the Community Reinvestment Act, strong-armed banks into lending to credit-lacking customers.
But the subprime mortgage financial crisis is far more egregious and complex than unprepared homeowners failing to read the fine print on their loans. To date, it has mushroomed into an unprecedented global problem, impacting nearly every sector of the American economy and claiming casualties from Fortune 500 executives to the next door neighbor. Lisa Rice, vice president of the National Fair Housing Alliance explains, “The lack of federally regulated mortgage lenders and savings and loan and depository institutions, coupled with the advent of Wall Street playing a larger role with mortgage backed securities, opened opportunities for unregulated lenders to operate an untested, unregulated scheme.” Therefore, subprime lenders, most of whom were federally unregulated, have been aggressively marketing patently unaffordable subprime loans in recent years, mostly because Wall Street buyers were willing and eager to invest in these higher-interest loans for larger payoffs. At the same time, rating agencies gave subprime securities AAA ratings and federal regulators turned a blind eye to this rapidly growing–and ultimately combustible–market.
With interest rates on an estimated $600 billion in subprime loans due to adjust upward in 2008, the impact will be far-reaching and devastating to black communities. Increasing numbers of families across the country face foreclosure, auction, and eviction. The spillover effect includes the creation of blighted neighborhoods due to abandoned or foreclosed homes, massive devaluation of property, loss of home equity, and an increase in renting. Stricter loan and refinancing policies will mean that prospective buyers and existing homeowners will feel the pinch, too. “Some states have longer gestation periods for foreclosures because their legal system has a backlog. This means that home losses occur faster in some areas than in others,” says Rice. She advises homeowners affected by the crisis to call 888-995-HOPE for the Hope Now Alliance, a collaborative effort between various mortgage market participants, from counselors to investors to loan service professionals, to assist subprime borrowers with mortgage finance counseling.
The Federal Housing Administration (FHA) recently created the FHASecure plan and new lending policies to help up to 240,000 people with subprime home loans avoid foreclosure. Those whose loans are now in default will be eligible to refinance providing they have good credit histories otherwise, and had been making timely mortgage payments before the interest rates on their adjustable rate loans increased. For more information about FHASecure and other FHA products, call 800-CALL-FHA or visit www.fha.gov or www.hud.gov. For a list of local homeownership centers or an HUD-approved housing counseling center, go to www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm.
Rev. Jesse Jackson’s Rainbow/PUSH Coalition has organized a number of protests in New York City, in conjunction with community organizations to galvanize public opinion and encourage a moratorium on foreclosures. Rev. Jackson says, “There is no recourse for homeowners unless there is a plan for the massive restructuring of loans to 30-year loans at a fixed rate. Without federal intervention, the long-term economic repercussions will reverberate across the entire country.”