March 22, 2007

OBSERVATIONS ON THE LENDING INDUSTRY

By Senator Mike Crapo

Recent fluctuations in the subprime mortgage lending industry, stemming, in part, from a rise in foreclosures nationwide, made news headlines over the past few weeks. (Subprime lenders have the ability to extend credit to borrowers with less than perfect credit histories.) In the midst of some mild panic, including calls for more mortgage lending legislation and oversight, benefits of a vital housing industry are sometimes obscured. As a member of the Senate Committee on Banking, Housing and Urban Affairs, the long view is important to me, and I see recent events as a golden opportunity for our nation to evaluate and improve financial processes and systems in the housing industry. A dynamic and robust market is the best way to keep our economic growth steady. One of the largest financial sectors in this country is the housing market (home building, buying and selling.) Home ownership stimulates the economy, creates wealth through equity and reinforces society values. Statistically, homeowners participate in communities at higher rates than non-homeowners and are better stewards, as a group, of their place of residence. Idaho home ownership rates have surged recently. From 1984 to 2000, homeownership grew from 68 to 70 percent. From 2000 to 2005, rates jumped to over 74 percent. Many new lending products (resulting from market competition) combined with national programs enacted in recent years, local and state efforts, expanding credit and lower interest rates have made home ownership a reality for close to 75 percent of Idahoansâ??almost six percentage points above the national average. This is good news, although somewhat shadowed by losses in the subprime mortgage sector. Ironically, this drop is an important reality checkâ??a "time out" to evaluate decision-making and improve processes. Certainly, unscrupulous players work in lending businesses, as in any business. Congress and the Administration are working to stop unethical and illegal behavior and hold perpetrators accountable. But the problem of overextension applies to more than just a few bad actors in one industry. While purchasing a home is a dream that's become reality for more Americans than ever before, it's still the single most expensive and significant financial investment most of us will ever make. We need to be responsible borrowers and do our homework before signing the final papers. The Federal Trade Commission (FTC) provides important information on mortgages, including a worksheet at: http://www.ftc.gov/bcp/conline/pubs/homes/bestmorg.htm. You can also call the FTC directly at 1-877-382-4357. If you're in a situation where you cannot make your monthly mortgage payments, help is available. In Idaho, you can contact: â?¢ Boise Neighborhood Housing Services; www.nhsid.org; 208-343-4065;â?¢ 1-888-995-HOPE (NeighborWorks America)â?¢ Idaho Department of Finance; finance.idaho.gov; 208-332-8000; toll free in Idaho, 1-888-346-3378;â?¢ Idaho Housing & Finance Association; www.ihfa.org; 208-331-4888; toll free 1-800-526-7145;â?¢ U.S. Department of Housing and Urban Development; www.hud.gov; 208-334-9005; 1-888-297-8685;â?¢ Idaho Legal Aid Services; www.idaholegalaid.org; 208-345-0106;â?¢ Idaho State Bar Association; www.state.id.us/ISB/ ; 208-334-4500;A recent study by Freddie Mac reveals that 50 percent of homeowners don't call lenders when in financial distress. The good news is that lender statistics indicate that when borrowers contact them, often solutions are available that allow them to avoid foreclosure. Homeownership is accessible to more Americans than ever before. Approached with caution and plenty of knowledge, purchasing a home can impart a sense of pride and create personal financial stability and wealth. Additionally, the home financing industry acts as a major market stimulus, driving our economy and encouraging investment. It operates best with less regulation, as long as all playersâ??borrowers, mortgage bankers, lenders and investors who own companies that purchase these mortgages practice prudence, wisdom and integrity. WORD COUNT: 600