Responding to the Subprime Mortgage Crisis
By Congressman Henry Cuellar
The subprime mortgage crisis is an issue that weighs heavy on the minds of lawmakers, lenders, and the American public. Federal Reserve Chairman, Ben Bernanke, estimates that 2.3 million subprime mortgages will reset at higher rates through the end of next year, and an estimated 1-2 million borrowers will be unable to avoid foreclosure. As the threat of foreclosure is quickly materializing for many American homeowners, I felt it would be valuable to discuss the unfortunate subprime situation as well as what the government is doing to provide immediate and future assistance to those affected.
Subprime mortgage lending is available for those who do not have the best credit history. While subprime mortgages can benefit consumers by allowing greater access to credit, these mortgages can also be accompanied by fees and adjustable interest rates that consumers were not aware of at the time that they agreed to the terms of the loan.
While government influence in the marketplace can be undesirable, there is a responsibility to protect the good of the public it represents. Crafting policy that allows a free and competitive marketplace that benefits the consumer is not always easy, much less perfect. Because mortgage lending practices are regulated differently in each State, any federal policy must respect the Constitutional autonomy granted to each State. The 110th Congress has taken legislative steps to provide stability to the fledgling subprime market while working to make both the acquisition of a home as well as the retention of that home more certain.
The piece of legislation that most directly confronts the subprime market problem is H.R. 3915, the “Mortgage Reform and Anti-Predatory Lending Act of 2007”. This bill works to prevent future subprime crises through lender regulation and consumer education. H.R 3915 cautiously approaches the issue of federal regulation by imposing a regulatory minimum, or “floor”. This means that Federal Agencies will enact mortgage lending rules that each State must abide by, while allowing more stringent provisions to be added as each State deems appropriate.
H.R. 3915 also requires the licensing and registration of brokers and bank loan officers while requiring lenders to use better judgment in issuing loans to consumers who may not have the means to repay new debt. H.R. 3915 would also require those in the secondary market to be held liable for ensuring responsible lending. The bill also creates the Office of Housing within the Department of Housing and Urban Development. This office will be tasked with providing outreach in the form of homeowner counseling.
H.R. 1852, the “Expanding American Homeownership Act of 2007”, would serve those who could potentially turn to subprime borrowing by making more affordable rates and terms available through the Federal Housing Administration. I voted in favor of H.R. 3915 and H.R. 1852 which have passed the U.S. House of Representatives, and now await action in the Senate.
Recently, the government has worked to freeze the interest rates for some of those who have been affected by the resetting rates characteristic of the subprime loans. While this is a positive and immediate solution for some of our nation’s affected consumers, this action will not bring about the comprehensive change necessary to keep a similar crisis from happening again. I look forward to protecting more current and potential homeowners through legislation that both increases responsible lending and provides information to guide anyone interested in owning a home.