From coast to coast, American families are facing a record number of mortgage payment delinquencies and foreclosures. An estimated two million households may lose their homes to foreclosure this year and next, resulting in hundreds of billions of lost home equity. And no state in the nation is immune from this crisis ù every state has seen an increase in subprime adjustable rate mortgage delinquencies over the past two years, and the average delinquency rate nationwide has increased more than six percentage points from this time two years ago. What was once a housing boom spurring a strong local, national, and international economy has become a housing bust that threatens to depress the broader economy.
Abuses in the mortgage market have led to an increase in delinquencies and home foreclosures. Subprime mortgages once helped millions of Americans, many with limited or blemished credit, achieve the American dream of homeownership. Unfortunately, while many subprime lenders extended these mortgages fairly and responsibly, many others engaged in abusive and predatory lending practices, deceiving vulnerable borrowers into adjustable rate mortgages (ARMs) they could never afford, charging excess fees, and trapping them in high-cost loans with costly pre-payment penalties. As interest rates on these adjustable rate loans move sharply higher, many American families will be pushed to the brink of losing their home to foreclosure.
Minority communities are amongst the hardest hit during this subprime mortgage crisis. Through the many hearings held during the 110th Congress on the issue of subprime mortgage lending, it has become clear that many mortgage brokers specifically targeted exotic loan products to minority and elderly borrowers, even those who would have qualified for a prime mortgage. In 2005 and 2006, more than 50 percent of all mortgage loans sold to African-Americans and 40 percent of those sold to Latinos were higher-cost subprime loans. As a result, minority communities have been disproportionately impacted by rising foreclosure rates.
Subprime borrowers are not the only victims of this crisis. Even homeowners with strong credit, who are in safe, fixed-rate loans are suffering from the reduction in property values and home equity wealth that result from foreclosures within their neighborhood. A recent study of home prices in the Chicago Metropolitan area estimated that a single-family home foreclosure lowered the value of homes located within a one-eighth mile area by 1.5 percent, which equals approximately $3,000 in that market. As a result, entire communities, especially those that are already vulnerable to economic disruptions, are at risk of being decimated by the subprime mortgage crisis.
Moreover, the resulting credit crisis in the mortgage markets is making safe, affordable mortgages less available for aspiring homeowners or borrowers in need of a refinancing alternative. As a result, the American dream of owning a home is becoming less and less of a reality for millions of Americans and their families.
Senate Democrats are committed to addressing the impact of the nation’s subprime mortgage crisis and ensuring that Americans can not only get a home, but also keep a home. For starters, the Senate has increased funding for foreclosure prevention programs in its version of H.R.3074, the Transportation, Housing and Urban Development, and Related Agencies Appropriations Bill, 2008. Included in the bill was a $100 million appropriation targeted to foreclosure-avoidance nonprofits and $100 million in loss mitigation funding.
This past week, the Senate Banking Committee passed theFederal Housing Administration (FHA) Modernization Act of 2007 to help American families gain access to fair and affordable mortgage credit, including those who may face the threat of foreclosure and those who may be seeking to buy their first home.
Senate Democrats have also introduced several other measurers to respond to the housing crisis, including:
- Increasing the regulatory portfolio caps of, and increasing the size of mortgage loans guaranteed by, Fannie Mae and Freddie Mac to preserve liquidity in the mortgage markets;
- Amending the bankruptcy code to allow courts to modify mortgage loans to protect families from foreclosure;
- Ending the foreclosure tax for subprime borrowers who have lost their homes; and
- Enacting federal regulation of mortgage brokers and other originators in order to crack down on predatory lending and ban harmful loan products and practices.