Jan. 7, 2008
The beginning of the political primary/caucus season seemed a good time to take a look at each of the candidates political positions as it relates to real estate. Today we do the Democrats. Tomorrow we'll do Republicans. These are taken directly from each candidate's web site.
Protect Homeownership and Crack Down on Mortgage Fraud
Obama will crack down on fraudulent brokers and lenders. He will also make sure homebuyers have honest and complete information about their mortgage options, and he will give a tax credit to all middle-class homeowners.
- Create a Universal Mortgage Credit: Obama will create a 10 percent universal mortgage credit to provide homeowners who do not itemize tax relief. This credit will provide an average of $500 to 10 million homeowners, the majority of whom earn less than $50,000 per year.
- Ensure More Accountability in the Subprime Mortgage Industry: Obama has been closely monitoring the subprime mortgage situation for years, and introduced comprehensive legislation over a year ago to fight mortgage fraud and protect consumers against abusive lending practices. Obama’s STOP FRAUD Act provides the first federal definition of mortgage fraud, increases funding for federal and state law enforcement programs, creates new criminal penalties for mortgage professionals found guilty of fraud, and requires industry insiders to report suspicious activity.
- Mandate Accurate Loan Disclosure: Obama will create a Homeowner Obligation Made Explicit (HOME) score, which will provide potential borrowers with a simplified, standardized borrower metric (similar to APR) for home mortgages. The HOME score will allow individuals to easily compare various mortgage products and understand the full cost of the loan.
- Create Fund to Help Homeowners Avoid Foreclosures: Obama will create a fund to help people refinance their mortgages and provide comprehensive supports to innocent homeowners. The fund will be partially paid for by Obama’s increased penalties on lenders who act irresponsibly and commit fraud.
- Close Bankruptcy Loophole for Mortgage Companies: Obama will work to eliminate the provision that prevents bankruptcy courts from modifying an individual’s mortgage payments. Obama believes that the subprime mortgage industry, which has engaged in dangerous and sometimes unscrupulous business practices, should not be shielded by outdated federal law.
Hillary Calls On Wall Street To Address Housing Crisis
Hillary goes to the Nasdaq stock exchange today to call on Wall Street to help clean up the housing foreclosure crisis it helped create. Wall Street not only enabled reckless mortgage lending, it encouraged it - 1.8 million home foreclosure notices have been filed this year, a 74% increase from 2006. Now it’s time for lenders, homeowners and investors to come together to solve this crisis and stem the tide of foreclosures.
Hillary will challenge lenders and financial institutions to take three immediate steps today: 1) Voluntarily support a moratorium of at least 90 days on home foreclosures; 2) freeze the fluctuating rates on subprime loans for at least 5 years until they can be converted into fixed rate, affordable loans; 3) Require regular status reports on the progress they’re making in converting unworkable mortgages into loans families can afford so we have real accountability.
Hillary is proposing a comprehensive work out - not a bail out - that would end the foreclosure crisis. If Wall Street refuses to act, Hillary will propose legislation to tackle the problems in the housing market head on.
As we see growing economic challenges - from the housing crisis to rising energy costs-- it’s clear that we need a leader with Hillary Clinton’s strength and experience to create the change America needs. Hillary has proposed allocating up to $5 billion in immediate assistance to help communities and distressed homeowners weather the foreclosure crisis, and called for $1 billion in emergency energy assistance for families facing skyrocketing heating bills this winter.
FORECLOSURE MORATORIUM: Hillary will call for a moratorium on home foreclosures of at least 90 days so that a rate freeze can take effect and at-risk homeowners can get financial counseling to help them transition to affordable loans.
FREEZE ADJUSTABLE RATE LOANS: The rate freeze must last at least 5 years, or until subprime mortgages have been converted into affordable loans. A typical subprime adjustable rate loan is raising monthly payments by 30% to 40% for many families, causing a wave of housing defaults across the country.
REQUIRE ACCOUNTABILITY: Hillary will ask for regular status reports on the progress Wall Street is making in converting unworkable mortgages into loans families can afford.
