Clinton: Industry ‘clearly broken’
Exotic-sounding mortgages that hardly anyone even heard of a few years ago might seem an unlikely topic for the national political debate.
But that was before rising defaults threatened the housing market and, perhaps, the broader economy.
“We’ve got to take action,” Sen. Hillary Rodham Clinton (D-N.Y.) told an audience of community activists Thursday.
Rising defaults in so-called sub-prime loans for people with shaky credit -- many of them 2/28 loans (fixed for two years, adjustable for the final 28 years) with low introductory teaser rates -- have triggered debate over how far the damage will extend to the broader economy.
But it is already obvious that the threat of foreclosures has rich ingredients for political theater. Many borrowers claim that they were not told the real costs they were taking on. Further, such disputes crystallize a difference between laissez faire Republicans and Democrats who are more sympathetic to government regulation.
Clinton, who is seeking the Democratic presidential nomination, told an audience of community activists that the Bush White House had averted its eyes to the growing problem and declared: “The economy is not supporting homeownership the way we need it to.”
Nor was Clinton the only presidential candidate to weigh in on the mortgage problems. In a statement late Thursday, Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, declared that the crisis “strikes at the very heart of the American dream itself” and said he would soon haul officials from the government and industry before his panel.
“The sub-prime crisis is of grave concern to millions of Americans,” Dodd said. “It has immediate and long-term implications for families, the housing industry and America’s overall economy.”
The remarks came on a day that pressure grew on government officials to step into the troubled marketplace and help out the growing number of borrowers who no longer can afford loans that have rocketed in cost as their introductory periods have ended.
Social activists Thursday urged the government to refinance troubled, high-cost mortgages and warned that as many as 3 million Americans could be forced out of their homes in a “torrent of defaults and foreclosures” in the coming months.
“As this crisis worsens, mortgage tsunamis will ravage working-class neighborhoods across the country,” warned John Taylor, president of the National Community Reinvestment Coalition. “Sheriffs will be knocking on people’s doors only to find keys and furniture left behind.”
Taylor called for legislation to create a national rescue fund to support beleaguered borrowers and stricter standards to eliminate predatory lending.
Allowing borrowers to refinance under easier terms “is the most sensible way for Congress and the administration to deal with this problem,” said Taylor, whose nonprofit alliance of 640 organizations advocates investment in low-income neighborhoods.
Law enforcement authorities, meanwhile, said Thursday that they were targeting improper lending practices.
California Atty. Gen. Jerry Brown has an “open investigation” into the sub-prime mortgage industry and its practices, spokesman Nathan Barankin said. The probe was opened years ago under former Atty. Gen. Bill Lockyer and led to actions against companies, he said, including Ameriquest Mortgage Co. and the parent company of Household Finance, now part of HSBC North America.
That investigation remains open and “there are specific players in the market we are interested in,” said Barankin, who declined to detail those specifics.
New York Atty. Gen. Andrew Cuomo also told reporters Thursday that he was looking into the sub-prime lending market, though he did not elaborate.
Inside the Washington Beltway, the problem of failing mortgages increasingly is playing out in the political spotlight -- and the Bush administration is being forced to play defense.
“We’re doing everything in our power, in our moral persuasion, to try to keep mortgage foreclosures from occurring,” Alphonso Jackson, secretary of the Housing and Urban Development Department, said at a House hearing this week. “We don’t have the power to dictate to them what they should do.”
But Democrats are increasingly taking the view that the administration needs to do more -- and soon.
Said Dodd: “I intend to use all the powers and tools at my disposal as chairman to find solutions that will keep families in their homes, ensure that America’s dream of homeownership remains alive and protect America’s economy.”
Clinton on Thursday said she wanted to establish new incentives for lenders to help troubled borrowers through their problems, such as establishing a “timeout” to find a way to prevent foreclosure. “This market is clearly broken, and if we don’t fix it, it could threaten our entire housing market, which in turn would threaten our entire economy,” Clinton said.
Times staff writer Marc Lifsher in Sacramento contributed to this report.