Bank groups back mortgage reformAssociated Press
Published May 22, 2007
WASHINGTON - Banking industry trade groups Monday endorsed mortgage reform principles as the troubled market for high-risk home loans worsens and Congress ponders whether to intervene.
The statement from five industry groups says lenders are already stepping up efforts to assist borrowers who face default or foreclosure and emphasizes that lenders are voluntarily tightening loan standards.
Any legislation or new regulations should focus on lenders only being permitted to issue high-risk, home loans - if they "reasonably believe" at the time the loan is made that borrowers have the ability to repay, the statement said.
Mortgage terms should be "clearly disclosed" to consumers, and estimates of monthly payments that could quickly jump in later years should be made clearer, the groups said.
The statement came from Financial Services Roundtable, American Bankers Association, Mortgage Bankers Association, Consumer Bankers Association and America's Community Bankers.
The industry's efforts come amid increasing evidence of financial distress for home owners with weak, or subprime, credit histories. RealtyTrac Inc., an industry research firm, said last week mortgage lenders foreclosed on 62 percent more U.S. homes in April than a year ago.
Home prices are also still falling. The national median existing single-family home price in the first quarter was $212, 300, down 1.8 percent from a year ago when the median price was $216, 100, according to the National Association of Realtors. The median is a typical market price where half the homes sold for more and half the homes sold for less.
The trade groups' statement is a step in the right direction and a bid to rein in the momentum in Washington for new regulations or laws, says Eva Weber, a research analyst with Aite Group, a Boston-based financial services research firm. Yet the statement likely doesn't go far enough, she adds.
"I think we're going to see something from the federal government, " Weber said. "It's too big of an issue for them to not react."
It's far from clear though how soon Congress might act.