Letter: Help struggling homeowners, back resolution 365On July 22, 2011, Rep. Hansen Clarke, D-Michigan, submitted House resolution 365 stating Congress should “cut the United States’ true debt burden by reducing home mortgage balances, forgiving student loans, and bringing down overall personal debt.”
By: Kristin Koplin, The Republican Eagle
To the editor:
On July 22, 2011, Rep. Hansen Clarke, D-Michigan, submitted House resolution 365 stating Congress should “cut the United States’ true debt burden by reducing home mortgage balances, forgiving student loans, and bringing down overall personal debt.”
The Community Reinvestment Act of 1995 pushed banks to lend money to low-income people who would, in many cases, have a slim chance of repaying the loans. Lenders originated home loans and quickly resold them to investors in the form of securities on the secondary market, namely Wall Street. This method, known as the “originate to distribute model,” allowed lenders to pass the risk onto investors and thereby loosen guidelines.
The result was casual underwriting, faulty appraisals, less oversight and more aggressive financing, which ultimately led to a lot of bad loans. Lenders incentivized bulk originating, pushing staff to close as many loans as possible while forgetting about quality standards that ensured loans would be repaid.
The U.S. Department of Housing and Urban Development ordered two government-sponsored enterprises, Fannie Mae and Freddie Mac, to direct 42 percent of mortgage financing to low- and moderate-income borrowers. To achieve that, Fannie Mae introduced 3 percent down mortgages when the traditional mortgage had required 20 percent down.
In 2005 and 2006, lenders issued nearly 6 million subprime mortgage loans to homebuyers who had lower incomes, smaller available down payments or worse credit histories than traditional borrowers.
In 2006, the Center for Responsible Lending projected that nearly 20 percent would end in foreclosure, costing homeowners more than $160 billion, mostly in lost home equity. Subprime foreclosures affect more than the projected 1.6 million families, as property values for all homes decline, perhaps by an additional $200 billion.
H.RES.365 proposes to alleviate some debt of homeowners given inappropriate loans. In Minnesota, there were 26,500 foreclosures in 2008 costing taxpayers in lost property taxes, increased welfare recipients and other cumulative effects.
In January 2012, Minnesota ranked 17th in the nation with 3,017 foreclosure filings. It is estimated that foreclosures will rise 25 percent in 2012 to 1 million homes in the United States.
By putting this legislation into action, the nation’s true debt would be lowered, opening up opportunities for homeowners to stay in their homes, not go on welfare, avoid bankruptcy and continue contributing to the economy. Making considerations for loan forgiveness would offer a boost to our local economy.