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On the Issues
Subprime Mortgage Crisis
There is no doubt that the subprime mortgage crisis has damaged the U.S. economy and left far too many families in desperate situations. It appears that many Americans with weaker credit histories were offered loans they simply could not afford during the housing boom that marked much of this decade. Foreclosure rates have increased dramatically, and some experts have projected that one out of five subprime loans issued in 2005 and 2006 will fail. With approximately 1.8 million subprime borrowers’ adjustable rate loans due to reset to higher rates this year, even more families face possible foreclosure and the loss of their homes.
The subprime mortgage crisis has caused significant reverberations in the overall economy as well. Financial markets have been thrown into turmoil as credit tightens and growth slows. These events prompted recent action by the Federal Reserve to cut key interest rates, and also brought the President and congressional leaders together to craft legislation to assist the faltering economy.
To prospectively address the practices in the mortgage industry that contributed to this crisis in subprime lending, the House has passed a major mortgage regulation measure sponsored by my colleague from North Carolina, Rep. Brad Miller (NC-13). The Mortgage Reform and Anti-Predatory Lending Act (H.R. 3915) would create a national licensing system to track and set minimum standards for lenders. The bill would also require mortgage brokers to diligently present borrowers with a range of attainable loan products, make complete and timely disclosures to consumers, and certify compliance with the new mortgage origination requirements. Importantly, the bill prohibits lenders from making loans unless they have made a good faith determination – based on documentation – that the consumer has a reasonable ability to repay the loan. H.R. 3915 would also establish the Office of Housing Counseling within HUD to provide and coordinate counseling for home buyers and renters.
In addition, Congress enacted an initial Economic Stimulus Package (Public Law 110-185) that included provisions to address the immediate impact of the mortgage crisis. For 2008, the bill increases Federal Housing Administration loan limits up to $729,750 in order to offer affordable refinancing opportunities for families at risk of foreclosure. The bill also includes an increase in the loan limits for single family homes from Fannie Mae and Freddie Mac, from $417,000 up to $729,750, covering loans made between July 31, 2007, and December 31, 2008.
Finally, the House has passed a Comprehensive Housing Package (H.R. 3221), which I supported. The bill encourages banks to forgive some of the remaining principal on home loans at risk of foreclosure in return for federal backing of new mortgages. Such a proposal could go a long way toward stemming the tide of foreclosures and getting borrowers back on track to repay their loans. The Senate is currently considering companion legislation.
The damage that the subprime mortgage crisis is inflicting on the broader economy demands urgent action. As a member of the House Appropriations Subcommittee for Transportation and Housing and Urban Development, I will continue to support effective and prudent measures that contribute to a recovery.
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