Ending the Housing Crisis
"Homeownership is the foundation of the American Dream. Dangerous mortgages have put millions of families in jeopardy of losing their homes. It's time for Washington to stop taking care of banks and their lobbyists and act decisively to help regular families." -- John Edwards
Home equity is the bedrock of economic security and the primary source of most families' wealth. But in recent years, dangerous mortgages with "exploding" interest rates and hidden fees – combined with the housing slump – have meant quick profits for lenders and brokers but put millions of families at risk of losing their homes. Foreclosure filings have nearly doubled over the past year. Interest rates are set to rise sharply on about 2.5 million loans over the next 18 months, causing many families' monthly payments to increase by 30 percent or more. Many families could avoid foreclosure if their mortgages were modified – letting them keep their homes while also making lenders and communities better off – but only about 1 percent of borrowers facing an interest rate increase have gotten changes. [RealtyTrac, 2007; FDIC, 2007; Center for American Progress, 2007; US Conference of Mayors, 2007; CNN Money, 9/26/07]
On behalf of President Bush, Treasury Secretary Henry Paulson is encouraging industry leaders to voluntarily freeze interest rates on adjustable-rate mortgages. His plan is an important step but would leave out millions of families. Today, John Edwards called for stronger action to lead us out of the foreclosure crisis and help families keep their homes, without bailing out irresponsible investors and speculators. He will:
· Insist that any freeze on interest rates – like the Bush-Paulson plan – keep rates low for seven years so housing markets can fully recover and families have the time to escape unaffordable mortgages.
· Assure that families can halt foreclosures until their lenders offer help. Every family facing foreclosure will have a right to individual assistance from their lender – such as converting to a fixed-rate mortgage, capitalizing delinquent payments, reducing the interest rate, or forgiving a portion of the loan – so they can keep their home if they can.
· Take other important steps to address the foreclosure crisis, including creating (1) a Home Rescue Fund to help families move into affordable mortgages, (2) new rules allowing bankruptcy judges to rewrite mortgages on family homes, and (3) a central reporting system to keep track of lenders' progress in modifying loans and to facilitate fraud and predatory lending investigations.
· Prevent future crises by passing a strong national law against predatory lending and creating a new federal regulator for financial services products.
Ending the Housing Crisis and Saving Families' Homes
For the first time in history, a wave of home foreclosures has been set off by a type of financial product, not by a recession or local plant closings. Families in foreclosure stand to lose more than $164 billion in household wealth and their neighbors up to $233 billion in lost property value and local tax revenue. While lenders rush to foreclose, many families could afford to stay in their homes under fair repayment terms or obtain legal relief from fraudulent or predatory loans. [CRL, 2007]
John Edwards believes that the Bush-Paulson plan could help some families if the freeze on interest rates lasts long enough. However, the plan leaves millions of families at risk of future foreclosure, failing to remove the threat hanging over America's neighborhoods and the economy. It:
· Fails to help families whose adjustable interest rates have already increased and families who cannot afford their mortgages at current rates.
· Fails to help the millions of families who have troubled mortgages other than adjustable-rate mortgages, such as fixed mortgages with high interest rates, interest-only mortgages, and predatory and fraudulent mortgages.
· Fails to help families whose mortgages, including interest and penalties, now exceed the market value of their homes.
· Fails to prevent future crises by outlawing predatory mortgage lending and protecting consumers.
To end the foreclosure crisis, Edwards will:
Give Families the Right to Halt Foreclosures Until Lenders Offer Help
Only 1 percent of borrowers whose rates reset this summer have been offered new terms that would let them keep their home. Edwards will require loan servicers to negotiate in good faith with every borrower facing foreclosure by reviewing the homeowner's financial situation and offering an alternative repayment plan, forbearance, or loan modification. Banking regulators led by the Federal Deposit Insurance Corporation will set interagency guidelines for these workouts based on the principles of lender safety and soundness as well as accountability for lenders' role in issuing millions of unaffordable mortgages. Edwards will also consider creating new legal protection for lenders making loan modifications. The new foreclosure prevention requirement will be effective for the duration of the current crisis. Families will have the right to stop a foreclosure if their lender has not taken these steps. To hold companies accountable, Edwards will require companies to provide monthly updates of the volume of loan modifications, settlements and refinances. [NCLC, 2007]
Create a Home Rescue Fund
Timely intervention can often save homes at modest cost by paying several months' payments, offering bridge loans, or helping families work out an affordable repayment plan. Edwards will create a Home Rescue Fund to expand existing efforts by non-profits local, governments, and community financial institutions. Foreclosures can cascade through neighborhoods as property values fall and owners are unable to refinance or sell. Edwards will support efforts to rehabilitate and quickly rent or sell foreclosed homes to stabilize neighborhoods. [NCRC, 2007; Enterprise Foundation, 2007]
