by James Parks, Dec 6, 2007

The nation needs a bold plan to address the housing loan crisis, beginning with an immediate moratorium on foreclosures on subprime mortgages, and the AFL-CIO today unveiled the steps needed to be taken to prevent America’s home owners from disaster and the country from economic free fall.

Testifying today before Congress, AFL-CIO Associate General Counsel Damon Silvers outlined our plan.

• Impose an immediate moratorium on foreclosures on foreclosures on subprime mortgages—any mortgage with a teaser rate structure.
• Restructure subprime loans for 30 years at the original low teaser rates.
• Reward restructuring—not foreclosures. Loan servicers must renounce those servicing agreements that reward mortgage companies for foreclosing on homes rather than encourage refinancing or other workout strategies.
• Demand that mortgage servicers commit to publicly reporting company by company how many subprime loans they are servicing; how many have reset; how many have been restructured; and how many foreclosures are occurring and where.
• The federal government must reach out to subprime borrowers to let them know how they can keep their homes.

President Bush’s plan to freeze mortgage interest rates of home owners holding adjustable rate mortgages, which start off with low-interest rates and then balloon after two years, is just a beginning, Silvers said.

The U.S. mortgage market is the financial market most closely linked to the lives of American working families. The lack of effective regulation of mortgage markets has allowed these markets to be flooded with products that are misleading and exploitative, products marketed to tens of millions of Americans who work at low wage jobs or who have inadequate retirement income, so they are desperate for a financial short cut to either home ownership or adequate income.

Kimberly Somsel of Westland, Mich., an unemployed single mother of two battling breast cancer, is one of millions of Americans facing the loss of her home due to a ballooning mortgage payment. She is selling the family car and her furniture just to get by. Five houses on her block are threatened with foreclosure.

Somsel’s situation is an example of the “urgent housing financial crisis” facing our country and is threatening to spread into a full-blown recession that could seriously hurt the living standards of working families, Silvers told the U.S. House Financial Services Committee (see video).

Unless the government acts with urgency, hundreds of thousands of workers will lose their homes, millions of workers will suffer pension losses and further millions more will lose their jobs.

Earlier this week, we noted that The Wall Street Journal recently reported that many well-off home owners who could qualify for conventional mortgages also were duped into taking these misleading deals.

The mortgage crisis is closely tied to the unbalanced economic policies of the past few years, Silvers says.

Falling or stagnant real wages, extreme inequality and the dominance of financial gimmickry over good jobs that create real value have left tens of millions of Americans dependent on borrowing to sustain their standard of living. Today we are discussing the consequences of our failure to create an economy based on good jobs. We must actually put the power and influence of the United States government in play to prevent millions of American families from losing their homes.

How do we know these ideas will work? Silvers pointed out that after Hurricanes Katrina and Rita, the mortgage industry offered to allow hurricane victims not to pay their mortgages for 90 days. When the 90-day deadline neared, the AFL-CIO worked together with the bank regulators and community advocates in the Gulf Coast to ask for one-year moratorium on mortgage payments in the Gulf, and a moratorium on foreclosures.

As a result of meetings with lenders, there was a short-term industry wide agreement to temporarily forgive mortgages, followed by a series of informal understandings and working relationships that led to the effective extension of forbearance for tens of thousands of Gulf home owners for the full year.

While the mortgage industry is resisting efforts to switch subprime loans to 30-year conventional loans, the AFL-CIO Union Plus mortgage program for union members is routinely doing just that for subprime customers. Union Plus provides a Save My Home Hotline, which has helped more than 600 union members and their families. (Click here to learn more about the hotline.)

In addition, the AFL-CIO is supporting H.R. 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007, 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.).

Silvers told the committee that the bill must provide meaningful and multiple avenues for enforcing consumer protection standards, including the right for state attorney generals to enforce its standards.

Some say, let working people suffer; markets left alone will get it right in the end. Yet somehow there is always help for the well-connected—cheap money for the banks, severance packages for their failed executives, billions in bonuses for the investment bankers who structured the mortgage deals. Workers, single women who are heads of households, people of color, the retired, are just collateral damage. But not this time—this time we must act to help the people who really need the help—the alternative is genuine economic crisis.

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