The home-foreclosure crisis has hit families throughout the nation, including Maine. While Maine’s foreclosure rate is lower than the national trend, that brings little comfort to the Maine families who have lost their homes, or to the many more who potentially face that fate as adjustable-rate mortgages reset and plunging home values block chances for a favorable refinancing. It’s a growing problem for Maine and the nation, and it requires greater and more effective federal action.
I’ve supported efforts in the U.S. Senate to authorize agencies like the Maine State Housing Authority to issue tax-exempt bonds to support refinancing of homes in danger of foreclosure, to provide more credit counseling, and to make Federal Housing Administration mortgage insurance more available and affordable.
The housing crisis has put a major strain on our economy. The decline affects not just homeowners with unaffordable mortgages, but also many businesses linked to the housing industry. For example, job losses in lumber mills in Aroostook County and construction in Southern Maine are directly linked to the slump in the housing market.
Congress must act to help provide relief to families who, but for the increased interest rates, could otherwise afford to make their mortgage payments. We should not, however, bail out speculators.
The Executive Branch of government can help, too. That’s why I wrote directly to the President a few days ago to ask him to take swift action to help address the housing crisis afflicting families across the Nation.
The Administration has already helped organize the voluntary lending-industry HOPE NOW alliance to work with borrowers who may be candidates for a sustainable loan restructuring. And the FHA Secure program was launched.
These programs have helped several hundred thousand households, but the mortgage challenge calls for more effort. More than 50 million Americans hold mortgages at present, and most are current on their payments. But seven million of these mortgages are higher-rate “subprime” loans, and most of them are adjustable-rate mortgages that “reset” to a higher – often unaffordable – rate after two or three years of very low introductory rates. As a result, approximately 1.3 million of those seven million subprime mortgages are delinquent, and the numbers are expected to continue rising as previously written mortgages hit their reset dates.
One source of help for these people would be to bolster the FHA Secure program, an administrative step that could be taken while Congress debates additional legislation. The FHA Secure program is administered by the Federal Housing Administration and aims to stabilize the real estate market. It helps eligible homeowners avoid foreclosure by assisting them with refinancing so they can again afford to make their mortgage payments. I have asked the President to expand this program to help more families refinance their mortgages and keep their homes.
It is clear that we need more efforts to avoid foreclosures. They inflict losses all around – on the families that lose homes, on the neighborhoods whose values fall as empty homes proliferate, on borrowers who face tighter requirements and higher costs as perceptions of lending risk increase, and on those who work in construction or other industries dependent on a strong housing market.
As we develop those efforts, however, I will observe a principle cited by the overwhelming majority of Maine people who have written or spoken to me on this issue. Honest people who were misled or manipulated into unaffordable mortgages should be helped. But taxpayer dollars should not be used to rescue investors who knowingly bought risky mortgage-backed securities, lenders who offered credit without doing prudent checks on ability to pay, or speculators who deliberately took on unsustainable debts in hopes of flipping properties for a quick profit. Bailing out those people would not only be unfair to taxpayers in general, but also to those taxpayers who made solid down payments on their homes, borrowed no more than they could afford, and scrimped to meet their mortgage-payment obligations. And such bail-outs would simply invite more abuses in the future.
Besides helping people already in trouble and intervening to fend off foreclosure for those headed toward trouble, we need to strengthen our defenses against the practices that led to the current crisis. That effort is not exclusively a federal concern. Maine’s new predatory-lending law is a good example of state authority employed to protect consumers. For instance, it prohibits mortgage originators from writing a sub-prime mortgage unless it has documentation of the borrower’s income, credit history, current obligations, and other indicators reasonably establishing an ability to repay the loan.
Steadying the housing market and reforming our nation’s financial systems are key to restoring our economy’s health. I am hopeful that the reforms undertaken in Washington, in state capitols, and in our financial markets will help put us on the path to economic recovery.