Sen. Barack Obama (D-Ill.) would use a host of government subsidies and regulatory initiatives as president to address mortgage and credit issues.
Obamas housing proposal begins with his Stop Fraud Act, which aims to create a $10 billion fund for people at risk of foreclosure to refinance their mortgages or sell their homes.
The bill provides the first federal definition of mortgage fraud, increases penalties for fraud and increases funding for law enforcement programs. Money generated from cracking down on mortgage fraud would go toward helping homeowners.
Specifically, funds could be used to help offset costs of selling a home, including helping low-income borrowers get additional time and support to pay back any losses from the sale, the Obama campaign Web site states.
These steps will ensure that individuals who have to sell their homes will be able to quickly regain stable financial footing, the site says.
Obama also would create a Federal Housing Administration program to provide incentives for lenders to refinance or take on the mortgages of at-risk homeowners.
A mortgage tax credit also would provide mild relief, with the average recipient receiving $500 a year, according to the campaign. The credit would extend to those who do not itemize their tax deductions and, therefore, receive no mortgage deduction.
Finally, Obama offers an informational tool to prospective homeowners, similar to the part of his health care proposal that provides for a straightforward analysis of various health care plans. Obama would create a Homeowner Obligation Made Explicit score, allowing buyers to compare mortgages and see the full cost of their loans.
The creation of the HOME score, according to the campaign site, comes from the recognition that todays subprime mortgage problem stems in large part from the lack of easy-to-understand information that borrowers receive from mortgage brokers.
An information campaign is crucial to Obamas plans for credit card reform, too.
He would have the Federal Trade Commission guide consumers by devising a rating system for credit cards modeled after the five-star systems already used for other products.
The FTC would cut through the fine print by flagging dangerous lenders and requiring credit scores to appear on all application and contract materials.
Obama would also protect borrowers by forming a credit card bill of rights. It would:
Ban credit card companies from changing the terms of an agreement without the consent of the consumer;
Prohibit previously incurred debt from being subject to interest rate increases;
Prohibit fees from being subject to interest;
Stop credit card companies from raising a consumers rates based on a failure to pay a different creditor.