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Housing Crisis Overview

The current mortgage crisis is caused not by plant closings or other job losses but by unscrupulous marketing and sales of financial products including interest only, adjustable rate and zero down home mortgages. These predatory home mortgage loans were designed for and promoted to qualify families for homes they couldn't afford and loan schemes that doomed them to failure. Many of these people are being forced back into the rental market or into sub standard living conditions in travel trailers in back lots and mobile home parks. Families caught in these schemes have lost their most valuable asset.

The latest Standard and Poor's analysis estimates losses to foreclosure at $285 billion and loss of equity to other homeowners in neighborhoods hit by large numbers of foreclosures at nearly twice that much.

So far the only helping hand has been from the Fed to lenders in unprecedented loan guarantees to bail out financial institutions. It is important to keep our financial system strong internally, as the alternative is for foreign interests to assume a greater role in our markets, But this one sided approach which safeguards the institutions who created the problem in the first place while ignoring the crisis faced by millions of American home owners is unconscionable. President Bush's suggestion of a 30-day moratorium on foreclosures is a band-aid on a gaping wound.

A political solution is needed to protect the rights and needs of the homeowners who are suffering the loss of their greatest financial asset, their homes. Congress must act now. Chairman Bernanke of the Federal Reserve has stated that financial institution losses would be reduced if lenders would write off a portion of the principal of mortgage loans and adjust interest rates to allow families to remain in their homes. It would help protect the value of all homes in communities facing large numbers of foreclosures. It would stem the drop in property taxes faced by cities and states, and ultimately as Chairman Bernanke has pointed out, would reduce losses for financial institutions.

I agree with John Edwards' position that lenders be required to meet with and offer options to homeowners in advance of foreclosure. This will be a complicated process, as many of these loans have been bundled and sold by investment banks like Bear Stearns, the investment bank recently bailed out by the Fed. But with Congress taking action to require that this step be taken, families can be individually helped to find a solution that has a greater chance of keeping them in their home.

To protect American families from predatory loan schemes in the future, Congress must step up and pass legislation that provides for mandatory requirements to protect borrowers from future predatory practices by the mortgage brokerage and investment banking systems in the US, which are largely unregulated.