Gov. Spitzer must act on subprime lending crisis

It's time for New York Gov. Eliot Spitzer to move past the spate of political distractions that have dogged his administration and revive the bold populist warrior he was in years past. With the 2008 legislative session and his January State of the State speech approaching, Spitzer has the perfect opportunity to establish a clean slate and blast open the morass of partisan gridlock that has surrounded his most recent efforts at reform. And there is no better issue with which to do that than tackling New York's subprime lending crisis by calling for a six-month moratorium on home foreclosures.

Addressing this housing crisis in a real way would allow Spitzer to do what he does best — take on powerful moneyed interests on behalf of average New Yorkers. After all, most ordinary New Yorkers are looking for our leaders in Albany to take on issues that matter most to their daily lives. They care about providing a home and a comfortable life for their families. It is those simple aspirations that are under attack right now as Wall Street-backed predatory lenders move in to recoup on their losses by foreclosing on the homes of the tens of thousands of New Yorkers to whom they knowingly provided loans that couldn't be repaid in order to make billions of dollars in short-term profits.

As anyone who's been on the planet for the last few months knows, the foreclosures crisis is out of control. The problem is particularly aggravated in New York state, which in 2006 experienced the fifth highest rate of foreclosures in the nation, with rates in Ithaca spiking to 17.8 percent in the last year. With as many foreclosures in New York in the first half of 2007 as there were in the entirety of 2006, the problem is growing rapidly and not expected to get better any time soon. A report recently issued by the U.S. Conference of Mayors estimated that 1.4 million homes will be foreclosed on nationally in 2008, causing a loss to homeowners of more than $316 billion. But the damage doesn't stop with losing our houses. As banks foreclose on homes, it causes property values for all of the surrounding homes to depreciate, putting everyone's economic security in jeopardy. A recent study by the Center for Responsible Lending predicts that in Nassau County, where 9,450 foreclosures are expected next year, the property values of as many as 549,000 surrounding homes will nosedive by an average of $7,100.

New York needs to follow in the footsteps of states like Minnesota and adopt sensible regulations to prevent mortgage lenders from continuing to make irresponsible loans in the future, but these reforms will take time to work. In the short term, putting an immediate halt to foreclosures is a big-win issue. With President George W. Bush's anemic proposal to assist homeowners meeting with lukewarm responses, the table is set for Spitzer to send a bold message that New York state is capable of leading the nation in addressing one of the most pressing issues of our time. There is already a growing movement within the State Senate's Democratic Conference to propose a six-month foreclosures moratorium. By ensuring the passage of such legislation, Spitzer could regain lost allies and start to build the kind of broad-based coalition necessary to move legislation on other pressing issues affecting working families such as affordable healthcare.

Since we know that Spitzer is reading up on biographies, we're sure he knows about what Franklin Delano Roosevelt did in similar circumstances to protect the interests of ordinary citizens in the face of economic meltdown and corporate greed. After becoming president in 1934, one of the first policy decisions that FDR made was to establish the Home Owners Loan Corporation, which enacted a moratorium on foreclosures and invented the 30-year low interest rate mortgage as a way of easing the burden on low-income homeowners. In FDR's day, as in ours, such bold leadership was often met with harsh opposition. But it got the job done.

Bruised by the last six months, Spitzer seems to be searching for issues that will restore his popularity. He must remember that it was the promise of bold leadership that originally put him in the governor's office in 2006. Only that kind of leadership in taking on powerful interests and defending New York's middle class will put him back in the driver's seat in 2008. As FDR might say, Eliot Spitzer has nothing to fear but fear itself.

Joel Barkin is the executive director of Progressive States Network. Andrea Batista Schlesinger is executive director of the Drum Major Institute.

Andrea Batista Schlesinger & Joel Barkin
January 8, 2008

Executive Director of the Drum Major Institute for Public Policy