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 Business News | February 2007 
US Senators Examine Home Foreclosure Surge
 Marcy Gordon - Associated Press
With home foreclosures surging, senators on Wednesday examined lending practices that especially hurt minorities and seniors and can heighten the risk of default.
Sen. Christopher Dodd, chairman of the Banking Committee, said the mortgage industry has to take greater responsibility and federal regulators may have to intervene.
"We are seeing increasing evidence that this important source of wealth for so many American families is under a grave threat from predatory, abusive and irresponsible lending practices undertaken by too many subprime lenders," Dodd, D-Conn., said at a hearing.
"The industry has got to step up," he said.
In the sizzling housing boom that waned in the latter half of 2005, many people took out subprime mortgages - higher-interest loans for people with blemished credit records who are considered higher risks - with adjustable interest rates. When interest rates rise, as happened in the spring of 2005, it can raise monthly payments for people with adjustable-rate mortgages, potentially creating a strain if they stretched to buy a home and don't have a financial cushion in their savings.
Home mortgage delinquency and foreclosure rates have been rising, and the impact could be greatest on low-income families that took out higher-interest loans for risky borrowers.
The foreclosure wave also is being fueled by the popularity in recent years of riskier interest-only, "no-document" and other nontraditional mortgages.
The Rev. Jesse Jackson, testifying at the hearing, said Congress must pass "strong laws to protect the vulnerable" by curbing abusive home-loan practices.
Predatory lending occurs, for example, when lenders pressure home borrowers into high-interest loans that they may not be able to repay. Blacks, Hispanics, seniors and immigrants often are targeted in abusive home lending, experts say.
"Lenders and brokers have financial incentives to place borrowers in more expensive loans," Jackson said. "It puts responsible lenders at a competitive disadvantage with the irresponsible lenders, allowing unscrupulous predatory lenders to control the market."
Harry Dinham, president of the National Association of Mortgage Brokers, argued against new legislation or rules governing the mortgage brokerage industry, saying it is sufficiently regulated at the federal and state levels.
"No law or regulation should ever require any mortgage originator to supplant the consumer's ability to decide for him or herself what is or is not an appropriate loan product," he testified. "As the decision-maker, the role of the consumer is to acquire the financial acumen necessary and take advantage of the competitive marketplace, shop, compare, ask questions and expect answers."
At the same time, Dinham acknowledged that requirements under current law are "woefully inadequate" for what must be disclosed to consumers concerning their home loans.
Dodd said he planned to call on federal agencies that oversee home lending, such as the Federal Reserve, to discuss whether they should impose restrictions on mortgage industry practices.
Dodd, one of several Democrats in the Senate who are seeking the party's presidential nomination in 2008, has put consumer issues on the committee's agenda for this year. He has said that he will not impose a blanket ban on accepting political contributions from industries that the panel oversees.
Renters Will Dig Deeper in 2007
Noelle Knox - USA Today
Renters be warned: Landlords are expected to raise apartment rents for a third-straight year in 2007, forcing tenants to turn over a growing chunk of their pay and making it harder to save for a home, a report to be issued today by Marcus & Millichap finds.
With the projected rise of 5% this year, rents would be 14% higher than at the end of 2004, the report says. Over the same period, paychecks are expected to rise 4%, adjusted for inflation.
The widening gap is likely to worsen the crisis for workforce housing, especially in coastal cities, says Hessam Nadji, a managing director at Marcus & Millichap, a real estate investment brokerage. "This is a national trend. We're seeing rents rise in the majority of markets, and we see this continuing for at least three years."
From 2000 to 2004, most landlords couldn't raise rents because so many tenants were leaving to buy houses or condos. To feed that buying frenzy, about 300,000 apartments were converted to condos for sale in the past three years. Now, even with 92,000 new rental units this year, the stock is still too little to meet rising demand.
"It's horrible. I'm going to pull my hair out," says Veronica Gonzales, 25, CEO of an event planning firm in Manhattan, where rents are expected to jump more than 7% this year, the sharpest increase in the USA. Gonzales has been hunting for six months for a place in the city for $2,000 a month. Unfortunately for Gonzales and other apartment dwellers, rents are rising because the payment gap between renting and owning remains wide. Even with this year's increase, the national median rent will be $943 a month, only 60% of the median mortgage payment of $1,566.
Renters will get a bit of a break in places such as Miami, Las Vegas and San Diego, where investors bought thousands of condos, hoping to flip them for a quick profit. Since the market faltered in late 2005, many of those condos have been empty, and investors are seeking tenants to help pay the mortgage.
Mohamed Amar bought two Las Vegas condos in 2005 that he's trying to rent. "I thought it was a good investment," says Amar. "But when I tried to put it on the market, the developer started cutting the price, and they killed everybody." Yet, even in these cities, the report says, rents will rise this year. |
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