy, trouble that starts on Wall Street often ends up on Main Street. Sometimes within minutes, sometimes over the course of months or even years. When there’s a run on mortgage-backed securities and the bottom falls out for investment banks, the bottom falls out for families who see the value of their homes, their greatest source of wealth, decline. When our credit markets freeze up, that doesn’t just cause panic on our trading floors, but in small businesses that can’t get the capital they need to survive. And on college campuses like this one, when the student loan for next semester falls through. When we continue to persist in brain dead energy policy as confidence in our currency erodes, that means gas prices so high you feel like it costs more to commute to work than you make when you get there. It means rising food prices that strain household budgets. It means having less left over for savings or ever dipping into savings to make ends meet. It means more challenges for the mayor because property tax revenues drop, businesses don’t have the same ability to make that profit that benefits the city. It means more problems for the governor who has to look across a complex state economy trying to figure out how to keep what has been a remarkable string of real budget balances and surpluses. It causes problems for our country.

Ultimately the true currency of today’s American economy is confidence. When people lose confidence in the economy and our president’s ability to manage it, problems become crises and crises lead to more crises. So we need a president who can restore our confidence, a president who is ready to confront complex economic problems with comprehensive solutions, a president who will act at the first signs of trouble, working with experts to identify the problem, with agencies to adapt regulations, with congress to pass necessary legislation, working to prevent crises rather than just reacting too little too late. We need a president who is ready on day one to be Commander-in-Chief of our economy. If you give me the chance, I will be that president. I will start by facing our economic situation as it is, not as we wish it would be.

That means acknowledging that our economic crisis is, at its core, a housing crisis, a crises caused in part by unscrupulous mortgage lenders and brokers and unregulated transactions in mortgage-backed securities, in part by speculators who were buying multiple houses to sell for a quick buck and other buyers who didn’t act responsibly. And in part by a president and administration who failed to anticipate and continue to downplay the problems we face. Unlike what happened here in Pennsylvania, when Governor Rendell started seeing problems – and I remember those articles we had in the newspaper, governor, where the housing supply was being, you know, expanded and people were putting zero money down and they were trying to once again get the American dream, they were commuting sometimes two hours to be able to afford that house. Well, those warning signals went unheeded in Washington. But thankfully, not in Harrisburg. And what we have to do now is to look at our housing crisis in greater detail. And I’d like to outline my plans to address it.

2.2 million foreclosure notices went out last year – up 75% from 2006. Communities of color have been especially hard hit. Subprime loans are five times more common in predominantly African American neighborhoods than predominantly white ones. And 41% of loans to Hispanics are subprime compared to only 22% to whites. But this crisis isn’t just about the more than 2 million households at risk of losing their homes and, of course, 2.2 million foreclosure notices means many more people than that because obviously you have homes where anywhere from two to ten people live. It’s about the tens of millions of families who have lost value in their homes.

When I talk about the home foreclosure crisis, sometimes people, I can tell, look at me a little skeptically because they, I can tell, they’re thinking to themselves, I didn’t buy one of those mortgages, I don’t have an ARM, I’m not at risk. But, in fact, that is just not the case. Home prices dropped almost 9% last quarter. Home prices for everyone. If you have paid off your home, if you have a fixed rate mortgage with a manageable interest rate, you have suffered the steepest decline on record. That means families have lost at least $1.9 trillion in housing wealth so far, nearly two-thirds of the size of the entire United States government budget. And today, nearly 9 million families are struggling with mortgages that are under water. They actually owe more for their mortgages than their homes are worth. So what was once their biggest financial asset is now a financial liability.

The housing crisis is also a crisis for our cities, our towns and our neighborhoods. At least 41 million homes will lose value because of foreclosures in their neighborhoods, including 1.7 million homes right here in Pennsylvania. Abandoned homes and boarded up neighborhoods mean higher crime rates, lower property values, and plummeting tax receipts for cities and towns across America. Now, a year ago in March 2007 I called for immediate action to address abuses in the subprime market, and I laid out detailed concrete proposals for how to do so. I warned this administration that the problems in subprime mortgages would soon spill over into regular mortgages. The response from our president? Well, his Treasury Secretary told Congress that the problem was, quote, “contained.” And president himself assured us there would be a, quote, “soft landing for the housing market.” The housing crisis then spread from subprime to traditional mortgages. And in August of last year, I warned the administration that the housing mortgage crisis would soon ripple out throughout the entire economy. Again, I called for immediate action and laid out concrete proposals to prevent foreclosures and help states hard hit by this crisis.

