by James Parks, Oct 25, 2007

The nation’s burgeoning home mortgage crisis literally is hitting families where they live and is turning the American dream of home ownership into an American nightmare for millions of working families. For the first time since the Carter administration, home ownership in the United States is set to decline over a president’s tenure. Since President Bush took office, there are 700,000 fewer home owners. 

The AFL-CIO is joining with consumer advocates to support legislation that will create much needed safeguards and lead to sustainable home ownership and an economy that works for everyone. In addition, Union Privilege, provider of benefits for union families, last week announced the launch of the Union Plus Save My Home Hotline. As part of a model home owner education program, the hotline will provide information and advice to help union members and their families avoid foreclosure. (Click here to learn more about the hotline.) 

The Mortgage Reform and Anti-Predatory Lending Act of 2007 (H.R. 3915) was introduced by Rep. Brad Miller (D-N.C.) and 16 co-sponsors, including House Financial Services Chairman Barney Frank (D-Mass.) and Rep. Mel Watt (D-N.C.).

Frank, whose committee is holding hearings on the bill today, says: 

People should not be lent money that’s beyond what they can be expected to pay back. If this had been law on January 2006, I think it would have avoided some of the problems we have now.

If enacted, the bill would limit or prohibit some of the lending practices closely associated with the massive upsurge in home foreclosures. Among other provisions, it would: 

• Ban prepayment penalties in the subprime mortgage market.
• Require lenders to assess each borrower’s ability to repay.
• Eliminate the bonuses lenders now pay to brokers to put people in more expensive loans than those for which they qualify.
• Establish minimum federal lending standards while preserving the rights of states to take additional steps to protect their citizens from what are now widespread abusive lending practices. 

Although the bill goes further than any other rules to protect home ownership, the coalition says more is needed. In a statement, the group says: 

We worry the bill lacks sufficient legal recourse for consumers who are taken advantage of by unscrupulous or reckless lenders, brokers, and investors. The limited remedies in the bill do not give Wall Street investors who buy mortgages and package them as securities adequate incentives to police themselves. Wall Street contributed to the problem, with its appetite for riskier loans, so it must have its fair share of accountability. Further, families need to be able to protect themselves from illegal lending practices regardless of who owns their home loan at a given time. 

Miller says:

Barney Frank, Mel Watt and I see protecting vulnerable homeowners from predatory mortgage lenders as a core, defining Democratic value. When a family’s home is a stake, lenders had better play by a fair set of rules.

Meanwhile, Watt adds:

This bill represents a significant step forward to clean up and prevent a number of the questionable practices that, unfortunately, took hold in the mortgage lending industry in the last several years. I hope the industry will embrace the changes and allow the bill to move forward quickly.

We’ve noted how the combination of tight credit, high pressure subprime loans to families who could not afford them and adjustable rate mortgages (ARMs) with ballooning payments has led to new highs in foreclosures. In September, the national average for foreclosures was one home in 557. The rate was highest in Nevada at one in 185, but there were wide variations across the states.   

Some 2.5 million ARMs are scheduled to reset to higher rates before the end of next year. The reset of ARMs has become a “trap door” that separates communities into those who are confident home owners and those who are struggling to pay their mortgage and worried about the future. The average monthly increase after ARM reset is $291. At this rate, families making $50,000 or less lose 10 percent of their income.

A poll conducted for the AFL-CIO shows about half the people with adjustable rate mortgages expect they’ll will be forced to cut back on everyday expenses like groceries, clothing and gasoline when their payments increase. For families earning $50,000 or less, that proportion is 80 percent. (Click here to learn more about the poll.) 

African American families are facing foreclosure or losing their houses disproportionately. Nearly half of all African American family mortgages are subprime mortgages. As a result, some experts predict that one in three African American home owners could lose their homes.

Print This Article | E-Mail This Article | Comments (2)