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Dems For HOLC

After today's bailout plan, Democrats must explicitly promise to help out distressed homeowners with a modern day HOLC. What was HOLC? I'll use the neutral part of the Wikipedia description:

The Home Owners' Loan Corporation (HOLC) or Home Owner's Refinancing Act, was a New Deal agency established in 1933 under President Franklin D. Roosevelt. Its purpose was to refinance homes to prevent foreclosure. It was used to extend loans from shorter loans to fully amortized, longer term loans (typically 20-25 years). Through its work it granted long term mortgages to over a million people facing the loss of their homes. The HOLC stopped lending circa 1935, once all the available capital had been spent. HOLC was only applicable to nonfarm homes, worth less than $20,000. HOLC also assisted mortgage lenders by refinancing problematic loans and increasing the institutions liquidity. When the HOLC ended its operations and liquidated assets in 1951, HOLC turned a small profit.

Listen to Hillary Clinton on HOLC and the current crisis:

Read Hillary Clinton on HOLC:

[H]ere's what I believe we should do.

First, in light of historic bank failures, even with the largest federal intervention in the history of the mortgage market, we need a government entity, a modern-day Homeowners Loan Corporation, referred to as HOLC -- H-O-L-C -- or we need to build on the Resolution Trust Corporation created to help deal with the Savings and Loan Crisis.

Now, I personally believe and was among the very first to suggest that a HOLC, a Homeowners Loan Corporation, could be a preferable way of unfreezing and beginning to fix our struggling mortgage market. Some of my colleagues and many other respected economists and government officials have called for the creation of an entity like the Resolution Trust Corporation, which was created after the Savings and Loan crisis to liquidate in an orderly way the virtually worthless assets that the failed S&L’s held.

Just yesterday in the Wall Street Journal, Paul Volker, and Eugene Ludwig and Nicholas Brady made such a proposal. They said a HOLC, an RTC, we’ve got to come up with an entity that will assume these debts and burdens and begin to work our way out. Last spring when I called for a modern version of the HOLC, that’s the Depression-era entity that bought up old mortgages and issued new, more affordable ones in their stead, most people did not pay much attention. But I think it's important to note that by the time the HOLC closed its books, that agency had turned a small profit and helped over a million people keep their homes. And this was 70 years ago. Our population has grown dramatically. So, obviously, if we did it right, we would be able to save a lot of homes. And I think if it is administered correctly it could be actually a net expenditure or even winner for the federal government.

Now, with the FHA reforms that I have long championed adopted this summer in our Omnibus Housing Bill, the FHA could be already a modern Homeownership Lender Corporation. But we need to look to new ways to revive and if necessary create a new market for mortgage securities based on sound accounting, transparent recordkeeping and responsible lending.

A new government entity like the HOLC with a focus on attacking the source of the problem can serve the purpose of clearing a lot of those toxic mortgage securities from the market. We know there will not be any semblance of a normal or orderly marketplace until we have found a way to resolve these mortgage securities that are metastasizing in the bottom of our markets. By taking this paper out of the market and quarantining it in this new entity we will be able to give the market breathing room to recover. We will also be able to set the stage for an orderly sale of these securities and in turn allow some of them to recover and actually regain some of their value. Perhaps just as importantly, not only would our financial markets stabilize but so would our housing markets.

This is an extraordinary measure but it is not without precedent. This is the greatest market upheaval since the Great Depression. We are, indeed, in a crisis, and in times of crisis there are opportunities for leadership. Congress could show the American people that leadership working with the President by embracing this bold proposal.

All Democrats show show bold leadership as Hillary Clinton has done. The time for HOLC is now. Democrats, including Barack Obama, should promise the American People relief for Main Street. They should promise the reinstitution of HOLC as the first measure of a President Obama and a Democratic Congress.

By Big Tent Democrat, speaking for me only

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  • Display: Sort:
    As I understand (5.00 / 1) (#2)
    by Ga6thDem on Mon Sep 29, 2008 at 10:49:07 AM EST
    it, this is pretty much off the table. It seems there's some mights and maybes and lukewarm promises but I don't think there's any teeth.

    That what you want to understand (none / 0) (#3)
    by Big Tent Democrat on Mon Sep 29, 2008 at 10:50:29 AM EST
    What you write is false.

    Parent
    then what most (5.00 / 2) (#4)
    by cpinva on Mon Sep 29, 2008 at 10:59:36 AM EST
    everyone with a brain, who's actually read the proposed legislation, thinks is false as well. in fact, the legislation, according to you, is false.

    where, in that bailout legislation, did you see any explicit mention of direct help for homeowner's caught by ARM's going high-interest, or any other direct help for at-risk homeowner's?

    the only thing i've seen is help for banks and investors.

    that, and a bunch of intentionally undefined terms.

