Clinton: Bold Action Needed on Housing Crisis

Although most Americans fail to understand the underlying details of the credit market mess that has roiled the stock market since last summer, the average homeowner, however, clearly understands that the value of their home has decreased.

The bursting of the housing bubble has certainly hurt, and Sen. Hillary Clinton (D., N.Y.) has sought to stay in front of the crisis, offering solutions and demanding action from the administration again yesterday in Philadelphia.

In her speech, Clinton decried the lack of action on problems facing average Americans:

"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."

Clinton seeks support for Main Street, in addition to Wall Street.

Clinton and her campaign started discussing problems in the housing market in early 2007, when she called for a "foreclosure timeout." In December of last year, she preempted the Bush Administration's "Hope Now Alliance" by a day with an idea to freeze interest rate resets on subprime mortgages and offer help to struggling states with $30 billion in subsidies.

Her new plan adds several layers. She endorses the recent legislation proposed by Rep. Barney Frank (D., Mass.) and Sen. Chris Dodd (D., Conn.). The legislation extends the Federal Housing Administration's ability to guarantee restructured mortgages. Clinton believes the guarantees might spur private sector auctions to unfreeze the credit markets, and she wants additional government readiness to step in and to facilitate mortgage restructuring.

The legislative process takes time, however. Clinton urged President Bush in the interim to name a "high-level emergency working group" on foreclosures in order to investigate appropriate measures to move forward. The group would be nonpartisan. Clinton recommended possible suggestions for members of the group, such as former Fed Chairs Alan Greenspan and Paul Volcker with Robert Rubin, formerly of Goldman Sachs and currently of Citigroup. (It would be fitting to have Greenspan involved in solving a crisis that many say he helped foster by not monitoring mortgage markets and keeping interest rates low for far too long.)

Clinton also plans to introduce legislation to limit the liability of mortgage servicers from investors. She says some servicers have refused to help families with restructuring for fear of litigation. I asked Clinton's advisers during a conference call if they feared an adverse reaction from investors of subprime securities. Gene Sperling, Clinton's chief economic adviser, said, "The legislation would not be an abrupt change" for investors and "provides clarity, which the markets want."

Her speech set off a tit for tat with Barack Obama's campaign. The Obama campaign issued a press release questioning Clinton's interest in helping with the housing crisis. They noted she has received slightly more than $900,000 from lobbyists (a small portion of the $163 million she's raised) and has had close ties to housing industry lobbyists, including $22,000 in donations from subprime lobbyists from companies like Countrywide Financial, which has been taken under by Bank of America, and Washington Mutual.

The Clinton campaign fired back, listing on one campaign Web site a report from Congressional Quarterly that Obama had received more donations from the top 10 issuers of subprime mortgages than Clinton, saying the following 10 firms donated over $1.1 million to the Obama campaign: Lehman(LEH), GMAC, Credit Suisse(CS), Countrywide, Washington Mutual, Citigroup, CBASS, Morgan Stanley(MS), Centex and Goldman Sachs. (It bears noting that some of the companies listed aren't pure mortgage issuers.)

John McCain, the presumptive Republican nominee, has been traveling, and his campaign did not comment on the plan. Republicans have portrayed Clinton during the campaign as willing to tax and spend, though her plan calls more for government action.