John Edwards Campaign

THE CAD WHO PRODUCED THE BEST HOUSING PROGRAM OF THE CAMPAIGN

If you fairly despise John Edwards because the way he treated his wife, you may not want to read this. On the other hand, history and politics are seldom neat and while Edwards was the worst cad of the campaign, he also had some ideas last year we should have listened to. What is disturbing is that, not even when faced with the current reality, neither party nor the administration nor the financial wizards can produce an approach anywhere near as wise.

John Edwards Campaign - Home equity is the bedrock of economic security and the primary source of most families' wealth. But in recent years, dangerous mortgages with exploding interest rates and hidden fees - combined with the housing slump - have meant quick profits for lenders and brokers but put millions of families at risk of losing their homes. Foreclosure filings have nearly doubled over the past year. Interest rates are set to rise sharply on about 2.5 million loans over the next 18 months, causing many families' monthly payments to increase by 30 percent or more. Many families could avoid foreclosure if their mortgages were modified - letting them keep their homes while also making lenders and communities better off - but only about 1 percent of borrowers facing an interest rate increase have gotten changes.

On behalf of President Bush, Treasury Secretary Henry Paulson is encouraging industry leaders to voluntarily freeze interest rates on adjustable-rate mortgages. His plan is an important step but would leave out millions of families. John Edwards called for stronger action to lead us out of the foreclosure crisis and help families keep their homes, without bailing out irresponsible investors and speculators. He will:

- Insist that any freeze on interest rates - like the Bush-Paulson plan - keep rates low for seven years so housing markets can fully recover and families have the time to escape unaffordable mortgages.

- Assure that families can halt foreclosures until their lenders offer help. Every family facing foreclosure will have a right to individual assistance from their lender - such as converting to a fixed-rate mortgage, capitalizing delinquent payments, reducing the interest rate, or forgiving a portion of the loan - so they can keep their home if they can.

- Take other important steps to address the foreclosure crisis, including creating (1) a Home Rescue Fund to help families move into affordable mortgages, (2) new rules allowing bankruptcy judges to rewrite mortgages on family homes, and (3) a central reporting system to keep track of lenders' progress in modifying loans and to facilitate fraud and predatory lending investigations.

- Prevent future crises by passing a strong national law against predatory lending and creating a new federal regulator for financial services products.

Only 1 percent of borrowers whose rates reset this summer have been offered new terms that would let them keep their home. Edwards will require loan servicers to negotiate in good faith with every borrower facing foreclosure by reviewing the homeowner's financial situation and offering an alternative repayment plan, forbearance, or loan modification. Banking regulators led by the Federal Deposit Insurance Corporation will set interagency guidelines for these workouts based on the principles of lender safety and soundness as well as accountability for lenders' role in issuing millions of unaffordable mortgages. Edwards will also consider creating new legal protection for lenders making loan modifications. The new foreclosure prevention requirement will be effective for the duration of the current crisis. Families will have the right to stop a foreclosure if their lender has not taken these steps. To hold companies accountable, Edwards will require companies to provide monthly updates of the volume of loan modifications, settlements and refinances.

Timely intervention can often save homes at modest cost by paying several months' payments, offering bridge loans, or helping families work out an affordable repayment plan. Edwards will create a Home Rescue Fund to expand existing efforts by non-profits local, governments, and community financial institutions. Foreclosures can cascade through neighborhoods as property values fall and owners are unable to refinance or sell. Edwards will support efforts to rehabilitate and quickly rent or sell foreclosed homes to stabilize neighborhoods.

Bankruptcy is a much-needed safety net for families financially destroyed by abusive debt. But while bankruptcy filers can modify loans on their investment properties, vacation homes and boats, they cannot modify their mortgage on their family home. Edwards will let bankruptcy judges rewrite mortgages for primary residences, writing off excessive debt that exceeds the value of the home and setting fair repayment terms for the remaining debt. Lenders would still have mortgage notes for 100 percent of the house's value. The relief would be available only at a judge's discretion and only once for each homeowner. These changes will help as many as 600,000 families keep their homes through the current crisis, without disrupting the flow of credit. Closing the mortgage lender loophole will also help families who do not go bankrupt, by increasing their leverage in their negotiations with lenders over fair repayment terms.

While subprime loans are valuable to homeowners with poor credit, an unknown but significant percentage of subprime loans have predatory terms or were originated deceptively. Families should not lose their homes because their lender violated the law. Edwards will require lenders and servicers to report their entire inventory of loans to the government, clarifying ownership and facilitating federal, state and private investigations into fraud and predatory lending. State attorneys general and regulators undertaking similar investigations have yielded multi-million dollar settlements from lenders and servicers such as AmeriQuest, Citigroup, and Fairbanks Capital in recent years.

Edwards called for a Federal Task Force on Foreclosure Rescue Fraud to coordinate the efforts of state attorneys general, the F.B.I. and the U.S. Attorney's office to coordinate efforts. He also proposes a national hotline for tips on foreclosure prevention scams and will require all lenders to include warnings about foreclosure prevention scams in all borrower correspondence.

- Ban prepayment penalties: Prepayment penalties are common on predatory loans because they trap families into unaffordable mortgages, making it impossible to refinance with another lender on fair terms. They are associated with a 52 percent higher foreclosure rates

- Ban broker kickbacks: "Yield-spread premiums" reward mortgage brokers for steering borrowers into higher-cost mortgages. Edwards will ban these kickbacks and require brokers to put borrowers' interests first. He will also work with states to establish uniform broker licensing standards and a national database for disciplinary infractions.

- Fight appraisal and servicing fraud: Abuses have appeared at nearly every point in the mortgage process, from the appraisal that sets the loan value to the servicing that collects the payments. Up to half of all real estate appraisers have reported pressure to overstate property values, causing families to owe more than their homes are actually worth. Servicing fraud includes failing to apply payments, treating current accounts as defaulting or assessing unjustifiable fees or forced insurance. Edwards will establish new rules and enforcement powers to combat these frauds.

- Ban other abuses: Edwards will also ban other practices characteristic of abusive loans, such as loan flipping, mandatory arbitration clauses, balloon loans, and other excessive fees. The ban will create a duty of fair dealing for all loan originators, including non-bank finance companies, and strengthen underwriting standards to ensure that borrowers receive affordable loans suited to their means.

Because financial products continue to evolve rapidly, banning the worst practices alone is not enough. Vigorous continuing regulation is needed. Federal bank regulators have focused instead on bank soundness and profitability while non-bank finance companies virtually escape regulation. Edwards will put a new agency on the side of families. The Family Savings and Credit Commission will be a tough new regulator, reviewing all financial services products marketed to families, including abusive mortgages, to ensure that terms are reasonable and fairly disclosed and overseeing all types of financial institutions, whether chartered under federal or state law.