"Dear Chairman Bernanke and Secretary Paulson"

I posted this rather prescient letter from Obama to Bernanke and Paulson last March. The letter itself is dated March 22, 2007. As with Obama's warnings about the possible consequences of occupying Iraq, I think this letter is worth considering as we face the consequences of the financial mortgage-rooted meltdown in the credit markets and consider the two candidates. Money quote:

We cannot sit on the sidelines while increasing numbers of American families face the risk of losing their homes.

And while neither the government nor the private sector acting alone is capable of quickly balancing the important interests in widespread access to credit and responsible lending, both must act and act quickly...

[A] consortium of industry-related service providers and public interest advocates may be able to bring quick and efficient relief to millions of at-risk homeowners and neighborhoods, even before Congress has had an opportunity to act. There is an opportunity here to bring different interests together in the best interests of American homeowners and the American economy. Please don't let this opportunity pass us by.

Remember: from March 2007. Wouldn't it be great to have a president who actually anticipated problems rather than grappled with them after the fact? Read the full letter here:

 

Dear Chairman Bernanke and Secretary Paulson,

There is grave concern in low-income communities about a potential coming wave of foreclosures. Because regulators are partly responsible for creating the environment that is leading to rising rates of home foreclosure in the subprime mortgage market, I urge you immediately to convene a homeownership preservation summit with leading mortgage lenders, investors, loan servicing organizations, consumer advocates, federal regulators and housing-related agencies to assess options for private sector responses to the challenge.

We cannot sit on the sidelines while increasing numbers of American families face the risk of losing their homes.

 

And while neither the government nor the private sector acting alone is capable of quickly balancing the important interests in widespread access to credit and responsible lending, both must act and act quickly.

Working together, the relevant private sector entities and regulators may be best positioned for quick and targeted responses to mitigate the danger. Rampant foreclosures are in nobody's interest, and I believe this is a case where all responsible industry players can share the objective of eliminating deceptive or abusive practices, preserving homeownership, and stabilizing housing markets.

The summit should consider best practice loan marketing, underwriting, and origination practices consistent with the recent (and overdue) regulators' Proposed Statement on Subprime Mortgage Lending. The summit participants should also evaluate options for independent loan counseling, voluntary loan restructuring, limited forbearance, and other possible workout strategies. I would also urge you to facilitate a serious conversation about the following:

* What standards investors should require of lenders, particularly with regard to verification of income and assets and the underwriting of borrowers based on fully indexed and fully amortized rates.

* How to facilitate and encourage appropriate intervention by loan servicing companies at the earliest signs of borrower difficulty.

* How to support independent community-based-organizations to provide counseling and work-out services to prevent foreclosure and preserve homeownership where practical.

* How to provide more effective information disclosure and financial education to ensure that borrowers are treated fairly and that deception is never a source of competitive advantage.

* How to adopt principles of fair competition that promote affordability, transparency, non-discrimination, genuine consumer value, and competitive returns.

* How to ensure adequate liquidity across all mortgage markets without exacerbating consumer and housing market vulnerability.

Of course, the adoption of voluntary industry reforms will not preempt government action to crack down on predatory lending practices, or to style new restrictions on subprime lending or short- term post-purchase interventions in certain cases. My colleagues on the Senate Committee on Banking, Housing and Urban Affairs have held important hearings on mortgage market turmoil and I expect the Committee will develop legislation.

Nevertheless, a consortium of industry-related service providers and public interest advocates may be able to bring quick and efficient relief to millions of at-risk homeowners and neighborhoods, even before Congress has had an opportunity to act. There is an opportunity here to bring different interests together in the best interests of American homeowners and the American economy. Please don't let this opportunity pass us by.