Let Families Keep Their Homes in Bankruptcy as a Last Resort
Bankruptcy is a much-needed safety net for families financially destroyed by abusive debt. But while bankruptcy filers can modify loans on their investment properties, vacation homes and boats, they cannot modify their mortgage on their family home. Edwards will let bankruptcy judges rewrite mortgages for primary residences, writing off excessive debt that exceeds the value of the home and setting fair repayment terms for the remaining debt. Lenders would still have mortgage notes for 100 percent of the house's value. The relief would be available only at a judge's discretion and only once for each homeowner. These changes will help as many as 600,000 families keep their homes through the current crisis, without disrupting the flow of credit. Closing the mortgage lender loophole will also help families who do not go bankrupt, by increasing their leverage in their negotiations with lenders over fair repayment terms. [CRL, 2007]
Facilitate Fraud Investigations
While subprime loans are valuable to homeowners with poor credit, an unknown but significant percentage of subprime loans have predatory terms or were originated deceptively. Families should not lose their homes because their lender violated the law. Edwards will require lenders and servicers to report their entire inventory of loans to the government, clarifying ownership and facilitating federal, state and private investigations into fraud and predatory lending. State attorneys general and regulators undertaking similar investigations have yielded multi-million dollar settlements from lenders and servicers such as AmeriQuest, Citigroup, and Fairbanks Capital in recent years. [Washington Post, 1/21/06]
Crack Down on Foreclosure Prevention Scams
Foreclosure scammers charge hefty fees for little or no work, while wasting precious time that leaves borrowers pressed to save their homes once the scam is discovered. They can even induce or outright defraud the homeowner into transferring over the deed to the house, stripping all the remaining equity. Defaulting homeowners are especially vulnerable because most lack legal representation or reliable financial advice, and in many states foreclosures operate outside the court system, without access to any official oversight. Edwards called for a Federal Task Force on Foreclosure Rescue Fraud to coordinate the efforts of state attorneys general, the F.B.I. and the U.S. Attorney's office to coordinate efforts. He also proposes a national hotline for tips on foreclosure prevention scams and will require all lenders to include warnings about foreclosure prevention scams in all borrower correspondence. [NCLC, 2005]
Preventing Future Mortgage Abuses
John Edwards believes that it is not enough to address the problems of current homeowners. It is also long past time for strong federal laws to prevent future crises and for Washington to create new affordable housing opportunities for American families. As president, he will:
Pass a Strong National Law against Predatory Mortgages
North Carolina passed a strong law against predatory lending in 1999, and it has protected families without decreasing access to credit. But the subprime mortgage lending industry has spent $210 million in campaign donations and lobbying in Washington and successfully blocked national protections. Edwards will pass a strong national law to prohibit abuses in the mortgage market while retaining state consumer protections. The law will:
· Ban prepayment penalties: Prepayment penalties are common on predatory loans because they trap families into unaffordable mortgages, making it impossible to refinance with another lender on fair terms. They are associated with a 52 percent higher foreclosure rates. [CRL, 2007]
· Ban broker kickbacks: "Yield-spread premiums" reward mortgage brokers for steering borrowers into higher-cost mortgages. Edwards will ban these kickbacks and require brokers to put borrowers' interests first. He will also work with states to establish uniform broker licensing standards and a national database for disciplinary infractions.
· Fight appraisal and servicing fraud: Abuses have appeared at nearly every point in the mortgage process, from the appraisal that sets the loan value to the servicing that collects the payments. Up to half of all real estate appraisers have reported pressure to overstate property values, causing families to owe more than their homes are actually worth. Servicing fraud includes failing to apply payments, treating current accounts as defaulting or assessing unjustifiable fees or forced insurance. Edwards will establish new rules and enforcement powers to combat these frauds. [Demos, 2005]
· Ban other abuses: Edwards will also ban other practices characteristic of abusive loans, such as loan flipping, mandatory arbitration clauses, balloon loans, and other excessive fees. The ban will create a duty of fair dealing for all loan originators, including non-bank finance companies, and strengthen underwriting standards to ensure that borrowers receive affordable loans suited to their means.
Create a New Regulator to Protect Families from Abusive Financial Products
Because financial products continue to evolve rapidly, banning the worst practices alone is not enough. Vigorous continuing regulation is needed. Federal bank regulators have focused instead on bank soundness and profitability while non-bank finance companies virtually escape regulation. Edwards will put a new agency on the side of families. The Family Savings and Credit Commission will be a tough new regulator, reviewing all financial services products marketed to families, including abusive mortgages, to ensure that terms are reasonable and fairly disclosed and overseeing all types of financial institutions, whether chartered under federal or state law. To cut excess bureaucracy, Edwards will eliminate the Office of Thrift Supervision. [Warren, 2007]
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