‘Falling house prices, lax underwriting standards, and resetting mortgages have caused the foreclosure rate to rise above its natural rate. And we expect the rate to remain elevated over the course of the next 18 months.’ U.S. Treasury Under Secretary for Domestic Finance, Robert Steel
Senator Coleman hosted a Town Hall Forum addressing the current sub-prime mortgage crisis affecting Minnesota homeowners, communities and the economy at the Greater Twin Cities United Way in Minneapolis this week. At the forum, Sen. Coleman was joined by U.S. Treasury Under Secretary for Domestic Finance, Robert Steel, and Richard Todd, Vice President of Supervision, Regulation and Credit at Federal Reserve Bank of Minneapolis, along with homeowners, renters, community groups and housing experts.
“The effects of the sub-prime crisis are wide-ranging and serious, and it is important that we work to address them in a timely and effective manner,” Coleman said. He said the forum is providing a chance to discuss ways we can assist those in trouble today and avoid similar situations in the future. Senator Coleman said that Minnesota is currently tied for fourth in the nation in the percentage of sub-prime mortgages in foreclosure – with over 4,000 foreclosures in the third quarter alone. In the past year, there has been a 152 percent increase in foreclosures.
U.S. Treasury Under Secretary for Domestic Finance, Robert Steel expressed the overall seriousness of the situation when he said that the country is experiencing a period of adjustment in the housing and mortgage markets. Fortunately, this market stress is occurring against a back drop of healthy U.S. fundamentals and a strong global economy. Yet, as Secretary Paulson has said, the housing decline is the most significant current risk to our economy.
He said that a significant number of homeowners will be affected by challenges in the housing market and many could face foreclosure. He also suggested that the issues are complex and must look beyond the headline numbers when thinking about this challenge.
“Each year, thousands of homes end up in foreclosure, even when housing markets are strong. Between 2001 and 2005 more than 650,000 homeowners began the foreclosure process each year.” Steel added. He predicted how the situation may get worse by predicting in about 2 million subprime mortgages to reset in the next year and a half, but not all of these mortgages will end in foreclosure.
Although, some homeowners will be able to afford their new payments without trouble and many others will qualify for a refinanced, fixed rate mortgage on their own. Other homeowners, however, have stretched too far beyond their means or have made bets on the housing market, buying up multiple houses expecting to make a profit. Unfortunately for many of these borrowers, foreclosure is inevitable. And let me be clear – we have no interest bailing out speculators. Our concern is for the Americans who are struggling to make payments on their primary residence. Treasury & the Department of Housing and Urban Development have encouraged mortgage servicers, lenders, investors and counselors to work together to reach as many struggling borrowers as possible. Last month they announced the formation of an alliance called HOPE NOW and just two weeks ago unveiled a new direct mail campaign to help homeowners more effectively.
“Today, is an important day in this public-private outreach effort. Starting today, HOPE NOW, will send more than 300,000 letters by the end of this month alone to struggling homeowners who could be in a position to move to a more affordable mortgage. That is 100,000 more homeowners than they initially expected to reach this month. And they will continue reaching out to more borrowers over the next several months.” Steel said
He said they expect the new letter campaign, which will come from HOPE NOW Alliance rather than from mortgage servicers, to increase their effectiveness reaching at-risk borrowers. HOPE NOW’s efforts are critical to reaching more homeowners, but President Bush has also directed the Adminstration pursue other methods of assisting homeowners. Many of these initiatives require the assisstance of Senator Coleman’s colleagues in Congress. For instance, he said, the President has asked Congress to eliminate taxes temporarily on mortgage debt forgiven on a primary residence. The adminstration has also requested that Congress pass Federal Housing Adminstration (FHA) modernization to make affordable FHA loans more widely available. Senator Coleman has supported all of these efforts and we are grateful.
Steel concluded his speech by warning to the borrowers too “Let me conclude by emphasizing one final point: Borrowers have a responsibility as well. Mortgage providers must offer clear,trasparent and understandable information on the mortgageproducts they sell. And homebuyers have a responsibility to that information and understand their mortgages. Buying a home today is more a complex process, but that in no way execuses homebuyers from their obligation for due diligence.
Last month, Senator Coleman introduced the HOME ACT, which gives homeowners who are 60 days late in their mortgage payments the option of withdrawing up to $100,000 penalty-free from their retirement accounts through 2009. The HOME Act would make withdrawals tax–free, as long as they are paid back within three years. He is also a co-sponsor of legislation to make mortgage debt forgiveness tax-free.
Senator Coleman also supports passage of the FHA Modernization Act of 2007 which will allow qualified homeowners to refinance into affordable FHA insured mortgages so they can keep their homes. The bill also increases penalties for fraud and ensures pre-purchase counseling demonstrations are available for first time home buyers.