FOR IMMEDIATE RELEASE
January 16, 2008
As more and more Oregon families with sub-prime mortgages are facing foreclosure, Democratic Senate candidate Steve Novick today outlined immediate steps that should be taken to help ensure that working families keep their homes – including a rate freeze to stop ballooning payments on owner-occupied homes.
"Many Oregon families being squeezed by a faltering economy and rising food and gas bills are facing skyrocketing sub-prime mortgage payments," said Novick. "We need action to help these families now, not just rules to protect future borrowers. Senator Hillary Rodham Clinton and FDIC chair Sheila Bair have the right idea on subprime loans: a rate freeze, turning the 'teaser' rate into the permanent rate – or at least, as Senator Clinton has proposed, a five-year freeze on the rate."
Over the next 18 months, 15,000 mortgage statements will notify Oregonians that they will face a sharp increase in monthly payments. Families will see their house payments increase on average from $406 to $1,500 a month, according to an analysis Our Oregon.
Bair and Clinton have each proposed freezing the interest rates on a mortgage, preventing the payments from skyrocketing a few years into the agreement. These bait and switch tactics have put so many sub-prime mortgage holders at risk. Bair – an 'exception proves the rule' Bush political appointee – has said, "For owner-occupied housing where the loan is current, just convert the subprime hybrid A.R.M. into a fixed-rate mortgage. Keep it at the starter rate. Convert it into a fixed rate. Make it permanent. And get on with it." Clinton recently proposed a five-year freeze on rates.
"The call for a rate freeze isn't just a matter of compassion for families facing foreclosure; it's about the health of the economy as a whole," said Novick. "Home ownership is the foundation of a family's financial stability and a bedrock our local communities."
The December 15 New York Times highlighted the dangers of a wave of sub-prime foreclosures:
To Ms. Bair, the answer was obvious: debtholders needed to give the borrowers some debt relief. Why? Because widespread foreclosures would be bad for everybody. Even putting aside the question of whether unsophisticated borrowers had been preyed upon by predatory lenders — and therefore deserved some after-the-fact protection — the economic arguments for loan modification were, in her mind, powerful.
The holders of the debt — primarily Wall Street, which holds the complex securities into which subprime mortgages were bundled — would at least get some money if the loans were modified, instead of nothing. Homeowners would get to stay in the homes and make payments they could afford, while waiting for the market to recover. Besides, she said: "Foreclosures hurt everybody. They hurt entire neighborhoods. Vacant properties contribute to crime. And they hurt the economy at large."
Novick also declared his support for Illinois Senator Dick Durbin's plan to allow bankruptcy judges to adjust mortgage provisions in order to avoid foreclosure and allow people to stay in their homes. Bankruptcy judges currently lack that authority. Novick added that he supports efforts at the federal and state level to curb abusive practices by sub-prime lenders in the future.
"Eliminating prepayment penalties, requiring lenders to make a good faith effort to find the best deal for which the borrower qualifies, requiring them to determine if the borrower has a reasonable ability to repay the loan at the ultimate interest rate, not just the starter rate – these are all good ideas that should be adopted," Novick said. "But that's about the future. To prevent further damage to families and the economy, we need action on the sub-prime mortgages that already exist. A rate freeze and a change to the bankruptcy rules can help right away and there is no time to waste."
