PORTLAND, Ore. – U.S. Sen. Jeff Merkley, D-Oregon, has introduced an ambitious plan to help people who are underwater on their homes.
To be "underwater" homeowners owe more than what their homes are worth.
His proposal would set up a type of a government agency to offer people three different options. One lets people who are current on their mortgages refinance to a lower rate of 4 percent. Another plan would keep monthly payments roughly constant but shortens the life of the mortgage. The third option cuts monthly payments a lot, in effect extending the life of a loan.
"Many folks have asked me, 'Why now? Aren't we about done with this crisis?' And the answer is unfortunately we are not," Merkley said Friday.
Many people want to refinance but can't. Some say if they could get that lower rate they could get lower monthly payments and possibly save their homes from foreclosure.
Merkley says eight million people across the country are underwater on their mortgages and helping them helps the economy overall.
Fredi Jackson is a local homeowner in need of help. She hosted Merkley's press conference outside her home in Northeast Portland. She and homeowner Lake Boggan, who also joined the news conference, told about their struggles to save their homes. They hope the refinance plan could help stop the suffering.
"This is my home," Jackson said. "At my age I am not looking to buy another home. I don't know what to do, but I pray a lot."
Boggan said, "It's a very serious circumstance, and I have no idea what it’s going to look like if things don't happen quickly. Where will we stack our bodies? Where will we live?"
Both women say they tried to get loan modifications but the banks have not been helpful.
But how will the government pay for the plan? Merkley says the government can borrow money at a very low rate – 2 percent – and do the refinances at a higher rate – 4 to 5 percent – and the difference will pay for the program.
Can the senator promise the program won't flop and cost taxpayers a lot of money?
"I can tell you this: Under very conservative assumptions, in terms of appreciation, in terms of foreclosure rates, this will return a profit," he said. "I cannot tell you that there isn't the possibility in this world of a perfect storm, with a European collapse and worldwide depression that would change that, but everything that in the range of reasonable expectations to very conservative expectations, this will return a profit to the government."
For those who aren't underwater, they can most likely refinance already and at a lower rate than the 4 to 5 percent.
Merkley said he wants to get a pilot program started as soon as possible.
Merkley explains his plan in the below video: