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."