Editorial: Florida Mortgage Foreclosure Problem Must Be Addressed. Now.
Across Florida, the American dream slips away from once-hopeful homeowners. Florida mortgage foreclosures led the nation in February, and represented the second-highest ratio of subprime loans, which often target people with poor credit or allow buyers to take on more than they can afford.
Meanwhile, a Daytona Beach News-Journal editorial notes, the industry that once serviced these high-risk and often predatory home loans is crumbling. Perhaps deservedly so, but the collapse is taking hundreds of Florida jobs with it.
As the state’s stock of unsold housing mounts, the home building industry struggles, wiping out more construction jobs. Lost jobs mean even more Sunshine State residents struggling to make Florida mortgage payments.
A mess this size wasn’t created overnight. And fiscal experts say the trouble is just beginning. Foreclosures increased 42 percent from 2005 to 2006, and conditions suggest that the default rate will continue.
Lawmakers in Congress and in states are right to be concerned.
Some lawmakers think homeowners should bear all the responsibility for the complicated and increasingly unaffordable Florida mortgage loan products they signed up for, while putting no responsibility on the market.
Others argue that state legislatures and Congress have a duty to help homeowners in distress. Recommended actions include a six-month moratorium on foreclosures or use of state housing funds (such as Florida’s Sadowski fund) to help borrowers in distress.
But turning a blind eye to the problem - or throwing money at it without more intensive long-term solutions - makes little sense. Lawmakers should work to restore sanity to the out-of-control home loan lending market.
Much attention has focused on so-called “creative financing” techniques, including wildly adjustable interest rates and balloon mortgage products that demand full payment within a few years.
Defenders of these schemes rightly point out that these types of loans are often used by real estate investors who don’t plan on holding property.
But they overlook the reality that many inexperienced home buyers were talked into risky Florida home loans with profit-making motives in mind, lacking the understanding and skill to make it pay off.
New federal guidelines restrict some of the most outrageous lending practices. But Congress still has work to do. One of the biggest problems was the willingness of the home loan industry (particularly subprime lenders) to write loans they knew borrowers couldn’t afford.
Restrictions on “declared income” or “no doc loans,” where a lender relies on the borrower’s statement of his or her assets would be a good start.
Lenders also had a bad habit of qualifying buyers based on their ability to meet the introductory demands of a mortgage, leaving them overextended when interest, property insurance and taxes ballooned costs out of reach.
Stricter limits on “churning” - or repeated Florida home loan refinancing, which generates high fee income for lenders and hidden costs for borrowers - are also needed.
Disclosure rules for home loans should be tightened and clarified. High-dollar kickbacks to mortgage brokers that steer lenders into predatory loans should be eliminated.
As more home loans fail, and more home buyers reach out for help, the pressure on federal and state lawmakers to do something will increase. Congress and federal regulators are already looking for solutions.
Florida lawmakers should not wait for a crisis before doing the same.
SOURCE: Daytona Beach News-Journal
