COLUMBUS (TDB) -- The mayors of Akron, Columbus, Dayton and Toledo are among 66 from across the U.S. -- including 8 others from Ohio -- now pushing the Federal Reserve to "expeditiously" beef up regulations against abusive lending practices. In a letter to the Fed demanding action, the mayors say regulators must quickly protect homeowners and warned "it is estimated that close to two million families face dire financial circumstances and/or foreclosure" by 2008.
The problem: Interest rates on adjustable rate mortgages will reset and climb to higher rates. Many people just won't have the money to make their monthly payments. Ohio already has a mortgage foreclosure rate that ranks near the nation's highest -- by some accounts it is the worst. Gov. Ted Strickland in March said the foreclosure crisis is worsening and will deepen over the next two years.
Mayors said the Fed needs to crackdown on unfair and deceptive lending immediately and sent a letter outlining suggested action including limits on prepayment penalties, mandatory escrow accounts for taxes, and a ban on unaffordable loans by imposing income guidelines.
"A core plague of predatory lending is lending beyond borrower payment ability. The federal agencies have correctly identified that abusive lenders are underwriting ARM loans at initial and low rates, leaving borrowers vulnerable to rapid rate increases . . .
"Finally, there should be a presumption that a loan is unaffordable if the borrower's debt-to-income ratio exceeds 50%."
Ohio mayors who signed the letter include Akron's Don Plusquellic, Michael Coleman of Columbus, Solon's Kevin Patton, Westlake's Dennis M. Clough, Toledo's Carly Finkbeiner, Warren's Michael O'Brien, Georgine Welo of South Euclid, Tom Longo of Garfield Heights, Youngtown's Jay Williams, Dayton's Rhine McLin, University Height's Beryl Rothschild and Judith Rawson of Shaker Heights.
Trenton, N.J. Mayor Douglas H. Palmer heads the U.S. Conference of Mayors and said up to $1.4 trillion in adjustable rate mortgages are going to climb higher while too many Americans are locked into home mortgages they should not have obtained in the first place.
"The mayors of America understand the negative impact that these practices have had on everyday citizens. We cannot wait to the next wave of bad news to intervene on behalf of working people. The abusive lending has to stop."
No doubt some of the lenders acted in a predatory manner, but the borrower has to have some responsibility to look out for themselves. I don't know about anyone else, but I've always been a little leery of easy credit. Sure I use credit since you can't pay cash for big ticket items like a house. However, I wouldn't have touched an adjustable rate mortgage with a ten foot pole. The other thing that has struck me as odd is someone buying the absolute max they can qualify for. What! I'd counsel guys on their finances and they didn't have enough wiggle room to handle a couple flat tires let alone replacing a hot water heater.
ReplyDeleteThis problem will get a lot worse before it gets any better. You let people borrow with little or nothing down and little verification of ability to repay the loan and you're asking for trouble. If you see Countrywide or a company in its size range go belly up then you'll know the bottom is near.
Hi LargeBill --
ReplyDeleteNo doubt the borrowers deserve some blame.
But what about the others on the streets and neighborhoods that are going to be pockmarked by empty and foreclosed houses. Their property values will be diminished. The foreclosed properties will depress markets and resale values. Good people who played by the rules are going to be hurt, are being hurt. Why doesn't anybody stop these scandals before the explode and spread and damage the economy? I think we might be on the verge of Enron II, or worse.
And where was Cincinnati Mayor Mark Mallory? Hiding under the bed in his bedroom in Daddy's house?
ReplyDeleteHi Lisa --
ReplyDeleteI noticed that almost all on the list besides Dayton McLin were Columbus and north. Cleveland's Frank Jackson wasn't a signatory. I think it was a special committee set up by the mayor's conference, but have not gotten any confirmation from anyone there anyone there. I wondered about some of the missing names -- but can't answer why they are missing. Did you click to the letter? Mayor Daley of Chicago is on the list of signatories.
If I were on Cincinnati City Council, I would introduce a measure that would track the language of the mayors' letter, and urge quick action that would get it to the Fed. Any council members reading ....?