Letter in Support of 2007 Mortgage Bill

Recipient: Reps. Conyers and Smith

The Honorable John Conyers, Jr., Chairman
The Honorable Lamar Smith, Ranking Member Committee on the Judiciary
United States House of Representatives
Washington, DC 20515

Dear Chairman Conyers and Ranking Member Smith:

On behalf of the Leadership Conference on Civil Rights (LCCR), the nation’s oldest, largest, and most diverse coalition of civil and human rights organizations, we write to express our strong support for the Amendment in the Nature of a Substitute to H.R. 3609, the “Emergency Home Ownership and Mortgage Equity Protection Act of 2007.” We greatly appreciate the efforts of Chairman Conyers (D-MI) and Rep. Steve Chabot (ROH) in crafting a strong, sensible compromise that will spare hundreds of thousands of homes from the growing foreclosure epidemic that our nation is now facing.

As you know, during the nationwide housing market “boom” that took place in the first half of this decade, many mortgage lenders resorted to the widespread use of reckless and predatory lending practices. These practices included so-called “exploding ARM,” “interest-only,” and “pay-option” mortgages, little or no verification of borrowers’ incomes, and prepayment penalties. While the judicious use of subprime and nontraditional loans can serve important purposes, prudent loan underwriting standards were largely abandoned in recent years, virtually guaranteeing that many borrowers would become unable to handle their monthly payments and increasing the likelihood of default.

The consequences of these practices are still unfolding, but one thing is clear: they will be staggering. Home foreclosure rates are rapidly increasing in many areas of the nation and, according to one estimate, as many as 2.4 million borrowers – just in the subprime market alone – are likely to lose their homes. This wave of foreclosures will have an especially harsh impact on racial and ethnic minority homeowners who, according to several studies, were roughly two to three times more likely to be steered into high-cost loans than white borrowers, with strong disparities persisting even after credit factors were taken into account.

H.R. 3609, as modified by the Conyers-Chabot substitute, will give hundreds of thousands of borrowers who are in danger of foreclosure a chance to save their homes through the use of Chapter 13 bankruptcy proceedings. If enacted, bankruptcy judges will be able to reduce the principal owed on a subprime or non-traditional mortgage to reflect the actual value of the home, reset interest rates to affordable-but-fair levels, and eliminate prepayment penalties and other abusive fees. Taking a pragmatic approach, H.R. 3609’s provisions will only apply to loans made between Jan. 1, 2000 and the date of enactment, and it will sunset after seven years – but this is still enough time for the bill to have a major and positive impact on the foreclosure crisis.

For several reasons, we believe that using bankruptcy proceedings to avert foreclosures is one of the best and most important policy responses to the ongoing home mortgage meltdown. One key advantage is its cost. Because the public as a whole will not have to pay to save homes, it will not give the appearance of a “bailout” or raise moral hazard issues. Indeed, for people who want to utilize bankruptcy laws to save their homes from foreclosure, it will still come at a heavy enough cost – monetary and otherwise – to encourage wiser financial decisions in the future.

At the same time, H.R. 3609 will benefit the entire public and our economy at large. Every home that gets saved from foreclosure will help protect the value of the homes surrounding it, meaning that other homeowners will be less likely to get “upside down” on their own mortgages. In other words, it will help control the “bleeding,” protecting neighborhoods and communities from even more financial harm than they might otherwise experience – and hopefully for long enough to allow the housing market to recover on its own.

Without a doubt, we believe the mortgage lending industry – the industry most responsible for providing billions of dollars in unsustainable loans in the first place – should be far more aggressive in its own efforts to modify loans that were, in many cases, destined to fail. Yet to date, the simple fact is that mortgage holders and servicers have, for the most part, done little so far to mitigate the foreclosure crisis. Only a very small fraction of loans with “payment shock” features have been voluntarily modified. While the “teaser-rate freeze” plan announced last week by Treasury Secretary Henry Paulson is undoubtedly a positive step, it will only help a small percentage of borrowers who are likely to find themselves in trouble in the coming years – and in that small number of cases, it only buys time. Homeowners, and our economy as a whole, simply cannot afford to wait.

For these reasons, we strongly urge you to support H.R. 3609 and the Conyers-Chabot amendment. Thank you for your consideration. If you have any questions, please feel free to contact Rob Randhava, LCCR Counsel, at 202-466-6058.

Sincerely,

Wade Henderson
President & CEO

Nancy Zirkin
Vice President/Director of Public Policy