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Obama's Homeowner Plan a "Colossal Disappointment," Merkley says.

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Announcing a new more aggressive push to save millions of financially strapped American homeowners from foreclosure, Sen Jeff Merkley said Tuesday in Bend that new legislation is needed to replace Obama's Making Home Affordable program, which has failed to stem the tide of defaults.

Speaking in front of a map that showed foreclosure rates across the state, Merkley said he chose Bend and Central Oregon to kick off his legislative campaign because we sit at the epicenter of the housing bust. However, Merkley portrayed the continuing fallout of the housing bust as a national crisis that must be addressed as part of an overall economic recovery.

This year millions more Americans are expected to lose their homes to foreclosure, according to most industry experts. Those foreclosures come with a cost to homeowners, communities, banks and the overall economy, Merkley said. While there have been several efforts to date including Obama's Making Home Affordable program, those programs have been ineffective in slowing foreclosures while dragging homeowners through a deeply flawed process controlled by banks and financial institutions that often have no interest in helping homeowners avoid foreclosure. Highlighting just how ineffective the program has been, Merkley said that the Obama plan was estimated to need more than $50 billion in homeowner assistance funding. To date it has provided homeowners with just $1 billion in relief, even as millions of property owners slipped into foreclosure.

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Unlike current legislation, Merkley's proposed plan would require banks to send all foreclosures to a third party for an objective "hardship" analysis. That test would determine whether homeowners would qualify for a loan modification that would reduce the principal debt to the actual value of the home - addressing one of the major problems for many homeowners in Bend and beyond, the loss of equity from the housing bust - while also providing a current fixed interest rate.

Merkley's plan, which he said he hopes will have bi-partisan support, would also end the so-called dual track for foreclosures in which banks proceed with foreclosure work even as they are supposedly working on modification requests from distressed homeowners. Under the proposed process, banks would have to suspend the foreclosure process while a third party evaluates a homeowner's eligibility for a modification.

Merkley said his plan also includes a tax credit for first time buyers designed to spur the market recovery, as well as a provision that would require financial institutions to establish a single point of contact for homeowners, as opposed to being bounced around through a gauntlet of "customer assistance" specialists. Finally, the legislation would extend new powers to federal bankruptcy judges, allowing them to modify principal and interest on homes, just as they do for other items, such as boats and vacation rentals.

Merkley said Tuesday that his ideas may not be perfect, but he thinks they have solid merit and ought to be the starting point for a new approach to the growing foreclosure crisis.

"The key is we need to renew the national conversation about how to assist homeowners," he said.

When asked how the plan would be funded Merkley, didn't provide any specifics. But he suggested that modified loans could be re-bundled and sold onto the bond market, which is now on a more solid footing. He said it's possible that large financial institutions, several of which he said are now preparing to roll out their own modification programs, might be willing to underwrite much of the costs of acquiring non-performing loans for the chance of future returns.

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