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The government should provide assistance to homeowners and renters to avoid foreclosure and not just help Wall Street out of its current crisis.

This week, President Bush is asking Congress to spend at least $700 billion to bail out some of Wall Street's largest companies. Many of these companies supported the risky and predatory lending practices that fueled the current foreclosure crisis and resulting economic downturn. Meanwhile, this bailout provides absolutely no benefit to distressed homeowners and renters who are losing their homes through foreclosure and struggling to pay their bills.

Foreclosure prevention efforts should take the form of a mandatory loan modification program modeled after the Home Owners Loan Corporation of the 1930s. Under this scenario, the government would buy whole loans at a discount and modify them in such a way as to make them sustainable for the homeowner. The program would be significantly less expensive than the Administration’s plan, because after modification the government would sell the loans and recoup the major part of the cost.

Congress should also enact protections to ensure that unfair and deceptive lending practices do not again lead to a foreclosure crisis. Examples of these protections would eliminate prepayment penalties and yield-spread premiums in subprime and high-cost loans, address abuses in the servicing sector and hold lenders accountable for problematic appraisals.

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