I also called for tighter regulation of the housing market, starting with unscrupulous mortgage brokers who were taking advantage of our families. I would require mortgage brokers to disclose right up front that they’re paid based on the size of the mortgage they sell, to put buyers on notice. I would work with states to develop strong, meaningful broker licensing standards to screen brokers and govern their conduct and I would require all brokers to register with the federal government so that home buyers can do their own background checks to ensure they’re dealing with someone who will deal fairly with them.

I also called for greater regulation of mortgage lenders. I would eliminate the prepayment penalties that lead to such high rates of default. I would require lenders to take into account the borrower’s ability to pay property taxes and insurance fees when deciding whether to make a loan in the first place. Too many loan lenders haven’t made that part of the calculation and too many families don’t know that they need to budget for these expenses. In October, I proposed legislation, the Foreclosure Rescue Fraud Act, that imposed new criminal penalties on lenders who were taking advantage of people, offering foreclosure rescue schemes that lure families in, take their money and do nothing to help them.

I’ve also proposed that we amend the bankruptcy code to give judges the discretion to write down the value of struggling families’ homes. Believe it or not, bankruptcy judges can write down the value of many other things to help families pay off their debt, but not their homes. They can write off the value or write down the value of second homes, which seems kind of ironic to me. Making this amendment to the code will help families in bankruptcy pay off their mortgages and stay in their homes.

Now, the response to all of this from the administration? Well, they continued their wait and don’t see approach, largely ignoring the mounting problems. By December of last year the mortgage crisis had become a national credit crisis. So I went to New York City and I told Wall Street they needed to do their part to address this crisis. I put forward an aggressive plan for a 90-day moratorium on all subprime foreclosures and a voluntary five-year freeze on interest rates for all subprime mortgages. The response from this administration? A plan that let banks off the hook and left homeowners to fend for themselves. In the words of one expert, the president’s plan was the bank lobby’s dream. This administration’s top economic priority it seems has been to lavish roughly $400 billion in tax cut on the wealthiest 1% of Americans while families have lost nearly five times that in the value of their homes.

Last week when it became clear Wall Street was on the brink of a financial melt down, the Fed and the administration sprang into action. The Fed extended a $30 billion lifeline to prevent Bear Stearns from imploding and took unprecedented action to provide tens of billions of dollars in credit for other struggling investment banks as well. Homeowners, on the other hand, have received next to no assistance. Well, let’s be clear. When families are losing their homes, that’s also a financial crisis. When people’s greatest source of wealth is losing its worth, as college costs and health care costs and food and gas prices shoot up, that’s a financial crisis too. When “for sale” signs line streets across our country, when cities and towns are struggling with the costs of foreclosed properties, that is also a financial crisis.

Our families are feeling the anxiety right now. I hear their stories every day, from Florida to Wisconsin, from California and Nevada to Pennsylvania. Last month, a little girl stood up at a town hall I was holding and asked me what I was going to do “about people and children that don’t have any food or houses?” I started to commend her on her concern for those less fortunate, when she interrupted me and said, “I’m losing my home.” Her mother is a hair dresser whose customers are tightening their belts. They’re not coming in as often, they’re not having as much done. They had an adjustable rate mortgage they could no longer afford.

We’ve come together today in the city where the American ideals of “Life, liberty and the pursuit of happiness” – of justice and equality – were inscribed into our founding documents. But what does all that mean to a family that’s lost its nest egg and the hopes and dreams that went with it? What does it mean to a little girl who goes to sleep at night worried about losing her home?

Our housing crisis is at heart an American Dream crisis. Your home isn’t just your greatest asset, your greatest source of wealth – it’s your greatest source of security. It’s what anchors you to your neighborhood and community. It’s the center of your family.

For the past seven years, we’ve had a president who stands up for the special interests – for the insurance companies and the mortgage companies and Wall Street. Now it’s time for a president who stands up for American families, a president who will rein in the special interests and rebuild the American middle class.

Over the past week, we’ve seen unprecedented action to maintain confidence in our credit markets and head off a crisis for Wall Street banks. It’s now time for equally aggressive action to help families avoid foreclosure and to keep communities across our country from spiraling into recession.

Today, I am announcing my four part plan to Protect American Homeowners: A plan to help our families keep their homes and help communities hard hit by the housing crisis.

My plan starts with an aggressive new effort to help millions of at-risk families restructure their mortgages and stay in their homes. Of the tens of millions of Americans who have lost value in their homes, 8.8 million are struggling with these mortgages underwater. That is more than 10 percent of all homeowners — the highest percentage since the Great Depression. If home prices fall another 15 percent, one third of all homeowners will find themselves in the same boat.

The time for action is now – not a month from now, or a year from now – but now. And the reality is that many of our families need more than just basic refinancing. That’s why I support new legislation proposed by my colleagues, Representative Barney Frank and Senator Chris Dodd that would expand the government’s capacity to stand behind mortgages that are reworked on affordable terms.

