At noon today Senator Hillary Clinton addressed the Congressional luncheon of the National Community Reinvestment Coalition (NCRC). Her address focused on housing issues and the need for a renewed social contract surrounding mortgage lending. Much of the press coverage about the subprime lending issue in recent days has been framed improperly with the focus being on risky borrowers rather than properly being framed as a problem of risky loans.
Senator Clinton asked for a rejuvenated FHA with enough resources and more focus on its mission as the lender for people with blemished credit. Over the last decade the percentage of the home mortgage loans that were originated through FHA in the US has declined from 12% of all mortgage loans to 3% of all loans. The risk-taking sub prime lenders moved into this market with a vengeance and pulled a lot of Americans, some with poor credit and many with good credit, into loans that were not sustainable. The fact that they were able to do so unhindered for the last number of years is a testament to massive regulatory failure by those agencies like the Federal Reserve which are charged with protecting the public from unfair and deceptive practices.
Senator Clinton called for outlawing prepayment penalties on mortgage loans. Currently 70% of all subprime loans carry prepayment penalties ( for those who try to get out of them) while less than 10% of prime loans have prepayment penalties. She called for more resources and attention to independent home buyer counselling. She urged the creation of incentives for workout solutions that do not reward the risky lenders but which will protect neighborhoods and the overall economy from the coming mortgage tsunami. She also urged more funding for consumer rescue funds that help consumers who were eligible for a good loan before they got trapped into a bad loan, to be made whole and offered the opportunity to have a good loan again in spite of the damage that the bad loan did to their credit score.