By: Marc H. Morial
President and CEO
National Urban League
The subprime mortgage meltdown that has been going on for months finally appears to be spurring serious efforts to reform the industry. It only took the implosion of a prominent hedge fund, a wildly erratic Dow Jones Industrial Average and the specter of lower holiday bonuses for Wall Streeters to grab headlines worldwide.
Don't forget about the nearly one in every 134 American households that entered into foreclosure in the first six months of 2007, up 56 percent from the same period in 2006, according to Realty Trac, a firm that tracks foreclosures nationwide. Or the 180,000 new properties that went into foreclosure in July, up 93 percent from the same month in 2006.
Back in March, the National Urban League attempted to address the impending disaster through our Homebuyer's Bill of Rights before it started to trigger shockwaves in international credit markets and to send hedge fund analysts to the unemployment line. At the time, policy makers and government officials were reluctant to support greater regulation to give the market a chance to correct itself. Guess what? It didn't happen. So far this year, nearly one million properties are under the threat of foreclosure.
As the subprime fiasco has played out, the powers that be carted out to quell investors' fears seemed to be increasingly hedging their bets regarding the fallout's ultimate impact even before the market's recent rollercoaster ride, as The New York Times' Gretchen Morgenson observed back in early July.
In early August, the Federal Reserve revealed that it was "watching the housing meltdown" but "that it believed the broader economy was on a steady path of growth," according to another Times story from late August. But by mid-month, the Fed had lowered its discount rate and expressed "concern about the markets and the possibility of a downturn in the economy," it noted.
Glad to see they're gradually coming around to our point of view. Let's just hope that Wall Streeters left jobless by bankrupt hedge funds don't hold subprime mortgages.
The lack of federal action, the New York Times recently reported, has prompted legislators in more than 30 states to introduce nearly 100 bills to crack down on predatory lending practices and stave off foreclosures. Maryland, Massachusetts, New Jersey, New York, Ohio and Pennsylvania have sought to help struggling homeowners refinance their mortgages.
North Carolina Gov. Michael F. Easley recently enacted legislation designed to protect subprime borrowers from mortgages with risky interest rates. "If Washington isn't going to act, the states are," he said, according to the Times story.
But if the regulation is left up to the states, we'll be left with a complicated patchwork of regulations that'll make compliance maddening for mortgage lenders who operate nationwide. This is where our federal government needs to take responsibility.
Fortunately, lawmakers on Capitol Hill are pushing for tougher regulation with stricter rules against and harsh penalties for deceptive and unfair practices, among other reforms. On August 20, Rep. Barney Frank, chairman of the House Financial Services Committee, scheduled a hearing after Labor Day to examine the disaster's fallout. That he holds a chairmanship and is a sponsor of anti-predatory lending legislation bodes well for something getting done sooner rather than later.
President George W. Bush has instructed the U.S. Treasury Department to consider all the options to help stressed borrowers. During a recent CNBC interview, Senate Banking Committee Chairman Christopher Dodd said he would be promoting legislation establishing low-interest rate low-risk mortgages.
He and Frank also propose boosting the current $700-billion limit on the volume of mortgages government-sponsored lenders Fannie Mae and Freddie Mac can purchase and hold.
If there's a "silver lining" to the subprime lending crisis, Frank observed to the Times, it is that it proves that absence of regulation can be bad for business. "Anyone opposing more regulation can no longer say, 'if it ain't broke, don't fix it,'" he said.
Our leaders owes it to the hundreds of thousands of Americans struggling with their mortgages to reform the lending process before the rising tide of foreclosures drowns us all as well as our economy.
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