Hillary Clinton's Plan for Homeowners

Can the Presidential hopeful's proposals to assist families facing foreclosure also help her win back voters?

by Jane Sasseen

In a bid to convince voters the time has come to move far more aggressively to stem the damage to the economy from the housing crisis—and that she's the candidate best able to do so—Senator Hillary Clinton (D-N.Y.) offered a passel of proposals aimed at easing the strains on homeowners and communities.

In a speech in Philadelphia on Mar. 24, Clinton pointedly contrasted the large efforts and sums of money that have so far gone into rescuing Wall Street with moves the government has made to help out homeowners facing foreclosure.

"Over the past week, we've seen unprecedented action to maintain confidence in our credit markets and head off a crisis for Wall Street banks," Clinton said. "It's now time for equally aggressive action to help families avoid foreclosure and keep communities across this country from spiraling into recession."

Clinton offered a series of measures intended to show just what she'd do to bring an end to the crisis were she in the White House. The package is in keeping with her campaign's focus on core issues of importance to the stretched working- and middle-class voters, the group with whom she is doing best. As general anxiety over the economy is ratcheting up sharply, says Daniel Clifton, a Washington (D.C.) policy analyst with investment firm Strategas Research, "she's trying to show leadership, and convince voters that her positions speak more directly to their housing problems."

Throwing Lifelines

The real point may be to contrast with what many see as the too-cautious approach of the current Administration, not to mention highlighting what Clinton's campaign argues is the aggressive leadership role she is taking in proposing new measures to ameliorate the housing crisis. So far, the Bush Administration has stayed away from backing any measures that would require putting significant taxpayer funds into the housing market or lead the government to play a more active role in setting a floor under housing prices.

Clinton's opponent for the Democratic nomination, Senator Barack Obama (D-Ill.), has backed congressional bills that would help stabilize housing prices by providing federal guarantees for mortgages that are renegotiated to better reflect current housing prices, but has not argued for a government role in buying up mortgages that are larger than the value of the underlying home.

Even though her proposals would involve tens of billions in government spending, Clinton moved to head off anticipated charges that such measures would constitute a bailout. "To those who object to our government helping middle-class and low-income families devastated by the housing crisis, I say this: We've given Bear Stearns a $30 billion lifeline, we've given their creditors, their lenders, their customers, and those associated with them the same lifeline," she said. "How can you tell a family about to lose their home that there's nothing we can do to help them?"

An Increased Role for the FHA

Clinton threw her support behind legislation now before Congress that would expand the Federal Housing Administration's (FHA) ability to guarantee mortgages that have been restructured. Under the proposals sponsored by Representative Barney Frank (D-Mass.) and Senator Christopher Dodd (D-Conn.), the government would provide up to $400 billion in guarantees for new mortgages if lenders agree to write down the principal amounts to the current value of the home and auction the mortgages off to new investors.

With home prices plunging across the country, she pointed out, nearly 9 million families now owe more on their mortgages than their homes are worth. That's 10.3% of all homeowners—the highest share since the Great Depression. "What was once their biggest financial asset is now a financial liability," she said. Clinton added that if prices fall another 15%, one-third of all mortgages would be similarly underwater.