Congressional committee stresses the importance of reducing foreclosures

Rep. Barney Frank (D-Mass.), Chairman of the House Financial Services Committee, said he has seen “encouraging signs,” in efforts to reduce foreclosures in the U.S. During a Financial Services Committee hearing today, Frank said it would be very important to the economy to reduce foreclosures and to use the rescue plan to put money into the economy.

Chairman Frank stated that taxpayer dollars wouldn’t be used to help others “pay their mortgages,” believing there was “zero likelihood” that that would happen. Frank also felt that decisions on the housing crisis are “unmakeable” in government currently, adding, “Someone has got to have the authority to make a decision.”

Rep. Spencer Bachus (R-Ala.) said that while the U.S. should work to reduce foreclosures, “We need to be careful to prevent all foreclosures.” Bachus stated, “If a homeowner is under water, if the house is worth substantially less than the mortgage, it is predictable that many are going to walk away from their obligation. In fact, we are seeing a good percentage of foreclosures in which the homeowner is under water and they are walking away.” He added, “I don’t see any practical way of preventing that.”

While Bachus agreed that the government could not allow an economic collapse, he asked “Where does it stop?” Bachus did praise government’s intervention in the crisis to this point, saying “So far, we’ve made a terrible situation better,” but advocated the need for an “exit strategy.”

Rep. Paul Kanjorsky (D-Pa.) made a reference to homeowners, saying that it was important to “keep them afloat.” He added that current foreclosure rates have “decimated some communities.”

According to Rep. Randy Neugebauer (R-Texas), it is important not to “encourage borrower behavior that is not appropriate.” He did think that if dialogue between borrowers and lenders is encouraged, “there will be some effort” to keep people in their homes.

Benjamin Allensworth, Senior Legal Counsel for the Managed Funds Association, said “the wave of foreclosures has placed downward pressure on home prices, which in turn has eroded home equity and consumer confidence in the mortgage market.” He advocated “effective mortgage modifications over foreclosure whenever possible.”

Thomas Deutsch, Deputy Executive Director of the American Securitization Forum, felt that government assistance in the crisis is vital and while mortgage lenders have made efforts to prevent “avoidable foreclosures,” “Macro economic forces bearing down on an already troubled housing market are simply too strong for private sector loan modification alone to counteract the nationwide increase in mortgage defaults and foreclosures.” Deutsch felt the housing crisis could not be resolved without government assistance.