SAN FRANCISCO, Oct. 19 /PRNewswire-USNewswire/ — Four nationally recognized community reinvestment groups roundly commended the proposal of Federal Deposit Insurance Corporation chairwoman Sheila C. Bair to freeze so-called “hybrid” mortgages at the introductory rate.
“We support Chairwoman Bair’s recommendation,” says Alan Fisher, executive director of the California Reinvestment Coalition. “In our meetings with major lenders, this is what we have asked them to do. We will continue to call for a moratorium on foreclosures of subprime loans until recommendations like Chairwoman Bair’s are in place. Without adoption of such loan modifications California will experience an economic Tsunami.”
The California Reinvestment Coalition along with the Woodstock Institute, Neighborhood Economic Development Advocacy Project of New York and Community Reinvestment Association of North Carolina welcomed Chairwoman Bair’s proposal after warning regulators and Congress for years that irresponsible underwriting standards among America’s largest lenders would eventually fuel a crisis in the housing market.
“This is the kind of leadership that has been long absent among banking regulators and Congress and we commend Chairwoman Bair for her creative and timely action,” said Malcolm Bush, president of the Chicago-based Woodstock Institute.
Hybrid loans, also called 2/28s or 3/27s, were a popular mortgage product throughout 2005 and 2006. The loans offered borrowers a low introductory rate for the first two or three years then raised rates, often dramatically, for the remainder of the loan term. The result was a payment that went from barely affordable to unaffordable, sometimes overnight.
“The solution Chairwoman Bair proposes will help a large subgroup of homeowners who were sold hybrid loans and can afford to pay the introductory rate for the life of the loan,” said Sarah Ludwig, Executive Director of the Neighborhood Economic Development Advocacy Project (NEDAP), in New York City. “Too often, however, even the introductory rate is unaffordable, and servicers will need to ensure that loans are modified on terms that are affordable to borrowers.”
The solution is not a bailout, but a practical solution to a complicated problem that, to date, both regulators and Congress have utterly failed to address. Although a number of steps need to be taken to protect homeowners facing the complex problem of foreclosure, Chairwoman Bair has recognized the magnitude of the situation and placed responsibility where it belongs — on financial institutions that lost control of their own products.
The California Reinvestment Coalition advocates for the right of low-income communities and communities of color to have fair and equal access to banking and other financial services. CRC has a membership of more than 250 nonprofit organizations and public agencies across the State.
CONTACT: Alan Fisher of the California Reinvestment Coalition,
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