Post by the Scribe on Apr 15, 2020 6:24:24 GMT
Where Do We Go from Here?
prospect.org/infrastructure/conservative-origins-sub-prime-mortgage-crisis/
What should government do to address this crisis? Public officials need to distinguish legitimate sub-prime lenders from the scam artists who engage in predatory lending. Likewise, the people facing foreclosure need to be treated differently depending on whether they failed to exercise personal responsibility or were victims of predatory practices. Banks and other lenders and investors who speculated in mortgage-backed debt must shoulder some of the blame for this debacle.
Government needs to help the victims of predatory lenders who are at risk of losing their homes, but it must also adopt preventative measures to stop the crisis from getting worse and prevent it from happening again. Congress should enact legislation to protect victims of predatory loans from foreclosure. The victims should have a right to a nonprofit loan counselor or lawyer who can help them renegotiate the loan or sue banks, including big Wall Street firms, for violations of state and federal consumer protection laws. Indeed, Congress should require lenders to restructure predatory loans and provide more funding to nonprofit groups that help homeowners renegotiate loans.
One of these groups, ACORN, a national network of community organizations, has been pressuring Citigroup to restructure loans rather than foreclose on low-income consumers. ACORN wants lenders to agree to 30-year, fixed-rate, affordable modifications to existing loans so borrowers can avoid interest rate increases that come with adjustable-rate mortgages. ACORN has also urged lenders to impose a moratorium on foreclosures, which some Democratic candidates have supported.
Another group, the National Community Reinvestment Coalition, has a foreclosure prevention program that has saved thousands of homeowners from losing their homes by pressuring lenders to change adjustable-rate mortgages into fixed-rate loans. "This is not a homeowner bailout," said John Taylor, group's president. "This is a bailout for failed regulatory oversight. Infectious greed and malfeasance by lending institutions is the overwhelming culprit, not consumer misbehavior."
And UNITE HERE, the garment and hotel workers' union, has launched a campaign against Countrywide Financial, the nation's largest sub-prime lender, calling on consumers to boycott the bank until it guarantees it won't foreclose on borrowers who have fallen behind on adjustable-rate loans.
These activist groups have made some headway, but without a federal mandate they have to rely on protest and other threats to get banks to cooperate. They support a bill sponsored by Rep. Brad Miller, a North Carolina Democrat, and Rep. Loretta Sanchez, a California Democrat, that would allow bankruptcy judges to amend the terms of home mortgages. Under current law, the terms of a mortgage on a yacht or a vacation home can be adjusted during bankruptcy, but not primary residences. "This makes no sense," said Eric Stein of the Center for Responsible Lending, testifying before the House Judiciary Subcommittee on Commercial and Administrative Law. Advocates say that the Miller-Sanchez bill could help as many as 600,000 homeowners avoid foreclosure, but the Mortgage Bankers Association is fighting the legislation.
Looking forward, we need the federal government to be a lending-industry watchdog, not a lapdog. Step one is to stop predatory lending. The Mortgage Reform and Anti-Predatory Lending Act of 2007, passed by the U.S. House of Representatives in November, contains some useful provisions. It requires lenders to verify all applicants' income and document that borrowers have a reasonable ability to pay -- not just at the initial interest rate, but any future hike in the rate. It puts private mortgage companies and mortgage brokers under the umbrella of federal lending regulations, requiring them to be registered and licensed, just like stockbrokers and insurance brokers. It would also allow a borrower to modify an illegal loan, before being forced into foreclosure. And it allows states to pursue cases against fraud, misrepresentation, false advertising, and civil-rights abuses. Under the bill, wronged borrowers could seek some redress from the original lender, even if they're not in danger of losing their homes.
But, under pressure from the banking lobby, Congress gutted some of the better parts of the bill. The Mortgage Bankers Association and the American Banking Association lobbyists persuaded the House to allow lenders to continue the insidious practice of paying an increased fee to brokers for steering borrowers into higher cost sub-prime mortgages. It also bars borrowers whose predatory loans have been sold on Wall Street from suing investors for relief until the homeowners are facing foreclosure. In effect, it forces borrowers into foreclosure as a condition for asserting their rights.
Under the bill, in other words, victims of predatory loans have almost no ability to pursue claims against investment banks and other investors. Wall Street and the big players in the mortgage market won't be held accountable for buying abusive loans. Borrowers who were ripped off should be encouraged, not discouraged to sue Wall Street firms in state court for relief from mortgages that they never had a realistic chance of repaying.