    Parent

    Apparently (5.00 / 3) (#5)
    by Big Tent Democrat on Mon Sep 29, 2008 at 11:05:28 AM EST
    You folks with alleged brains believe that this legislation PROHIBITS the formation of a new HOLC.

    Moreover, even if it did, which it does not, of course the NEW Congress, the one being seated in January 2009, could repeal it.

    So I suggest you people who claim to have brains start using them.  

    Parent

    The only thing is (5.00 / 1) (#9)
    by Steve M on Mon Sep 29, 2008 at 11:44:41 AM EST
    I have no idea how long the government actually plans to hold onto these securities.  It seems to me that they'd prefer to act as a market-maker and find a buyer to get them off the books as soon as possible.

    Personally, I think the government would add a lot of value by holding onto the securities long enough to renegotiate at least some of the underlying mortgages, thus giving market participants more confidence that they're getting value.  Also, given the uncertainty about who actually holds the right to enforce these various mortgages in court, a legislative solution could make it very easy for the government to negotiate with authority and give everyone else legal clarity on the matter.  But it's possible that I don't understand these things deeply enough.

    Yes, if the government is going. . . (none / 0) (#1)
    by LarryInNYC on Mon Sep 29, 2008 at 10:39:33 AM EST
    to have all those loans on its hands anyway, purchasing them at a value that covers the current value of the asset that backs them, obviously the best thing to do is to grant the homeowners restructured conservative (30 year fixed rate) loans based on the new, lower, value of the house.

    That kind of seems like a no-brainer to me.

    Is this not, in fact, the plan underlying the purchase of those bad mortgages?

    I don't think they will though (none / 0) (#6)
    by Militarytracy on Mon Sep 29, 2008 at 11:08:23 AM EST
    unless this hyperinflation thing takes off, and by then it is probably too late to help the little people who will drown in the crisis.  I wish I were more optimistic but our Dem leadership are such cry baby wussies who are comfortable being cry baby wussies - they'll just stand there crying and pointing fingers at the Republicans while people in the streets truly suffer from their lack of spineful leadership.  As a military spouse I have already suffered from their lack of spineless leadership so I know how much of reality that truly is, it isn't just speculation on my part.

    Oh, (5.00 / 2) (#8)
    by Ga6thDem on Mon Sep 29, 2008 at 11:24:04 AM EST
    I'm also of little faith. The Dems can fight for HOLC but then the GOP balks and refuses to vote for it. Pelosi kills the bill because it isn't "bipartisan" and that's the end. It seems all the GOP ever has to do is stick together and throw a tantrum and they win. Pelosi has been beyond disastrous as house leader. She got her low approval ratings the old fashioned way. She earned them.

    Parent
    On board all the way. (none / 0) (#7)
    by Faust on Mon Sep 29, 2008 at 11:17:56 AM EST
    In the HOLC tank.

    Defacto HOLC? (none / 0) (#10)
    by Radix on Mon Sep 29, 2008 at 11:58:07 AM EST
    Why isn't what the Congress is proposing now seen as a defacto HOLC? Are not these troubled securities in reality mortgages? After purchase, are we not entitled to do as we please with them, including renegotiating their terms?

    Not according (none / 0) (#11)
    by Ga6thDem on Mon Sep 29, 2008 at 11:59:31 AM EST
    to this article. It says that homeowners aren't going to get help.

    Parent
    It doesn't directly address the issue (none / 0) (#12)
    by Radix on Mon Sep 29, 2008 at 12:03:43 PM EST
    but it doesn't preclude it either. Once we own these mortgages what's to stop us from renegotiating their terms? Isn't what an HOLC would do would be to take over troubled mortgages and renegotiate the terms of those mortgages?

    Parent
    Are they in reality mortgages? (none / 0) (#13)
    by ruffian on Mon Sep 29, 2008 at 12:06:12 PM EST
    No - they are mortgage-based securities.  Meaning that in some cases they are securities built around loans to entities to buy other such securities.  We won't know until it all gets untangled how many actual mortgages are at the root. Could be a lot of them, could be very few.

    Parent
    Then how would a HOLC like (5.00 / 1) (#14)
    by Radix on Mon Sep 29, 2008 at 12:13:39 PM EST
    entity help? Isn't one of the primary motivators for HOLC is that the mortgage market is at the root of our current troubles?

    Parent
    It would attack the root cause of the problem (none / 0) (#15)
    by ruffian on Mon Sep 29, 2008 at 12:18:01 PM EST
    This current bill save the top branches of the tree, so to speak, and maybe some of the roots (but we don't know), and leaves room for the root system to get fixed later.

