The following letter on the urgency of the financial crisis was sent to Rep. Barney Frank and Sen. Chris Dodd.
The Honorable Barney Frank
U.S. House of Representatives
2252 Rayburn House Office Building
Washington, D.C. 20515
The Honorable Christopher J. Dodd
United States Senate
448 Russell Senate Office Building
Washington, D.C. 20510
Dear Barney and Chris:
The New York Times succinctly stated in its editorial of November 13 entitled, “Foreclosure Prevention Lite,” that “. . . the [financial] system will not stabilize until house prices stabilize, and house prices will not stabilize until the government finds a way to stanch foreclosures on a large scale.”
The editorial also pointed out that “[t]he Bush administration’s new plan applies to delinquent loans controlled by the government-run mortgage companies, Fannie Mae and Freddie Mac. They will use a fast-track process to lower troubled borrowers’ monthly payments to an affordable level, either through a longer repayment term, a lower interest rate or deferral of payment on part of the principle.”
The suggestion that all referees in bankruptcy modify the terms of mortgages, as they can other contracts, has been rejected by Congress and the Bush administration. Neither Treasury Secretary Paulson nor Federal Reserve Chairman Bernanke have supported that proposal. This week, some of the nation’s banks, as well as Freddie Mac and Fannie Mae, are proposing to do exactly that on a case-by-case basis on their own.
To get all lending institutions to go along, we should give the bankruptcy referees, who are court officers, the power to evaluate the mortgages before them and make independent decisions on modification, subject to appellate review. Banks, knowing that an independent authority can made such decisions, will prefer to negotiate directly with the mortgagor, rather than have a decision imposed upon them by a referee. President-elect Barack Obama, during his successful campaign, proposed giving that authority to the Bankruptcy Court. ?
When will common sense prevail in our government? I urge you to take appropriate action now and not wait for the new Congress and our new President, Barack Obama, to take office. We are drowning. In your capacities as Chairman of the House Financial Services Committee and Chairman of the Senate Committee on Banking, Housing and Urban Affairs, the two of you have the duty and opportunity to prevent a new Great Depression.
All the best.
Edward I. Koch
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