A sweeping bill introduced last week by Sen. Chris Dodd, chairman of the Senate Banking Committee, closes many of the loopholes in the House bill by adding more consumer protections and industry penalties. The Homeownership Preservation and Protection Act of 2007 makes Wall Street and other investors liable for illegal practices of mortgage brokers and lenders. Unlike current law, which puts the burden on the borrower to identify the broker or lender who made the original deal, Dodd's bill allows the borrower to sue the current mortgage holder. The Dodd bill would prohibit lenders from steering borrowers towards more expensive loans than they would otherwise qualify for, and from influencing an appraisal's value of a house. It requires that lenders confirm that a borrower can afford to pay an adjustable rate mortgage after the rate jumps, and that loans provide a "net tangible benefit" to the borrower. It also prohibits prepayment penalties on sub-prime loans.
But to prevent the current crisis from getting worse -- and to avoid future crises -- Congress needs to take much bolder action to rein in abusive mortgage lending. Congress should simply outlaw adjustable-rate mortgages, which basically ask borrowers to treat their home mortgages like stocks, just like Bush wants to turn Social Security into individual accounts that people can invest, and risk losing their retirement savings.
Congress should also ban private lenders and brokers from issuing sub-prime loans of any kind. Instead, the focus should be on strengthening nonprofit lending institutions to serve the credit needs of high-risk borrowers. Like the old savings-and-loan (S&L) companies, these nonprofit lenders are highly regulated and devoted entirely to helping people purchase homes with transparent, stable loans.
Nonprofit lenders actually do better than their for-profit counterparts. One such lender, Neighborhood Housing Services of America (NHS), a federally charted nonprofit group with chapters in every American urban area, makes 90 percent of its loans to low and moderate income home buyers -- the so-called "risky borrowers" who only qualify for sub-prime loans in the private market. About 54 percent of NHS' borrowers are minority households. As of June 30, 2007, it has made some 3,000 loans totaling $205 million to these borrowers who otherwise would have been forced into the private sub-prime market. These NHS borrowers don't have the same mortgage problems as sub-prime borrowers in private sector. In fact, NHS' delinquency rate is only 3.34 percent -- well below the national rate of 14.5 percent for sub-prime loans in the private sector. The same is true for foreclosures. Only one half of one percent of NHS loans went into foreclosure during the second quarter of 2007, one fifth the foreclosure rate (2.45 percent) among private lenders.
NHS succeeds for two reasons. It has an effective mortgage education program carried out by its own loan counselors. It requires every borrower to participate in its counseling program before and after a loan is made. Moreover, and importantly, NHS makes no adjustable interest rates loans.
next conservatism.freeforums.net/thread/876/all-started-deregulation
prospect.org/infrastructure/conservative-origins-sub-prime-mortgage-crisis/
What should government do to address this crisis? Public officials need to distinguish legitimate sub-prime lenders from the scam artists who engage in predatory lending. Likewise, the people facing foreclosure need to be treated differently depending on whether they failed to exercise personal responsibility or were victims of predatory practices. Banks and other lenders and investors who speculated in mortgage-backed debt must shoulder some of the blame for this debacle.
Government needs to help the victims of predatory lenders who are at risk of losing their homes, but it must also adopt preventative measures to stop the crisis from getting worse and prevent it from happening again. Congress should enact legislation to protect victims of predatory loans from foreclosure. The victims should have a right to a nonprofit loan counselor or lawyer who can help them renegotiate the loan or sue banks, including big Wall Street firms, for violations of state and federal consumer protection laws. Indeed, Congress should require lenders to restructure predatory loans and provide more funding to nonprofit groups that help homeowners renegotiate loans.
One of these groups, ACORN, a national network of community organizations, has been pressuring Citigroup to restructure loans rather than foreclose on low-income consumers. ACORN wants lenders to agree to 30-year, fixed-rate, affordable modifications to existing loans so borrowers can avoid interest rate increases that come with adjustable-rate mortgages. ACORN has also urged lenders to impose a moratorium on foreclosures, which some Democratic candidates have supported.
Another group, the National Community Reinvestment Coalition, has a foreclosure prevention program that has saved thousands of homeowners from losing their homes by pressuring lenders to change adjustable-rate mortgages into fixed-rate loans. "This is not a homeowner bailout," said John Taylor, group's president. "This is a bailout for failed regulatory oversight. Infectious greed and malfeasance by lending institutions is the overwhelming culprit, not consumer misbehavior."
And UNITE HERE, the garment and hotel workers' union, has launched a campaign against Countrywide Financial, the nation's largest sub-prime lender, calling on consumers to boycott the bank until it guarantees it won't foreclose on borrowers who have fallen behind on adjustable-rate loans.
