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Helen Silvis of The Skanner News
Published: 27 July 2012

Senator Jeff Merkley held his press conference at the home of Rev. Fredi Jackson, 72, who is struggling to refinance her mortgage

When Rev. Fredi Jackson bought her home in the East Portland, in 2009, she could easily afford the mortgage. But after her renters moved out, paying became more difficult. She tried to refinance and was approved for a short-term modification. Since then, she's been trying to get a permanent loan modification. Now, more than a year later, she says, her bank –Bank of America— just keeps stalling.

Sen. Jeff Merkley held a press conference outside Jackson's house, Friday, to highlight the continuing struggles of millions of U.S. homeowners stuck in high interest mortgages, and to offer his solution.

"We moved so boldly as a nation to help out large Wall Street institutions," Sen. Merkley said. "We should move equally boldly to help out families across America."

Merkley's proposal calls on Congress to take aggressive action to reduce the impact of the housing crisis, by creating a trust, the Rebuilding American Homeownership Trust, that would refinance mortgages at lower rates. The trust would be financed through the sale of government-backed bonds.

The only requirement is that homeowners are still current with their payments and meet standard lending requirements.

Anybody could apply for the refinanced mortgage loans, but a key goal is to help underwater homeowners, whose homes are worth less than their owners paid to buy them. Those homeowners are now locked into high interest rate loans, even as interest rates have dropped dramatically.

"We have about 120,000 homeowners in Oregon who are underwater," Merkley said. "About 80,000 of them are current on their payments and would benefit from this type of refinancing opportunity.

"The opportunity exists to do this at no cost to the taxpayer –in fact it will probably return a profit to the taxpayer. It will help families; it will help communities and it will help the broader economy."

Merkley, who sits on the Banking Committee, compares his trust proposal to the Depression-era Home Owners' Loan Corporation, and says it would have a similar positive impact on the economy. When homes are foreclosed, all the surrounding homes drop in value, he said. The refinancing program would prevent that, and would help free up money in the economy, to create jobs and help the economy recover.

"The beauty of this arrangement is that not a single tax dollar goes into it," Merkley said. "And the key is that over the life of this trust, and as the loans are paid off, it eventually disappears."

Almost 4 million homeowners have lost their homes to foreclosure since 2008, when the housing market plummeted. Merkley envisages the trust offering several options, including 4 percent loans on 15-year repayment plans; 5 percent on 30-year loans; and a third choice that includes a deferral period.

The Oregonian editorial board already has panned the plan, saying it sets "a dangerous precedent to offer government-backed mortgages to 8 million people," who already are paying their mortgages without help. In an editorial, the paper said that it would be unfair to help underwater homeowners who are still able to pay, and not people who are in arrears. It also suggested that the economy already is improving , so the plan may be unnecessary.
Merkley says the Oregonian article mistakenly said only underwater homeowners would benefit. In fact, any homeowners (current with their mortgage) could refinance through the plan. In addition, Merkley says, the plan will benefit everyone by freeing up money that will then enter the local economy, and by preventing foreclosures, which drag down neighboring
property values.

Nobel prize-winning economist Joseph Stiglitz supports the idea. So does the National Association  of REALTORS and Mark Zandi, chief economist with bond rating agency, Moody's Analytics.

"America's economic recovery is being held back by $700 billion in negative equity in the housing market," Stiglitz said in a press release about the plan.

"Senator Merkley's broad refinance proposal would allow these families to refinance into loans with a lower interest rate, freeing consumer resources to be spent on other important needs, or allowing the homeowner to rebuild equity more quickly. If adopted, this proposal would help to stabilize the housing market, create new jobs, and boost our overall economy."

Treasury Secretary Timothy Geithner also endorsed the plan, telling the Senate Banking Committee,

"We like the way you designed it. I think it would be — it's good economic policy, good for the country for that to become law just for the reasons you said. It's not just a fairness question, but it would help reduce the remaining pressures that housing is putting on the economy as a whole. Very good economic case for doing it."
Angela Martin of Economic Fairness Oregon says Jackson's situation was not unusual. Many homeowners have been promised opportunities to refinance only to find that banks fail to follow through.
"One of the problems we've had all along is programs that depend on the five big banks to play nice," she said. "We've seen them fail for lack of cooperation from the banks. A refinancing program that takes it out of the hands of the five big banks will allow homeowners who are underwater to take advantage of historically low interest rates. They are safe bets and helping them will help the entire economy."

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