Start with education to avoid home loss

Source: The Detroit Free Press
By: Hansen Clarke
Published: August 12, 2007

We can no longer tolerate a lending environment that puts profits over the well-being of borrowers. For years, this was the easy thing to do, as low interest rates, loose underwriting standards, and a booming housing market enabled lenders to sell mortgages to just about anyone who wanted one -- regardless of their actual financial situations.

Many lenders were much more interested in making a quick buck than finding out if their customers were actually going to be able to handle future payments. Not all of them were predatory lenders, but quite a few of them were overzealous, to say the least.

Now that we're seeing the consequences of such a carefree lending environment, we must commit ourselves to fighting predatory lending and tightening things up for legitimate lenders.

This would obviously start with education programs for potential borrowers. Education should become a mandatory part of the mortgage process, from the first time a future home owner walks through the door right up to the moment that he or she signs the papers.

Even after that, having counseling services available for when times get tough could do wonders for most families. Instead of thinking that they don't have options, they could see that there are many ways to hang on to their homes. One missed payment does not automatically have to lead to mortgage foreclosure a few months down the road.

We can certainly change things for the better without having a negative impact on business. I know this, because perhaps the biggest lender of them all, Freddie Mac, has already embarked on major initiatives that will both mitigate the effects of this crisis and prevent a recurrence.

At the very outset, Freddie Mac voluntarily stepped forward to tighten its underwriting standards and strengthen its award-winning education programs on smart borrowing and predatory lending. Then, just a few weeks ago, Freddie Mac announced $20 billion in new products that will provide lenders with more choices for subprime borrowers. These fixed-rate and hybrid adjustable-rate products will limit payment shock by offering reduced adjustable rate margins, longer fixed-rate terms, and longer reset periods.

Freddie Mac has definitely set the pace -- which makes it all the more disappointing that so many other institutions have failed to step up and make similar changes. We are going to need all hands on deck if we're going to truly change things for the better, and that includes lenders of all sizes, in every community.

It's not just in the borrowers' interest to hold on to a home. And it's not just in lenders' interest, either. It's important for all of us, as Detroiters, as Michiganians, and as Americans. We can't afford to do nothing. We can't afford to let this happen on our watch.

We're all in this together, and we'll all be better off if we fix these problems and preserve affordable housing for the next generation of home owners.

State Sen. HANSEN CLARKE, D-Detroit, represents Michigan's 1st Senate District.Write to him in care of the Free Press Editorial Page, 600 W. Fort St., Detroit 48226 or oped@freepress.com.