California Assembly Banking and Finance Chair: Bush Falls Short on Subprime Mortgage Crisis

[courtesy of California Progress Report]

By Ted Lieu
Chair
California State Assembly Banking and Finance Committee

The mortgage foreclosure crisis is a rapidly accelerating crisis that threatens to put our economy into a recession. While I welcome President George Bush’s anticipated announcement of a narrow plan to freeze the rates on certain adjustable subprime loans, I believe it falls far short of what is necessary to address the crisis.

The media has reported that the Bush plan has been whittled down by industry to a select slice of borrowers: those who are current on subprime hybrid mortgages made between Jan. 1, 2005 and July 31, 2007 which are to due to reset between January 2008 and July 2010. Furthermore, eligible borrowers would be further weeded out to those who were not more than 60 days delinquent over the past year, have less than 3% equity in their homes, and are unable to afford an upward adjustment in their interest rate. These borrowers would see their rate frozen at the introductory price for five years. Analysts expect this plan to help 12% or less of borrowers in distress.

What we need is bold action and we are not getting it from President Bush. The Wall Street Journal has reported that between 55% to 61% of homeowners who received subprime loans could have been put in prime loans. At a minimum, those borrowers should have their adjustable subprime loans restructured into fixed-rate prime loans. The industry should not continue to be unjustly enriched by profits they derived by putting people into higher interest, adjustable subprime loans when the same borrowers had actually qualified for lower interest, fixed rate loans.

California is ground zero for the mortgage foreclosure crisis. Over 2,000 California homeowners receive a foreclosure notice a week, a number set to double next year. Nationwide, 1.4 million homeowners are expected to face foreclosure next year. Unfortunately, for many of them, the Bush plan will do nothing to help. I call on President Bush to expand his proposal to, at a minimum, include freezing the rates for all homeowners currently in subprime adjustable rate loans who would have qualified for prime, fixed rate loans. It is both necessary to stem the crisis and simply the right thing to do.

Ted Lieu is the Chair of the California Assembly Banking and Finance Committee, and represents the 53rd Assembly District, which encompasses the Southern Coastal region of Los Angeles County. He returned from Washington D.C., last week where he met with the Chair of the Federal Reserve Ben Bernanke and other officials. He is taking a leadership role on California's response to the subprime mortgage mess including the drafting of legislation.