Only Halfway Through the Foreclosure Crisis?

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ABC News' Z. Byron Wolf Reports from Capitol Hill: Martin Eakes, who runs the Center for Responsible Lending, told the Senate Banking Committee in February 2007 that the U.S. was on the precipice of two million foreclosures for subprime loans. Today, the committee chairman, Sen. Chris Dodd, D-Conn., called Eakes prescient and said the two million figure "seems almost quaint."

Eakes, however, sees no end to the foreclosure crisis in sight.

"We're only halfway through subprime loans alone, not to mention a third of the way or less through the adjustable or arm," he told the committee today, of foreclosures. Eakes calls the proposal by FDIC Commissioner Sheila Bair (and rejected, apparently by the Treasury Department) to use taxpayer money for a homeowner bailout "just an absolute no brainer."

What was billed as an oversight hearing on the Treasury Department bailout for Wall Street turned more into a meditation on the housing crisis and what banks benefiting from the ever-evolving bailout are doing (and not being forced to do) to help people avoid foreclosure.

There was unanimous confusion among the witnesses - bank executives, academics and consumer activists - that Treasury Secretary Henry Paulson seems to have rejected a proposal by Bair to use authority within the bailout bill and $50 billion of that $700 billion program to help people with subprime loans in danger of foreclosure restructure their loans. Bair's proposal was modeled on a program enacted by FDIC to restructure the subprime loans of Indy Mac bank when it went into conservatorship earlier this year.

Dodd said the rate of foreclosures demands more systemic approach than the several voluntary programs enacted by the federal government.

"Between now and next Wednesday, some 50,000 families will go into foreclosure," he said. "Some 50,000 will lose their homes.

"It is still confounding to me why the Secretary of the Treasury and others refuse to understand this is the heart of the problem. And until we address this, this problem is not going to go away."

Dodd also accused Paulson of only pretending to look at Bair's proposal. He said he could offer mortgage relief legislation on the floor of the Senate when lawmakers return for a lame duck session next week. But without buy-in from Republicans, nothing is likely to pass next week.

Wharton Business Professor Susan Wachter told the Senators she was "puzzled why Treasury has rejected (the Bair plan)."

Bank executives were less committal, but said more should be done by the government to systematically address the foreclosure crisis.

Anne Finucane is an executive at Bank of America, which acquired Countrywide, the lender most famously undone by subprime lending. She said BofA is trying to unilaterally restructure many mortgages - 200,000 this year, she said - but said "the more we can do systematically to deal with this issue, the better."

But the bankers differ with the Democrats and activists on whether a controversial proposal to allow bankruptcy judges to unilaterally restructure mortgages would endanger the market.

Sen. Mel Martinez, R-Fla., whose state is particularly hard hit by the foreclosure crisis, said he worried about the bankruptcy provision, but wants to see more done to help homeowner's specifically.

Dodd also castigated banks for "hoarding capital" given to them under the program and argued that the true cost of the bailout has grown to $5 trillion when you factor in the temporary bump in FDIC insurance to $250,000 per account, the bailout of insurance giant AIG and the nationalization of government mortgage backers Fannie Mae and Freddie Mac.

"It isn't just 290 billion. It's 5 trillion. The taxpayer is really behind your institutions," he said.

But still Dodd defended the $700 billion rescue package passed this year.

"If you believe that you would be no worse off than you are today, then I invite you to return to the Treasury the billions of dollars in taxpayer investments, guarantees and discounts that you currently receive, and I wish you well as you try to make it on your own," Dodd said.

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