    Parent
    I was not clear (none / 0) (#16)
    by ruffian on Mon Sep 29, 2008 at 12:20:10 PM EST
    when I said we don't know how many real mortgages are 'at the root', I should have said 'are in the bundle of securities we are buying'.  There are real mortgages at the root, but that is not necessarily where this bailout money is going.

    Parent
    Ok. Then it would not be unreasonable (none / 0) (#20)
    by Radix on Mon Sep 29, 2008 at 12:48:08 PM EST
    to believe banks and so forth, at least in part, are going to off load many, if not all, of their troubled mortgages. If the preceding is true, then in fact, we will have established, at least in part, HOLC. There will be no need for anyone to try and convince conservatives to buy up troubled mortgages, for the purpose of renegotiating the loan terms, we will in fact already own them. The only question left is what to do with said assets.

    Parent
    Well (none / 0) (#17)
    by Steve M on Mon Sep 29, 2008 at 12:27:11 PM EST
    We are not precluded from renegotiating them, but we also haven't created an entity with the express mission of renegotiating them, either.  It's fair to say that the issue has been left open.

    Parent
    The hardest part of creating (none / 0) (#22)
    by Radix on Mon Sep 29, 2008 at 12:59:03 PM EST
    such an entity, as HOLC, would be appropriating the funds to buy up these loans. With the bailout package would have already gotten the money. The question then remains, how to get that money back. Renegotiation of loan terms would be a no brainer at that point. Also, political suicide for those that opposed it.

    Parent
    Wouldn't it be both good policy and politics (none / 0) (#18)
    by ruffian on Mon Sep 29, 2008 at 12:31:07 PM EST
    for Reid or the appropriate committee chairman to schedule hearings on HOLC?  Even if they were scheduled for after the election, just putting it out there as an idea is smart, IMHO.

    Kucinich on Democracy Now (none / 0) (#19)
    by Stellaaa on Mon Sep 29, 2008 at 12:46:13 PM EST
    Did anyone else hear him?  He said the Obama campaign wanted the bankruptcy judge workouts off the table.  TARP has very little for housing and for the homeowners.  The bulk will go to save the weird financial instruments, all that innovation that came from Greenspans era.  

    Quote from Democracy Now (none / 0) (#21)
    by Stellaaa on Mon Sep 29, 2008 at 12:49:49 PM EST

    Interview today with Kucinich

    REP. DENNIS KUCINICH: Right. You know, I'll tell you something that we were told in our caucus. We were told that our presidential candidate, when the negotiations started at the White House, said that he didn't want this in this bill. Now, that's what we were told.

    AMY GOODMAN: You were told that Barack Obama did not want this in the bill?

    REP. DENNIS KUCINICH: That he didn't want the bankruptcy provisions in the bill. Now, you know, that's what we were told. And I don't understand why he would say that, if he did say that. And I think that there is a--the fact that we didn't put bankruptcy provisions in, that actually we removed any hope for judges to do any loan modifications or any forbearance. There's no moratorium on mortgage foreclosures in here. So, who's getting--who's really getting helped by this bill? This is a bailout, pure and simple, of Wall Street interests who have been involved in speculation.

    And I don't, for the life of me, understand why this is going to do anything to address the underlying problems in the economy, which actually had to do with the recklessness. This is what the president of the Federal Reserve Bank in Dallas said, that--and, you know, I might have the actual quote here. Listen to this quote: he said, "The seizures and convulsions we've experienced in the debt and equity markets have been the consequences of a sustained orgy of excess and reckless behavior, not a too tight monetary policy." This is the Dallas Federal Reserve Bank president, Richard Fisher.



    Obama-Pelosi-Reed don't give a damm! (none / 0) (#23)
    by Mitch Guthman on Mon Sep 29, 2008 at 01:13:09 PM EST
    Yes, you are right, the Democrats should pass measures to save people from losing their homes.  What makes you think they will?  Clearly, there will never be a moment in time where they will have greater leverage and public support for something like HOLC.  So, they could have had it if they wanted it.  They didn't put it in the bill because, frankly, they didn't want to.

    And according to Kucinich, the bankruptcy relief provisions which were so important to rank-and-file Democrats were not in the bill because the leader of our party, Barrack Obama, didn't want them to be included. (See the quote from Stellaaa above).

    Yes, that's right, HOLC and bankruptcy relief were not in the bill because Obama didn't want them.  Not because the big bad Rethugs objected, but because our fearless leader didn't want them.  This is as much Obama's bill as it is Bush's.  These are the priorities and choices of our party's leadership. The only question is, what are we going to do about it?