Democratic presidential front-runner Hillary Rodham Clinton on Tuesday called for penalties against mortgage brokers who engage in predatory lending and a $1 billion federal fund to help homeowners avoid foreclosure.
The New York senator has been critical of subprime mortgages, loans given to people with blemished credit histories or low incomes. Weak home prices and rising interest rates have made it increasingly difficult for borrowers to keep up with their payments; delinquencies and foreclosures are rising sharply.
"Today we have a clear choice: We can look at the statistics, wring our hands and continue to do nothing, or we can do what America has done in times of difficulty, acknowledge we have a real challenge and confront it head-on with real solutions," Clinton said. "I think we need to act now with smart, practical solutions to strengthen our housing and mortgage markets."
The New York senator's proposal includes a $1 billion federal fund to help homeowners avoid foreclosure, an end to prepayment penalties and more affordable housing options.
The nation's 10th largest mortgage lender, American Home Mortgage Investment Corp., filed for bankruptcy protection a day earlier. Two other mortgage lenders said they are not accepting new applications. Falling home prices and a spike in payment defaults have scared investors away from investments backed by home loans.
"It's a combination now, of economic conditions that are not working for the majority of Americans, and unsavory practices that are undermining the dream of home ownership," Clinton said.
The yo-yo economy
When Congress returns from its summer recess, Clinton said she will introduce legislation targeting "fly-by-night mortgage lenders" who make "really seductive offers."
If President Bush and his Republican allies fail to act, Clinton promised she would as president.
"They believe in letting everyone fend for him or herself. They believe in what the president calls an ownership society, which is really you're on-your-own. It's the yo-yo economy; some go up and some go down and the strings are pulled by other people," Clinton said, repeating a familiar theme from her campaign speech. "I don't think that's how America works best."
Clinton also proposed banning contracts that trap borrowers in "unworkable" mortgage scenarios in which nothing is budgeted for taxes and insurance.
Last year, 1.3 million homes were foreclosed. This year, there have been more than 900,000 foreclosure filings. In New Hampshire, there were 150 foreclosure filings last year; so far this year, 1,400.
In March, Clinton called on a crackdown on predatory lending practices in the subprime market. On Tuesday, she said those loans were only the start.
"I think the subprime market, that was like the canary in the mine. It was telling us loudly and clearly, there are problems here," she said.
Rival John Edwards also has proposed cracking down on predatory lenders in a market he compared in June to "the wild West."