Currently, families apply to the government, and the government decides on an individual basis whether to work with them to restructure their mortgages. You heard the governor say that maybe there will be 1,000 families that will be helped in Pennsylvania. This is a slow process that helps relatively few families, and it simply isn’t enough to revive our housing market.

The Frank-Dodd legislation would move beyond this incremental approach by setting up an auction system for mortgage companies that hold hundreds of thousands of these mortgages. Through this system, these companies could sell mortgages in bulk to banks and other buyers. The buyers would be willing to purchase these mortgages – and restructure them to make them affordable for families – because they know the government will guarantee them once they are refinanced.

This would be good for families, who can keep their homes. It would be good for mortgage lenders, because it’s more profitable than foreclosures. It would be good for our economy, helping to unfreeze our credit markets.

But given the severity of today’s housing crisis, simply facilitating this auction process might not be enough to get our economy moving again. That’s why I believe the Federal Housing Administration should also stand ready to be a temporary buyer – to purchase, restructure, and resell underwater mortgages.

Just as it has in the past, this kind of temporary measure by the government could give our economy the boost it needs and families the help they certainly need. It would not require a single new federal bureaucracy, it would be designed to be self-financing over time – so it would cost taxpayers nothing in the long run.

It is a sensible way for everyone – lenders, investors, mortgage companies and borrowers – to share responsibility, keep families in their homes, stabilize communities and the economy.

In order to determine whether the approach outlined by Representative Frank and Senator Dodd is sufficient – or whether we need the government to step in as a purchaser – I am calling on President Bush to appoint an emergency working group on foreclosures. That is the second part of my plan.

We simply cannot wait until Congress passes legislation to find the best way to help millions of families.

That’s why I’m proposing an Emergency Working Group on Foreclosures. It could be led by a distinguished, non-partisan group of economic leaders like Alan Greenspan, Robert Rubin, Paul Volcker. It’s the kind of proactive step that would help re-establish confidence in our economy by showing that the President and the Administration was taking our economic crisis seriously.

I’ve been calling for several weeks for the President to show some sense of urgency. The group’s first order of business would be to determine how the government should implement the solutions proposed in the Frank-Dodd legislation – and whether this legislation goes far enough.

If it’s decided additional steps are needed, then we should investigate whether – and how – the Federal Housing Administration or other government entities, or Fannie Mae and Freddie Mac, could buy, restructure and resell underwater mortgages. The group would report back to Congress on a very tight timeline – no more than three weeks.

In the meantime, while the Emergency Working Group is being formed, we should implement the moratorium on foreclosures that I first called for in December. Every unnecessary home foreclosure just worsens the credit crisis and further depresses housing prices. Secretary Paulson and others have finally acknowledged the need for this moratorium in certain cases. I hope we will act to implement it as quickly as possible to implement it.

The third part of my plan is a new housing stimulus package to provide $30 billion directly to states and localities, like Pennsylvania and Philadelphia, hard hit by this crisis.

Right now, concentrated clusters of foreclosures are devastating some communities. A recent study of ten states by the U.S. Conference of Mayors found that the foreclosure crisis will lead to 6.6 billion dollars in lost tax revenues in just those ten states alone.

Just over a month ago, Congress passed, and President Bush signed, a $168 billion stimulus package. But this package did next to nothing to help homeowners and communities struggling with foreclosures. I said at the time, if we did not address the housing crisis, we would not be able to stem the bleeding. Congress is trying to combat a recession caused by the housing crisis without doing anything to address that crisis.

Well, if the Fed can extend $30 billion to help Bear Stearns address their financial crisis, the federal government should provide at least that much emergency assistance to help families and communities address theirs.

That’s why I’m calling for the creation of a one-time emergency $30 billion fund that would go directly to cities and states to address the housing crisis.

This money could be used to purchase foreclosed or distressed properties, which cities and states could then resell to low-income families or convert into affordable rental housing.

It could be used to help neighborhoods with high foreclosure rates avoid increased crime and blight by investing in everything from police and fire support to graffiti removal and better lighting.

It could also be used by local agencies to provide counseling and refinancing to help families avoid foreclosure in the first place. Governor Rendell has been leading the way with programs like that here in Pennsylvania. The Pennsylvania Homeowners Emergency Mortgage Assistance Program offers small, low-cost loans to families facing foreclosure. It has saved up to 40,000 homes since it started. And this past October, Governor Rendell launched two additional programs to help homeowners refinance and restructure their mortgages.

And we’re seeing results here in Pennsylvania: Since the end of 2006, Pennsylvania’s foreclosure rate has decreased 11 percent. I look forward to working with governors like Governor Rendell and with mayors like Mayor Nutter, who is already providing such outstanding leadership here in Philadelphia, to replicate this kind of success across America.

