Prompt action will almost always be in the best interests of the lender, as well. We also believe that Congress and the regulators should examine alleged abuses by mortgage servicers, some of whom are engaging in predatory servicing by imposing unjustified high fees on borrowers. These abusive practices can contribute to, or even cause, delinquencies and foreclosures. The FHA program makes it possible for higher-risk, yet credit-worthy borrowers to get safe, affordable credit. FHA products are safe, thanks to appropriate underwriting and loss- mitigation programs, and fairly priced without resorting to teaser rates or negative amortization. In 1934 the Federal Housing Administration was established to provide consumers an alternative form of financing, during a lending crisis similar to that we are facing today.
When formed, FHA was a pioneer of mortgage products, FHA was the first to offer 30-fixed-rate financing at a time when loans were generally for less than five years. Unfortunately, FHA has not changed with the times Wyoming online payday loans and as a result has lost market share. Due to its loan limits, downpayment requirements, and antiquated pricing model, FHA is often simply imusable by homebuyers. We urge Congress to pass FHA reform, to offer borrowers a safer mortgage alternative and bring stability to local markets and local economies. Conclusion Irresponsible and abusive lending can be a disaster not only for the borrower and his or her family, but for the community as well. Problematic loans are often made in concentrated areas and are more likely to result in foreclosures. Calhoun Center for Responsible Lending Before the U. Senate Committee on Banking, Housing and Urban Affairs - Subcommittee on Housing, Transportation, and Community Development Ending Mortgage Abuse: Safeguarding Homebuyers June Maine payday loans online 26. Without question, America is experiencing an alarming rate of subprime foreclosures — the highest in the modern business era.
In my remarks today, I will emphasize that we have not yet seen the peak of the economic destmction caused by reckless lending and dangerous loan products in the subprime market.
In fact, all indicators point to home losses getting worse before they get better. I also will present recent lending data showing that, in spite of widespread concerns about subprime foreclosures, subprime lenders are continuing to make loans with abusive terms — loans that set up families to fail from the very beginning. In recent months, journalists covering the subprime crisis have profiled some of the millions of families devastated by dangerous home loans. A recent case reported by Newsweek and other sources involved a veteran of the war in Iraq, a man from Kentucky named Shawn Howell. Howell bought a home for his wife and four children shortly before he was deployed, and he felt good about having a secure place for his family while he served his country. Following the advice of his mortgage broker, the Howells took out two adjustable-rate mortgages. The increase was completely unmanageable, especially since Mr. He took on two jobs and made nmnerous attempts to contact the lender to find a way to avoid foreclosure. They were forced to give up their house to foreclosure, and today they are living in a trailer. I am here today as President of the Center for Responsible Lending (CRL) f www.
CRL is a not-for- profit, non-partisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices.
For the past 26 years, Self-Help has focused on creating ownership opportunities for low-wealth families, primarily through financing subprime home loans. Our loan losses have been less than one percent a year. Before I took my current position with CRL, 1 worked at Self Help for a number of years, where I gained direct experience lending to people with blemished credit. In that capacity, I learned a Maine payday loans online great deal about what types of subprime mortgages are likely to support successful homeownership.
Lenders who care about sustainable ownership take a few basic steps before approving subprime loans. They escrow for taxes and insurance, and they refrain from applying prepayment penalties, which bring no benefit to subprime borrowers, but only trap them in high-cost loans or drain thousands of dollars of hard-earned family equity. These are not industry secrets, but rather common- sense best practices that responsible lenders have always used in subprime lending, and that are still the norm in the prime sector.
For a while, when my children were small, I was a stay-at-home dad. The most effective way to ensure positive behavior is to establish clear, firm rules and enforce those rules with clear, firm consequences. The subprime industry, which has been growing at a remarkable pace for the past decade, has been sorely lacking in accountability and standards that would have prevented the devastating home losses occurring today. The lack of bright-line rules have been particularly damaging in a market that offers strong incentives to do the wrong thing. Subprime mortgage brokers, lenders, securitizers, and investors are operating in a market that rewards business practices that directly undermine homeowners and sustainable homeownership. The unfortunate truth is that brokers, lenders and investors have reaped enormous gains by originating loans with payments that explode in 2 200 Statement of Michael Calhoun June 26, 2007 two short years, requiring homeowners, like clockwork, to refinance to a new subprime loan. Brokers and lenders benefit from this regular and lucrative fee income, but homeowners lose the financial benefit of appreciation as their wealth is stripped away. Worse, when appreciation stops and the families cannot sell or refinance their homes, these loans bring families best payday loans in Virgin Islands to foreclosure and ruin.
And even with all the hard-gained knowledge we have today about the consequences of exploding ARMs, participants in the subprime market continue to market, originate and invest in them in large numbers.
According to the Mortgage Bankers Association, mortgage brokers now originate 45 percent of all mortgages, and 71 Maine payday loans online percent of subprime loans. Given the strong financial incentives to make unaffordable loans packed with fees, mere guidelines and suggestions will not be enough to stop risky loan practices and dangerous loan products.
Abusive Subprime Lending Persists Today Even in the midst of the current epidemic of foreclosures, market forces have not reined in abusive lending. In these securities, the overwhelming majority of mortgages was originated and securitized this year, well after the current crisis in the subprime market became apparent. As we recently argued before the Federal Reserve Board, prepayment penalties are an unfair practice in the subprime market because they provide no net economic benefit to consumers.