Profile of Candidate Hillary Clinton's Housing Foreclosure Plan

Scope/Impact:

Clinton’s plan has evolved over time and is the most aggressive of the candidates’ proposals. In embracing the Frank-Dodd legislation and an Emergency Working Group on Foreclosures, she took a step back from some of her more aggressive proposals: the expansion of government interference through GSE lenders such as Freddie Mac and Fannie Mae and a five-year freeze of ARM rates – a proposal heavily criticized by economists across the nation.

Main proposals:

• Emergency Working Group on Foreclosures and a 90-day moratorium on home foreclosures (first proposed in December of 2007) to consider how to best implement the Frank-Dodd legislation and whether more government intervention will be necessary.
• Frank-Dodd Legislation
• $30 billion fund for emergency assistance to those areas (states/cities) hit hardest by the housing crisis and for use by state agencies in providing education and refinance opportunity to at-risk homeowners. The fund is considered a “housing-stimulus” package, and the $30 billion amount was chosen in recognition of the $30 billion bail out of Bear Stearns by the federal government.
• Legislation clarifying the legal liability of mortgage lenders, enabling them to renegotiate mortgages without fear of lawsuit.

(From March 24th, 2008 speech)

Theory:

Clinton’s approach to the housing crisis is aimed at increasing refinance/restructure opportunity to at-risk homeowners through varying degrees of Federal and State intervention. She has consistently sought to direct monetary aid to state housing-finance agencies. She also wants to include homeowners who are already delinquent or in a high-cost areas. While her proposals are aimed at homeowners as opposed to real-estate investors, the $30 billion in aid to the hardest foreclosure-hit areas of the country may ultimately provide assistance to investors as well; investors make up a large percentage of foreclosures in those areas.

Note: She said that she would seek legislation if lenders do not voluntarily comply with the 90-day moratorium and five-year freeze of ARM rates.

Other aspects of plan as outlined on Clinton's website and in speeches:

• Establish an Emergency Working Group on Foreclosures. Her choices of Robert Rubin, Paul Volcker and Alan Greenspan to head the group have been criticized.
• Frank-Dodd Legislation. The legislation essentially proposes that the Federal Housing Administration (FHA) back up to $300 billion in refinance loans. It would also set up an auction system for mortgage companies to sell off mortgages in bulk to banks and other buyers, who, because they are backed by the government, have incentive to repackage them for homeowners.
• Expand existing programs to allow GSEs and state agencies to provide refinance opportunity to at-risk homeowners. This includes decreasing restrictions and increasing caps regarding the amount of refinance loans that can be made by Government Sponsored Enterprise (GSE), such as Freddie Mac and Fannie Mae. Clinton would also increase federal funding to state home-financing agencies and allow them to make refinance loans (in addition to purchase-money mortgages).
• Voluntary five-year freeze of ARM rates (at lowest monthly rate in previous five years) to give at-risk homeowners time to convert sub-prime loans into conventional, fixed-rate mortgages. Many economists argue that a 90-day moratorium on home foreclosures and a freeze of ARM rates could seriously devastate the mortgage market by increasing interest rates and decreasing housing prices. The proposals also undermine the sanctity of contract law in a global market.
• Require more regulation, accountability and transparency. Clinton’s proposed legislation, the Foreclosure Rescue Fraud Act, is aimed at criminalizing mortgage-consultant fraud. It would also require mortgage brokers to make certain disclosures and register with the federal government.
• Other proposals. At one time, Clinton proposed a $25 billion fund to provide emergency home-heating assistance to homeowners. This $25 billion assistance may now be wrapped into the $30 billion, housing-stimulus package most recently mentioned by Clinton in March. She also proposed amending the bankruptcy code to allow judges to write down the value of homes.

Sources:

• October 8th, 2007 news release (Save Our Homes and Realizing the Dream Programs, as well as The Foreclosure Rescue Fraud Act)
• December 5th, 2007 news release {Call for 90-day moratorium on foreclosures and five-year ARM freeze)
• Democrats address a Nevada issue: Foreclosures by Michael J. Mishak / Las Vegas Sun Politics (12/9/07) (Good summary of differences between candidates)
• ElectionWatch: Clinton's Rate Foreclosure Freeze Could Cause 'Chaos' by Julia A. Seymour and Amy Menefee / Business & Media Institute (3/12/08) (Economists have concerns with Clinton's plan)
• March 24th, 2008 speech (Main points of plan as of March, as well as proposals to register mortgage brokers and amend bankruptcy code)
• Candidates' Economic Plans Don't Add Up by Jennifer Parker (3/27/08) (Summary of Candidate plans and economists views)
• Candidates' housing plans fall short by Lisa Lerer / Yahoo! News (4/3/08) (Frank/Dodd legislation and economists' view of candidate plans)