“When I took an adjustable rate mortgage, I knew the rate would be adjusted. No surprise, it is now being adjusted. It doesn’t take an advanced education to understand this.”
The anonymous, aggravated caller on the radio show couldn’t understand why he should care about the two million homeowners who could lose their homes over the next couple years.
Why should we care? People got into loans and mortgages that they could not afford. They took a risk and got caught. Bailing them out will only encourage others to take bad risks. And who pays the costs? If the lenders get hit, then won’t they pass the costs on to future borrowers, people with good credit who have done nothing wrong? Why not let people lie in the bed that they made for themselves?
This needn’t be an academic question. Washington is slowly awakening to the scope of the mortgage crisis. The Federal Deposit Insurance Corporation is calling for freezing the introductory rates on subprime, adjustable rate loans. Only legitimate borrowers would qualify—ones that live in the home, and have kept up on their monthly payments. That would eliminate about 1.75 million homeowners from the ranks of possible foreclosure. Helping them would then allow case by case resolution of the harder problems—people who have already been hit with higher rates that they cannot afford, or missed one payment and need a way to work it out.
This plan won’t work without Treasury Secretary Henry Paulson providing the leadership, and President Bush providing support. Congress might help by insuring that those restructuring the loans can’t be sued by the investors in mortgage securities who should suffer some of the losses.
But why help those facing foreclosure? Strikes me there is a range of good reasons. First, the damage suffered by two million people losing their homes to foreclosure won’t be limited to those people. Their neighbors will watch housing prices plummet, and neighborhoods grow more dangerous, as boarded up houses attract vagrants and drug dealers. Their communities and schools will suffer from declining tax revenues. Cutbacks in schools, teachers, police, and fire fighters will come just when they are needed more than ever. Finally, as more and more get trapped—in homes they can no longer afford to sell, in mortgages that are higher than the value of the house—whole regions of the country will hit the skids economically. The Midwest is already in recession. It could easily spread.
Second, a lot of people got snookered in these loans. Sure they should not have been so gullible. But deregulation and financial market changes gave mortgage brokers the incentive to offer loans to people who couldn’t afford them. Many were rewarded for peddling costly products to inexperienced homeowners, putting them into loans with higher rates and hidden fees. Many single women and minorities were charged higher rates than men with similar credit ratings.
The basic responsibilities of lenders were scorned. Loans were offered with no credit check. Borrowers were told that they could refinance before the loan was adjusted, but were not told about huge penalties and fees that would kick in if they did.
Deregulation took the cop off the beat. Scoundrels found ways to rob folks with a fountain pen, a lot more effectively than with a gun. Now it’s important to police the suites once more. Hold speculators and irresponsible lenders responsible. Require lenders to exercise a standard of care. And limit the damage done to their victims and their neighbors.
Deregulation gave brokers an incentive to cheat their own standards. Let’s hold them—and those that financed them—accountable, not the families and their neighbors who they misled.
Reverend Jackson n can be contacted by e-mail at