Introduction to the Financial Crisis

We all have a stake in the outcome of the current mortgage lending crisis – whether you are a borrower, civic leader, banker, investor, pension fund trustee, mortgage counselor, homeowner, you have a very real economic stake in today’s events.   The dimensions of the subprime credit crisis are still being defined – hundreds of billions of dollars of residential mortgages may be in trouble in 2008…literally millions of homes may be foreclosed…the very essence of the American Dream – homeownership! – is being threatened.  The daily headlines scream out to us:  “Mortgage Meltdown – Pain Goes Through the Roof” (Los Angeles Times). 

Look at the fallout so far: on America’s Main Streets, with risky subprime lending practices now decimating some neighborhoods; housing values are falling precipitously across the country; home foreclosures are mounting; millions of consumers-borrowers may be in trouble before this very real crisis ends.  In the Capital Markets, on Wall Street, investment bankers and commercial bankers are reeling from the far-reaching effects of mortgage lending crisis, with CEOs being fired at some investment organizations and oceans of red ink splash across the balance sheets of a growing number of banks and financial institutions. In State Capitals, pension fund investment losses resulting from risky investments in subprime collateralized packages may soon impose serious affects on public employee pension funds, and the credit crisis is beginning to reduce tax revenues for government agencies. In Washington on Capitol Hill, debate goes on but so far, little concrete action is taken.  Advocates for consumers are searching for ways to help borrowers in trouble – and to stop and reverse the crisis at both the hometown and national levels.

These are just some of the ramifications of subprime lending that are now affecting all areas of the US economy. Who will ride to the rescue?  Who will provide solutions? The good news is that a number of solutions are being proposed – and more are coming.  We all have a stake in the outcomes of the subprime mortgage lending / credit crisis.  In the CIN you will find news, commentary and opinion, research, and details of mortgage rescue ./ consumer rescue programs and proposals offered by the National Community Reinvestment Coalition (see NCRC’s “Help Now!” recommendations, including establishing a “Homeowner Emergency Loan Program”); the Federal Reserve Bank of Boston and regional banks mortgage rescue efforts (“The New England Mortgage Rescue Fund”), the Bush Administration’s proposed “Hope Now Alliance”) initiative that involves banks, loan servicers and investors…and more helpful information.

What are “Subprime Mortgage Loans?” - Here’s a Definition: “Sub-prime” mortgage loans are typically offered at higher interest rates to homebuyers (borrowers) who do not qualify for prime loans, perhaps because of their credit histories or other issues. However, not all offers of loans by lenders at higher than “prime” rates are suitable or appropriate for the borrower – an individual or family borrowing to buy a home or to refinance a home. Low-to-moderate income families (“LMI” category) and members of minority populations may find a “non-prime” loan offered even when they have excellent credit histories and would qualify for a “prime” loan (at a more favorable interest rate and with other more favorable terms).

• Lender charges more in interest and fees than is required to cover any “added risk” of lending to borrowers with credit imperfections or past credit problems;
• Contains abusive terms and conditions that trap borrowers and lead to a spiral of increased indebtedness (in effect, “stripping” assets and wealth from the borrower;
• Does not take into account the borrower’s ability to repay the loan, and/or history of paying bills on time, especially rent payments; and
• Often violates fair lending laws by targeting women, minorities and communities of color with predatory practices.

The main targets of predatory mortgage lenders are families and individuals with less than perfect credit histories. These persons may have limited incomes, but do have equity (value) in their homes and historically have been the elderly, minorities and women. 

Current Subprime Crisis:

What is causing the subprime loan crisis you are reading and hearing about? Changing interest rates on renewable loans (loans made recently and are now having rates moving to a higher level, which increases monthly payments), a dramatic drop in home sales, reductions in home values, and related economic issues – individually and collectively have led to a crisis for many families that have subprime loans, especially those that are clearly predatory.  The number of home foreclosures has increased in the past several months -- with the vast majority being financed with subprime loans.

Families are in jeopardy of losing their homes unless some action is taken by lenders, the mortgage industry and the Federal government to assist them. This Special Section focuses on news, proposals, plans, programs, efforts of advocacy groups (including NCRC and its member organizations), elected officials at the federal, state and municipal level, regulatory agencies, and the mortgage industry to address this spreading problem.

Over the years NCRC, the National Community Reinvestment Coalition, has been at the forefront of urging subprime lending regulations and reforms to try to prevent just this situation from occurring.  These efforts are highlighted here.

House of Cards - The U.S. Mortgage Meltdown - CBS 60 Minutes Segment