The Mortgage Mess Turns Political
Tuesday, August 07, 2007JEFF YASTINE: Two financial giants say they've had enough. UBS will no longer buy loans made without documenting the borrower's income and Washington Mutual won't buy low doc made with partial proof of income. Given the daily dose of bad news, it was only a matter of time before the mortgage meltdown became a major political issue. As Darren Gersh reports, Hillary Clinton is now offering her plan to keep borrowers out of trouble.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hillary Clinton today made the foreclosure crisis a presidential campaign issue, calling for a ban on prepayment penalties that lock borrowers into high interest loans.
SEN. HILLARY CLINTON, PRESIDENTIAL CANDIDATE (D): I think we should encourage people to pay off their mortgages early.
GERSH: Mortgage bankers say the industry would be willing to restrict prepayment penalties to the period before the so-called low interest teaser rates reset, but the Mortgage Bankers Association's Steve O'Connor says eliminating prepayment penalties goes too far.
STEVE O'CONNOR, SR. VP PUBLIC POLICY, MORTGAGE BANKERS ASSN.: If you are overly restricted and if you ban prepayment penalties or prohibit them outright, ultimately that's going to increase costs to consumers because that will increase risk to investors and they will have to build that back into the price for mortgages.
GERSH: Clinton also promised $1 billion in Federal funding to back state foreclosure rescue efforts. California, Ohio, Maryland, Massachusetts, New Jersey, New York and Pennsylvania have set up or are now considering programs to refinance troubled loans. More than $1 billion in state aid may soon be available. Analysts say that may help a few thousand families, but it won't help the 2.2 million homeowners who are expected to default in the coming year. At the Center for Responsible Lending, Eric Halperin says there's another challenge, too.
ERIC HALPERIN, DIRECTOR, CENTER FOR RESPONSIBLE LENDING: You don't want any program to be providing money to predatory lenders and rewarding them for putting consumers in loans that they should never have been in in the first place and that have abusive features.
GERSH: Real estate Professor Richard Green says it also won't be easy for state housing offices to figure out which borrowers were victims of predatory lending and which were simply speculating.
RICHARD GREEN, FINANCE PROFESSOR, GEORGE WASHINGTON UNIVERSITY: People who have established good credit histories, who have middle class incomes are probably not interested in bailing out people who were just being aggressive with their borrowing behavior.
GERSH: Both Democratic and Republican presidential candidates will likely have more to say about the sub-prime meltdown, but analysts argue the basic problem is many borrowers paid too much for homes that have now fallen in value and even refinancing won't fix that. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
