Letter to the Editor

April 8, 2007 

 

The
recent problems in the subprime lending segment of the mortgage market
should come as no surprise (“Lenders scramble to help struggling
homeowners” April 5).

 

Too many lenders
offered too many loans with payments that seemed affordable during a
brief introductory period, but skyrocketed shortly thereafter — leaving
borrowers in foreclosure and communities devastated.

 

In
many respects, the widespread availability of mortgage credit has had a
positive effect on communities throughout the country. Home ownership
rates are at a record high and families that, in a previous era, would
have been lifelong renters are living comfortably and building equity
in their own homes.

 

But inadequate, and
in many cases, nonexistent underwriting standards continue to spoil the
dream for some and damage the property values of many. There is a
strong connection between the growth and concentration of subprime
lending and increases in foreclosures — not just in recent weeks, but
in recent years.

 

It seems reasonable to
hold lenders accountable to basic standards that make sure borrowers
are getting loans they can truly afford. While this seems simple, our
experience with predatory mortgage reform at the state and federal
levels has been anything but.

 

Previous
laws failed to prevent the problems we are now seeing for a very simple
reason. The nature of predatory lending is such that any attempt to
regulate specific products or practices simply serves as an impetus for
unscrupulous lenders to develop new methods for preying on vulnerable
home owners.

 

What we need is a national
standard, which is clear to both borrowers and lenders, to ensure that
loans fit the borrower’s short- and long-term financial situation.
First, loans should be underwritten to ensure that potential home
owners can afford the loan throughout its entire term, not just the
introductory period.

 

Second, when a loan is refinanced, there should be some clearly defined, long-term benefit to the home owner.

 

Reforms
based on these standards can restore confidence in the subprime
industry while making sustainable home ownership a possibility for
millions of Americans.

 

Malcolm Bush

president

Woodstock Institute

Chicago