WASHINGTON, DC –Tomorrow, Martin Eakes, CEO of the Center for Responsible Lending, will testify about rising subprime foreclosures before the Senate Committee on Banking, Housing and Urban Affairs. CRL has joined a coalition of civil rights, consumer, labor and community development organizations calling on policymakers to rein in risky lending practices in the loosely regulated mortgage market.
Homeownership is the most accessible tool available to help families achieve a secure economic future, but today market failures and abusive lending practices are leading millions of families into foreclosure. The Banking Committee received input from the Coalition (see letter and member list Lending Principles Letter) to inform deliberations on subprime market reform and the worst foreclosure rate in modern mortgage market history. One in five subprime loans will end in foreclosure, according to the recently released CRL study, "Losing Ground."
2-28 mortgages, otherwise known as exploding ARMs, were never intended for families with credit problems and now dominate the subprime market. Eakes will discuss the devastation caused by exploding ARMs that feature a two-year "teaser rate," followed by interest rate adjustments in six-month increments. Families in the subprime sector routinely are getting unaffordable loans that prompt repeated refinances or foreclose at worst. CRL research found that 2.2 million loans made in recent years will end in foreclosure, signaling losses to families that mount up to $164 billion. Industry trade associations have opposed extending current federal guidelines to 2-28s, and a number of civil rights and consumer groups recently disputed industry claims about these abusive products in a letter to Senators on the Banking Committee.
Eakes will stress that subprime lenders are guaranteeing rampant foreclosures by their lackadaisical approach to loan underwriting, combined with broker incentives that don't factor in a borrower's best interest. The way the market is operating now, there are virtually no consequences for lenders and brokers who make home loans that are likely to fail.
Eakes will urge Congress to do the following:
- Restore safety to the subprime market by imposing a borrower "ability to repay" standard for all subprime loans;
- Ensure that brokers must serve the best interest of the people who pay them;
- Pass a strong federal anti-predatory mortgage lending law that puts in place meaningful protections for borrowers and preserves the rights of states to supplement it based on local market developments or new abuses.
Families affected by loan failure typically spend years to recover financially, if they ever do. Their neighborhoods are often pocked by foreclosures. Lenders and brokers must rid their ranks of harmful products. Subprime lending at its best provides access to the American Dream of homeownership; currently it is too often spawns a rash of foreclosures turning families out of their homes.
Sharon Reuss, (919) 313-8527 or sharon.reuss@responsiblelending.org.