Millions Of Americans ‘Financially Burdened’ By Mortgages, But Bailout Does Nothing For Homeowners

Congress and the Bush administration are currently debating various forms of the $700 billion bailout aimed at stemming the financial crisis. One point of disagreement is whether the bailout will include benefits for troubled homeowners, or whether it will be a “clean bill,” focused solely on rescuing Wall St. financial institutions.

Emphasizing the trouble that homeowners are in, an analysis of Census Bureau data released today shows that 38% of homeowners with a mortgage — 19 million people — are spending 30% or more of their income on housing costs, which is the level of spending at which the government considers the homeowner “to be financially burdened.” 7.5 million people “are spending half of their income or more on housing costs.”


Despite this, the New York Times reported today that housing experts have warned “that the [bailout] plan might do little to help troubled borrowers stay in their houses”:

Henry M. Paulson Jr., the Treasury secretary, has put top priority on bailing out financial institutions by buying up soured mortgages and mortgage-backed securities, so banks and other lenders can clean up their balance sheets and get back to normal lending.

But Democrats are insisting that the Treasury Department also help restructure many of those loans, by lowering the interest rate or the loan amount, to make the mortgages affordable and reduce the number of people who lose their homes through foreclosure.

“We are literally spending hundreds of billions of dollars on subsidies for financial institutions,” said Christopher Mayer, a professor of real estate finance and vice dean at the Columbia School of Business. “This won’t do anything to help the housing market.”


Sen. Chris Dodd (D-CT) has proposed an alternative to the Paulson plan, which would give “bankruptcy judges the power to lower mortgages for distressed homeowners.” However, bank lobbyists are rallying to defeat Dodd’s bill. “We are vigorously opposing that,” said Steve Verdier, a lobbyist for the Independent Community Bankers Association (ICBA). “If that happens, then the mortgage rates for other consumers are going to go up.”

David Abromowitz and Andrew Jakabovics of the Center for American Progress have suggested that the Treasury have direct power to restructure mortgages. They wrote that “without provisions expressly aimed at helping these borrowers restructure their mortgages with the assistance of the federal government or through judicial modification, this grand plan to buy ‘toxic’ assets from the financial institutions that engineered this market meltdown will not help the U.S. housing market recover.”

Millions of Americans are paying enough to be considered “financially burdened” by government standards, yet the bailout, for now, does precious little to help any of them.