These activist groups have made some headway, but without a federal mandate they have to rely on protest and other threats to get banks to cooperate. They support a bill sponsored by Rep. Brad Miller, a North Carolina Democrat, and Rep. Loretta Sanchez, a California Democrat, that would allow bankruptcy judges to amend the terms of home mortgages. Under current law, the terms of a mortgage on a yacht or a vacation home can be adjusted during bankruptcy, but not primary residences. "This makes no sense," said Eric Stein of the Center for Responsible Lending, testifying before the House Judiciary Subcommittee on Commercial and Administrative Law. Advocates say that the Miller-Sanchez bill could help as many as 600,000 homeowners avoid foreclosure, but the Mortgage Bankers Association is fighting the legislation.
Looking forward, we need the federal government to be a lending-industry watchdog, not a lapdog. Step one is to stop predatory lending. The Mortgage Reform and Anti-Predatory Lending Act of 2007, passed by the U.S. House of Representatives in November, contains some useful provisions. It requires lenders to verify all applicants' income and document that borrowers have a reasonable ability to pay -- not just at the initial interest rate, but any future hike in the rate. It puts private mortgage companies and mortgage brokers under the umbrella of federal lending regulations, requiring them to be registered and licensed, just like stockbrokers and insurance brokers. It would also allow a borrower to modify an illegal loan, before being forced into foreclosure. And it allows states to pursue cases against fraud, misrepresentation, false advertising, and civil-rights abuses. Under the bill, wronged borrowers could seek some redress from the original lender, even if they're not in danger of losing their homes.
But, under pressure from the banking lobby, Congress gutted some of the better parts of the bill. The Mortgage Bankers Association and the American Banking Association lobbyists persuaded the House to allow lenders to continue the insidious practice of paying an increased fee to brokers for steering borrowers into higher cost sub-prime mortgages. It also bars borrowers whose predatory loans have been sold on Wall Street from suing investors for relief until the homeowners are facing foreclosure. In effect, it forces borrowers into foreclosure as a condition for asserting their rights.
Under the bill, in other words, victims of predatory loans have almost no ability to pursue claims against investment banks and other investors. Wall Street and the big players in the mortgage market won't be held accountable for buying abusive loans. Borrowers who were ripped off should be encouraged, not discouraged to sue Wall Street firms in state court for relief from mortgages that they never had a realistic chance of repaying.
A sweeping bill introduced last week by Sen. Chris Dodd, chairman of the Senate Banking Committee, closes many of the loopholes in the House bill by adding more consumer protections and industry penalties. The Homeownership Preservation and Protection Act of 2007 makes Wall Street and other investors liable for illegal practices of mortgage brokers and lenders. Unlike current law, which puts the burden on the borrower to identify the broker or lender who made the original deal, Dodd's bill allows the borrower to sue the current mortgage holder. The Dodd bill would prohibit lenders from steering borrowers towards more expensive loans than they would otherwise qualify for, and from influencing an appraisal's value of a house. It requires that lenders confirm that a borrower can afford to pay an adjustable rate mortgage after the rate jumps, and that loans provide a "net tangible benefit" to the borrower. It also prohibits prepayment penalties on sub-prime loans.
But to prevent the current crisis from getting worse -- and to avoid future crises -- Congress needs to take much bolder action to rein in abusive mortgage lending. Congress should simply outlaw adjustable-rate mortgages, which basically ask borrowers to treat their home mortgages like stocks, just like Bush wants to turn Social Security into individual accounts that people can invest, and risk losing their retirement savings.
Congress should also ban private lenders and brokers from issuing sub-prime loans of any kind. Instead, the focus should be on strengthening nonprofit lending institutions to serve the credit needs of high-risk borrowers. Like the old savings-and-loan (S&L) companies, these nonprofit lenders are highly regulated and devoted entirely to helping people purchase homes with transparent, stable loans.
Nonprofit lenders actually do better than their for-profit counterparts. One such lender, Neighborhood Housing Services of America (NHS), a federally charted nonprofit group with chapters in every American urban area, makes 90 percent of its loans to low and moderate income home buyers -- the so-called "risky borrowers" who only qualify for sub-prime loans in the private market. About 54 percent of NHS' borrowers are minority households. As of June 30, 2007, it has made some 3,000 loans totaling $205 million to these borrowers who otherwise would have been forced into the private sub-prime market. These NHS borrowers don't have the same mortgage problems as sub-prime borrowers in private sector. In fact, NHS' delinquency rate is only 3.34 percent -- well below the national rate of 14.5 percent for sub-prime loans in the private sector. The same is true for foreclosures. Only one half of one percent of NHS loans went into foreclosure during the second quarter of 2007, one fifth the foreclosure rate (2.45 percent) among private lenders.
NHS succeeds for two reasons. It has an effective mortgage education program carried out by its own loan counselors. It requires every borrower to participate in its counseling program before and after a loan is made. Moreover, and importantly, NHS makes no adjustable interest rates loans.
next conservatism.freeforums.net/thread/876/all-started-deregulation