The price of democracy: U.S. House passes ‘better than nothing’ compromise mortgage reform bill

Marc H. Morial

Just recently, the U.S. House of Representatives seemed to be riding to the rescue of U.S. homeowners with its Mortgage Reform and Anti-Predatory Lending Act of 2007, which passed by a commanding margin.

Back in March, the National Urban League addressed the unfolding subprime lending debacle through our Homebuyer’s Bill of Rights, well before the issue started to trigger shockwaves in international credit markets and to send hedge fund analysts to the unemployment line. At that time, policy makers and government officials were reluctant to support greater regulation, choosing instead to give the market a chance to correct itself.

Guess what? It didn’t happen.

By passing the mortgage reform bill, the House didn’t quite send struggling homeowners their knight in shining armor, but some kind of help is better than nothing at all, I guess. Such is life on Capitol Hill, where slim party margins — especially in the Senate — make for glacial progress in the legislative process.

But what about the hundreds of thousands of households who have and will be foreclosed upon? According to the foreclosure information service RealtyTrac, foreclosure filings in the third quarter of 2007 increased by 100 percent over the same period in 2006, and were up 33 percent over this year’s second quarter.

By the end of September, nearly half a million properties — or one out of every 196 households — had entered some stage of foreclosure nationwide. Just a few years ago, black homeownership hit historic levels of nearly 50 percent, but that share has fallen steadily since. The decrease obviously has something to do with the surge in subprime foreclosures over the past few years.

The Center for Responsible Lending estimates that one out of five subprime loans taken out in the past few years will go into foreclosure. In 2006, the center estimated that blacks were 31 percent more likely to hold subprime loans than whites with similar credit histories and that they were four times more likely to get higher interest rates. A recent study by New York University’s Furman Center for Real Estate and Urban Policy found that African Americans were four times as likely as whites to hold subprime mortgage loans in the New York City metropolitan area.

In our Homebuyer’s Bill of Rights, under The Right to Be Free from Predatory Lending, we threw our support behind H.R. 1182, the “Prohibit Predatory Lending Act,” sponsored by House Financial Services Committee Chairman Barney Frank of Massachusetts. It served as a basis for the legislation that passed the House earlier this month — until last minute lobbying by the mortgage industry knocked some of that bill’s teeth out.

One provision added to quell industry concerns would prevent borrowers from suing Wall Street firms in state courts, where protections against abuse lending practices are often stronger. It represented a concession by Frank to win the support of the panel’s ranking Republican, Spencer Bachus of Alabama. The legislation still fails to please many — including us at the National Urban League — but managed to garner enough votes to pass the House by a strong margin and, for now, elude a White House veto threat.

“The lack of Wall Street accountability is particularly troublesome,” said John Taylor, president and CEO of the National Community Reinvestment Coalition, a group of more than 600 community-based organizations in favor of creating and sustaining affordable housing, job development and vibrant communities for working families. “While Wall Street has piled up billions of dollars in earnings and bonuses on defective or negligent mortgage products, the taxpayers are increasingly paying for their mistakes. Homeowners across the country have lost billions of dollars in home equity due to falling house prices.”

At the other end of the spectrum, the Mortgage Bankers Association predicted that the legislation would result in fewer home loans being issued nationwide.

“Have no doubt, this bill will limit credit availability and options for thousands of Americans who want to grab their share of the American dream of homeownership,” said MBA Chairman Kieran P. Quinn. “It will eliminate tools that millions of Americans have used to become successful long-term homeowners.”

Far too many Americans of color have watched their dreams of homeownership turn into their worst nightmares. At this stage in the game, however, even a watered-down effort like the bill that passed the House is better than nothing at all. Still, it shows that to some extent our nation’s leaders aren’t terribly concerned about hardworking Americans’ desire to capture their own sliver of the American pie.

It also underscores the need for current and prospective U.S. homebuyers to exercise their own brand of consumer protection. They cannot rely completely on the government and should remember to go to great lengths to educate themselves about mortgage loan products before they sign the dotted line.

Marc H. Morial is the president and CEO of the National Urban League.