Mortgage Help Is Way Too Narrow
12/10/2007
Source: Maureen Downey, Atlanta Journal-Constitution Online

The industry-inspired plan to aid subprime borrowers announced last week by President Bush does too little for too few. The proposal to freeze mortgage rates at the low "teaser" rate applies to borrowers who are current on their payments, have low credit scores and less than 3 percent equity in their homes.

A stronger federal response is needed to avert the looming crisis that threatens not only individual homeowners, but entire neighborhoods.

Only an estimated 12 percent of subprime borrowers would benefit from the proposed five-year freeze on interest rates. "It's as if President Bush discovered a house burning and turned over a water pistol to the arsonist to put out the fire," said attorney Ira Rheingold, executive director of the National Association of Consumer Advocates.

At the very least, Bush could have adopted the more sweeping proposal of Sheila C. Bair, the chairman of the Federal Deposit Insurance Corporation, to convert adjustable-rate mortgages en masse to standard fixed-rates.

Nationwide, foreclosures more than doubled in the past year, and Georgia has one of the country's highest foreclosure rates. Foreclosed houses bring down the value of surrounding homes and breed crime. Without intervention by the government, the subprime collapse will reverberate in many aspects of the American economy, from carpet mills to appliance manufacturers.

Bush has yet to outline any plans to avoid a replay of this financial disaster. He has not talked about the need to rein in mortgage brokers offering no-money-down, no-doc, no-job loans that at-risk borrowers had little hope of ever repaying. Brokers didn't care because the loans were bundled and sold to Wall Street.

Consider what the government would do if, out of 100,000 new cars, 20,000 ran off the road. Would the government write the accidents off as driver error or would it look for a design flaw that contributed to the problem?

The mortgage industry has designed products that are fundamentally flawed and a government recall is needed.