Subprime scourge
REPRESENTATIVE BARNEY FRANK wants to broker a meeting Oct. 26 at the Federal Reserve Bank of Boston between the purveyors of troublesome subprime mortgages and the elected and neighborhood leaders who link such products to a rash of foreclosures across the state. How well the out-of-state mortgage companies respond, and what remedies evolve, could determine much about future relations between this controversial arm of the mortgage industry and increasingly short-tempered lawmakers.
Frank chaired a hearing of the House Financial Services Committee yesterday in Roxbury, one of four mostly-minority neighborhoods in Boston hit hardest by the recent wave of foreclosures. He and other leading politicians, including state Attorney General Martha Coakley, decried mortgage lending practices that saddle customers with weak or "subprime" credit with loans so onerous they have led to 25,000 foreclosure actions in Massachusetts in the last 12 months. In the Mattapan section of Boston alone, said Coakley, there were 160 foreclosures out of a total of 479 mortgages loans from January 2006 to May 2007.
Mayor Thomas Menino of Boston testified that the Ameriquest, Fremont, Countrywide, New Century and Option One mortgage companies dominate the field of foreclosures in the city. Each belongs at the table when Frank convenes his meeting at the Boston Fed.
Foreclosures are often more than a personal failure to manage one's financial obligations. Some predatory lenders target borrowers with marginal credit histories, enticing them with low teaser rates for the early years of the loan. When the housing market declines, the borrowers find themselves smothered by escalating payments in houses worth less than they bought them for. At that point, walking away often looks like the best option. For the neighborhood, however, it is disastrous when abandoned houses and blight start to spread across entire blocks. It took decades for Boston to recover from a similar scenario in Mattapan in the 1960s, when lenders also tossed responsible underwriting standards out the window.
There are signs that lenders may be ready to negotiate. The Patrick administration has urged national mortgage lenders, including Wells Fargo and Countrywide, to accept so-called "short sales" that allow stressed borrowers to sell their homes at current market value and pay back less than the full value of the loan. A more promising administration effort is aimed at allowing delinquent homeowners with decent credit ratings to refinance their loans with MassHousing, the state's affordable housing bank. That keeps people invested in their homes and communities.
In the long term, Congress needs to set limits on national mortgage lenders. Right now, all efforts should be aimed at breaking their grip on local neighborhoods. 