Home Ownership Preservation and Consumer Rights

During 2008, the mortgage foreclosure crisis continued to accelerate at a startling pace. This crisis was fueled by predatory lending practices in the subprime market that preyed on some of our most vulnerable citizens, especially the poor and the elderly. Predatory loans typically targeted persons with weak or blemished credit records. Some of these loans involved a refinance of an existing loan that was packed with excessive or unnecessary fees and provided no tangible benefit to the borrower. Other predatory loans saddled individuals with mortgages that were simply not affordable.

Predatory mortgage lending practices drained wealth from millions of American families, costing them more than $9.1 billion each year. During the past year these practices have contributed to a record number of foreclosures, with about 15-20 percent of all subprime borrowers ending up losing their homes to foreclosure. This massive loss in home ownership has set back millions of hard-working families, and caused economic hardship in communities across the country.

The foreclosure crisis was not confined to subprime borrowers. With home prices falling and incomes stagnant, millions of Americans who had previously enjoyed good credit found themselves in serious financial trouble. Complicated mortgage loans that had appeared a safe bet in a rising market were anything but safe in a declining one. With many Americans now owing more on their homes than those homes were worth, refinancing – a safety valve in the past – was no longer an option.

Before Congress adjourned for its summer recess last year, it approved legislation containing very modest provisions to deal with home ownership preservation and foreclosure prevention. The UAW and our civil rights allies supported an amendment to allow bankruptcy judges to modify subprime mortgages to provide relief to individuals and help them avoid foreclosure. But the banking industry and Senate Republicans killed this amendment.

This meltdown in the mortgage market led to staggering losses for the financial services industry, and eventually triggered a broader crisis that froze the credit markets for our entire nation. This plunged the entire country into a deep recession. The Bush administration and Federal Reserve intervened to provide bailouts to a number of major financial institutions and to Fannie Mae and Freddie Mac. Congress subsequently approved the Bush administration’s request for $700 billion to enable the Treasury Department to provide further bailouts for the financial services industry and other sectors. At the time, many members of Congress believed the Bush administration would use a substantial portion of these funds to provide direct assistance to homeowners struggling to avoid foreclosure. But the Bush Treasury Department later used the funds for other purposes.

President Obama and Democratic leaders have indicated that they intend to move forward aggressively during the coming year to provide assistance to homeowners to prevent foreclosures. The UAW believes this should include initiatives that will:

• Impose a temporary moratorium on foreclosures;

• Use part of the Treasury Department's $700 billion program to provide direct assistance to homeowners;

• Allow bankruptcy judges to modify home mortgages; and

• Combat mortgage fraud and subprime loans through tougher federal criminal penalties, as well as increased funding for federal and state law enforcement efforts.

President Obama has also proposed creating a Foreclosure Prevention Fund to help families keep their homes. This fund would:

• Dramatically increase emergency pre-foreclosure counseling resources;

• Allow families facing foreclosure to responsibly refinance their mortgages by working through the Federal Housing Administration, Fannie Mae and Freddie Mac;

• Assist individuals who purchased homes that are too expensive for their income levels to sell their homes; and

• Partner with state governments, community organizations, and loan providers to ensure fair loan modifications can be made in a timely manner that avoids the need for foreclosure or bankruptcy.

The UAW believes the legal structure governing home lending should ensure profits only to those in the industry who participate in affordable and sustainable home loans that promote homeownership and the accumulation of home equity. We will continue working with civil rights organizations and consumer advocates to support public policies that will provide meaningful protection against predatory mortgage lending practices. We need strong, specific standards for approving loans that will be affordable to borrowers for the life of the loan. These standards should apply to all lenders.

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