The fourth and final part of my plan involves passing new legislation to clarify legal liability for mortgage companies that act to help more borrowers stay in their homes.

Right now, many mortgage companies are reluctant to help families restructure their mortgages because they’re afraid of being sued by the investment banks, the private equity firms and others who actually own the mortgage papers. Because remember, all of these mortgages were bundled up in these huge packages and sold around the world. So you can’t just go down to see your mortgage broker or your bank or your other lender to work out a deal because they no longer own the paper. This is the case even though writing down the value of a mortgage is often more profitable than foreclosing – both for mortgage companies and for most of those who own the mortgages.

That’s why I will be proposing legislation when Congress returns to provide mortgage companies with protection against the threat of such lawsuits. I know this kind of policy isn’t particularly glamorous and it probably won’t make headlines. But it will make a critical difference in helping families save their homes and getting our economy back on track.

Now, some may claim that the plan I’ve outlined today is a “bailout.” They’ll argue that it’s not government’s role to help. Well, that is the same kind of tired rhetoric we’ve been hearing for years now. And I think the American people know better. We’ve had enough of that old ideology. We’re ready for solutions here and now.

And to those who object to our government helping middle class families and low income families devastated by the housing crisis, I say this: We’ve given Bear Stearns a $30 billion lifeline, we’ve given their creditors, their lenders their customers and those associated with them the same lifeline. We are now lending billions of dollars a day to help Wall Street banks that aren’t regulated, that are not held accountable. How can you tell a family about to lose their home that there’s nothing we can do to help them? How can you tell them that if they had failed spectacularly we would’ve helped them but because they are failing quietly, desperately, we are turning our backs? How can you tell them that there is nothing we can do to rebuild the American Dream?

I have been across our country for years. I know how much a home means to all of us.

I remember like it was yesterday when Bill bought our first home. It was back in 1975, and we were living in Arkansas and teaching at the university there in the law school. We weren’t yet married – though not for lack of asking on Bill’s part. And one day, we drove by this tiny red brick house with a “For Sale” sign in front. All I said was I thought it was a sweet-looking house and never thought about it again.

Several weeks later, Bill said to me, “Do you remember that house you liked? I had never been inside, I had never been outside looking inside, I had just driven by. I said, “What house that I liked?” He said, “You know, that red brick house on California Drive. Well, I bought it, so now you’d better marry me, because I can’t live in it by myself.”

It wasn’t exactly a mansion. The kitchen needed a lot of work. But I did say yes. And that fall, we were married in the living room of that house, surrounded by our closest friends and family.

That first home meant the world to us. It was where we started our life together, celebrated birthdays, anniversaries and holidays with our friends. And families across America feel the same way; whether it is your first house or your tenth house. It is part of who we are as Americans to look at that home ownership as such an important part of the American Dream.

Today, we face unprecedented economic challenges. But we also have within our reach unprecedented economic opportunities. We’ve got clean energy opportunities that we are not exploiting. Utilities are changing the way they do business, focusing on efficiency, not just producing energy. Renewables like wind and solar are the most exciting prospects for American manufacturing in decades.

I’ve even proposed that we establish a “Carbon Reduction Mortgage Association” or a “Connie Mae” – an idea that Vice President Gore first came up with. We’d direct Fannie Mae and Freddie Mac to provide loans to help people build more and retrofit more energy efficient homes. We’d save money over the long run. We’d create millions of “green collar” jobs.

We’ve got infrastructure opportunities to rebuild our crumbling roads, bridges and highways, like I-95 right here in Philadelphia. Opportunities to revolutionize our public transportation systems; cut down on traffic and pollution. We can do so much that will really build the strong economy we need in the 21st century. But we won’t do it by just waiting and watching and losing the opportunity to act. We’ve got so many great ideas that will give us the tools we need for the 21st century.

Now, turning the economy around won’t be easy, but we are gathered in the very city where our founders put to paper the words that have guided our nation – and inspired the world – for more than two-hundred years. Each generation of Americans has faced threats to our ideals. Each generation has met them. We have fought wars, overcome a recession, weathered all kinds of problems, lived through the Great Depression; we’ve had market crises of all kinds.

Through it all, as President Franklin Roosevelt once said, “We have always held to the hope, the belief, the conviction that there is a better life, a better world, beyond the horizon.” But we have to translate that hope into reality. We have to translate that conviction into solutions, and if we do, we will meet the current challenges with confidence and optimism. We will rebuild our economy – stronger, more vibrant, more resilient than ever before. It is a question of leadership. I hope we don’t have to wait until the next president is sworn in, but that we will come together and exercise that leadership in both the public and the private sector as soon as possible. That’s why I’ve set forth this plan and hope that the administration will begin to act with the urgency that the crisis before us demands.

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