We’re picking up speed in the Presidential campaign and with the California primaries fast approaching I thought it would be worthwhile to take a look at how some of the candidates stack up when it comes to mortgage reform and their position on the mortgage mess.
We’ll look at all of the front-runners: Clinton, Obama, Edwards, Romney, McCain, Huckabee, Guliani and Paul. If we lose any of them before I get to them we’ll thin accordingly. I’m already looking at the list wondering what I got myself in to with this idea.
Let me just disclose nice and early on that I am a Republican who is probably going to vote for Mccain; but know that I’ll do my best to keep plain “politics” out of this analysis.
Hillary Clinton and Mortgage Reform
Clinton has made several high-profile mortgage reform speeches and has proposed a comprehensive plan to deal with abusive lending practices relating to subprime lending.
From her web site and plan to reign in abusive mortgage lending:
- Require mortgage brokers to disclose to borrowers that their compensation rises when borrowers’ mortgage rates and mortgage fees are high.
- Work with states to develop strong licensing standards and require federal registration for mortgage brokers.
- Eliminate prepayment penalties on mortgage products.
- Require mortgage lenders to include the cost of taxes and insurance in the underwriting assessment of higher-risk mortgages.
- Establish a $1 billion fund to assist state programs that help at-risk borrowers avoid foreclosure.
- Expand Fannie Mae’s and Freddie Mac’s Foreclosure Prevention Efforts.
- Establish a $1 billion fund to provide federal support to housing trust funds established by state, county, and municipal governments.
- Expanding access to independent face-to-face counseling; restricting prepayment penalties for subprime mortgages; requiring “plain-talk, no-fine-print disclosure”; promoting “foreclosure timeout” in which at-risk borrowers and lenders work out alternatives to foreclosure; and strengthening the Federal Housing Administration so that it could provide more homebuyers with an alternative to the subprime market.
An Analysis of Clinton’s Mortgage Plans
Looking at Clinton’s high-level plan for mortgage reform and reducing abusive lending standards it is clear that Clinton has focused hard in on brokers as the main source of predatory lending and abusive practices that have caused much of the pain in the U.S. housing market.
Clinton - It’s the Mortgage Brokers’ Fault
Clinton is a clear advocate of pinning the mortgage mess firmly on the back’s of mortgage brokers. Deal points in her mortgage reform plan only address additional regulation and licensing of mortgage brokers; with little reform directed at lenders.
A direct quote from her Web site reads:
Unscrupulous brokers have steered people into high cost mortgages, qualified them for loans they could not afford, and attached fees unnecessarily. These brokers are responsible for many of the lending abuses that occurred in recent years, but there is no single, national source for information about individual brokers. Hillary will establish national registration for brokers so that prospective borrowers can easily look up a broker’s employment history, violations, complaints, and other information. As President, she will also work with the states to develop strong licensing standards to ensure that mortgage brokers are qualified and properly screened.
I don’t think the lines can be drawn any clearer than that. Hillary clearly pins the problems of the housing market on mortgage brokers and will be heavy-handed in handing down new legislation to regulate and manage their existence.
An Overly Simplistic Point of View
This view of the market is overly-simplified and stinks of election-year hot-topic politicking without an in-depth examination of core issues. Hillary seems to forget some of the biggest cases of fraud and malfeasance in the mortgage arena come from the likes of Ameriquest, Countrywide and Washington Mutual. While brokers are a problem, and a national registry is a great step in the right direction; it is inappropriate to focus all of the attention on brokers as the primary source of the problems with predatory lending. Lenders are clearly culpable and deserve a closer look to ensure that their excesses are not forgiven strictly due to their size, legal teams and donation checks.
Pulling for the Big Banks
Clinton’s legislative plan would clearly be a boon to the large federal banks that would be unencumbered with the costs and requirements that are surely to be attached to the mortgage broker regulations. As smaller, under-capitalized mortgage brokers get caught up in red tape it will be business as usual for the large banks. This clearly creates an uneven playing field with a huge advantage to the large oligopoly that are the major banking interests.
What Clinton Should Push for is a Level Lending Ground and Universal Standard
Instead of pinning the blame on mortgage brokers; taking the easy fall guy and winning cheap votes, she should look to normalize the lending laws between state and federally chartered institutions. By moving the lending industry towards a level playing ground she will necessarily push the mortgage brokers towards oversight in line with the banking industry while not creating unfair advantages for federally-chartered institutions.
Making Money More Expensive By Eliminating Pre-Payment Penalties
Clinton’s goal of greatly reducing prepayment penalties is a noble one; but one that may result in higher borrowing costs as banks look to replace lost revenue with a larger interest rate spread across all loan products. I believe that access to private money should not be overly regulated with the terms of the agreements signed by two private parties (as in a subprime mortgage) as to the options that borrowers have to choose a lower monthly payment. Without pre-payment penalties borrowers are often looking at interest rates 75 basis points (.75%) higher in interest rate. This definitely causes a material impact on the cost of borrowing.
While I do agree that FHA should be modernized and expanded to accommodate more borrowers looking for loans with better terms; those that are unable to qualify under conforming or government assistance should have access to funds where costs are mitigated by choosing features such as a prepayment penalty to make out-of-the-box financing more affordable.
A Reversal in Belief?
In 2001 then Senator Clinton voted with President Bush to reform personal bankruptcy law to make it harder for individuals to qualify for Chapter 7 bankruptcy - putting the burden of debt back on to the borrower. Barack Obama has criticized Clinton for the vote pointing to that vote as a vote in favor of large banks and credit card companies over the American public.
From the Wall Street Journal:
The Bankruptcy Reform Act of 2001 that Sen. Clinton voted for eventually died in Congress, but a similar measure became law in 2005. Sen. Clinton has said she would have opposed the 2005 bill, but she missed the vote because she was with her husband during surgery.
The 2001 bill “had some things I agreed with and other things I didn’t agree with, and I was happy that it never became law,” Sen. Clinton said at a Jan. 15 debate in Las Vegas.
The 2005 law made it more difficult for people to qualify for Chapter 7 bankruptcy, which lets individuals pay creditors a portion of the debt they owe. Instead, the new law directed more people toward Chapter 13 bankruptcy, which requires repayment plans.
“Reform is needed,” Sen. Clinton said in 2001, according to a news release still on her Senate office’s Web site. “The right kind of reform is necessary. We’re on our way toward that goal, and I hope we can achieve final passage of a good bankruptcy reform bill this year.”
The credit-card and banking industries spent millions of dollars lobbying for the law, arguing it was necessary to prevent people from abusing the bankruptcy system and unfairly escaping debt. But liberal and consumer groups countered that the law traps consumers struggling with their finances.
Both the 2001 and 2005 bills “were bad ideas because they were pushed by the credit-card companies, they were pushed by the mortgage companies and they put the interests of those banks and financial institutions ahead of the interests of the American people,” Sen. Obama said at the Las Vegas debate. “And this is typical.”
Siding with Big Banks?
One has to wonder with Clinton’s backing of the 2001 Bankruptcy reform bill and the blatant bias against mortgage brokers in her mortgage reform plan how deep in the pocket she is with big banks? Will she continue to ignore the role of big banks in our current mortgage crisis and put in bank-friendly legislation like she attempted to do with the 2001 vote?
Mortgage Brokers Be Afraid
If you are a mortgage broker planning on voting for Hillary Clinton it is definitely worth a look at her policy stance on your profession. While I’m sure she’d gladly take your vote and your money she isn’t looking to make your life any easier in the coming years.
What do you think?
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