One Billion Dollars Bailout?

Media mogul seeks $1B to fix foreclosures

South Florida Business Journal - by Mara Lee Washington Business Journal

Media mogul and developer Robert Johnson said Monday he envisions a $1 billion fix for the nation's foreclosure crisis.

Johnson, the founder of Black Entertainment Television and owner of RLJ holdings, told an audience of bankers, housing activists and regulators at the third annual National Housing Forum in Washington, D.C., that bailout money should be directed to loan servicing companies.

He said he's asking the federal government for $1 billion to fund a plan that would allow loan servicers — the companies hired to collect monthly payments on mortgages — to continue to pay investors when borrowers start missing payments.

According to Johnson, that would reduce pressure from those investors, and give the loan servicers time to modify the terms of the subprime mortgages that are failing.

About one in five subprime mortgages are seriously delinquent or in foreclosure, according to the Mortgage Bankers Association National Delinquency Survey.

“We believe the best way to do this is to focus on the loan services industry,” Johnson said.

Most home mortgages did not stay with the original lender, but were sold to investors worldwide and made into tiny pieces of mortgage-backed securities. Those investors contract with a loan servicer to collect monthly payments.

Johnson said with $1 billion from the federal government, he could attract an additional $7 billion from the private sector. He would create a new Homeowners First Bank to handle getting the money to the loan servicers.

Johnson said Homeowners First would give the government preferred shares, which would pay 5 percent, and that 75 percent of all net earnings would be dedicated to retiring those preferred shares.

Johnson said if approved, he estimates 200,000 mortgages a year could be modified.
“Today, no one is doing this at all,” he said.

Hope Now Alliance, a group of major banks trying to do foreclosure mitigation, said it helped 225,000 borrowers in October, and has worked with more than 1.7 million in the first 10 months of 2008.

But, at the same event, John Dugan, head of the U.S. Department of the Treasury’s Office of the Comptroller of the Currency, said nearly 53 percent of borrowers who had their loan terms changed early this year changed missed payments again within the first six months.

The National Housing Forum was sponsored by the Office of Thrift Supervision, which regulated major subprime mortgage players such as Countrywide and IndyMac.

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