Public Employee Press

2nd in a series

Subprime Mortgage Crisis
Bush plan tilts toward banks

By DIANE S. WILLIAMS

President Bush finally answered families in danger of losing their homes in the spreading subprime loan crisis when he announced on Aug. 31 proposals to help Americans who are having a tough time meeting rising mortgage payments.

But his strategy tilts more toward Wall Street bankers than to those in desperate need and, like his aid to victims of Hurricane Katrina, experts say his plan is too little and too late.

Some 2 million homeowners who borrowed too much using subprime and variable rate mortgages are in deep trouble. Saddled with monthly payments they cannot meet as their ballooning adjustable mortgages drive the price of homeownership beyond their reach, many are defaulting on their loans and facing foreclosure. As a result, some 145 lending institutions have filed for bankruptcy protection for underwriting these bad loans.

Of the 2 million in danger, foreclosure is imminent for at least 500,000 families, because they have already missed mortgage payments (see box at right). But Bush’s plan to add 80,000 homeowners to the 160,000 already eligible to refinance their loans through the federal mortgage insurance program would leave 88 percent of the threatened families out in the cold.

Too little, too late
The president has also promised to “jawbone” lenders to persuade them not to foreclose on some borrowers, but whether they will listen is debatable.

The details of his plan are few, and how much or how little help might reach the average homeowner caught in the subprime bind remains to be seen. Some of the changes Bush alluded to would require legislation. For example, raising the $417,000 cap on mortgages that can be refinanced with federal insurance would require the U.S. Congress to act. (Mortgages above that figure now require uninsured “jumbo” loans.) Bush also hinted at supporting a Democratic legislative proposal to give tax breaks to homeowners whose mortgage debt is forgiven by lenders.

With millions of homeowners facing foreclosure, the president sat on the sidelines far too long as anxiety mounted — in the housing market, amid lenders, and at the dining table.

When asked about the problems of mortgage holders, Bush responded that many Americans struggling to make payments had failed to read the fine print on their loans.

“It’s not the government’s job to bail out speculators,” he said, lumping bankers and millionaire mortgage investors together with working-class Americans who grabbed at subprime mortgages as their only path to homeownership and the American Dream.

Minorities hit hardest
Several Wall Street investment banks that cashed in on this market are now losing billions as the subprime mortgages come due at a higher-than-anticipated cost and leave too many families unable to pay.

The threat of foreclosure and the very real ­effects of predatory loans are decimating communities ­nationwide, especially in urban centers where owners had finally begun to see their property values rise. As reported in the September PEP, the NAACP has filed a lawsuit charging banks and subprime lenders with targeting a disproportionate number of African Americans for the overpriced loans, along with Latinos, seniors and first-time buyers.

This lending crisis is eroding property values and consuming home equity, one of the primary sources of American wealth.

In hindsight, the wave of subprime loans offered to high-risk applicants was a bad decision with disastrous consequences: Housing sales have slowed, new housing construction is grinding to a halt and financial markets are in turmoil.

Jawboning seems to be working in one area: The Bush plan, more talk than action at this point, seems to be stabilizing and protecting the gyrating financial institutions that have huge mortgage portfolios. Perhaps that was its true target.

DC 37 urges members who are behind in their mortgage payments or feel they are victims of predatory lenders to call MELS at 212-815-1111 to speak to a counselor.