October 29, 2007
LANSING - Governor Jennifer M. Granholm, along with the governors of Ohio, New York, New Jersey, and Massachusetts today urged Federal Reserve Board Chairman Ben Bernanke to prohibit predatory lending practices that have contributed to the nationwide mortgage crisis.
In a letter to Chairman Bernanke, the governors wrote that in order to truly address this national crisis, a comprehensive approach is needed.
"While states have historically been at the forefront in providing strong consumer protections to guard against unfair and deceptive lending practices, we urge you to promulgate tougher regulations on the subprime market," the governors wrote. "However, the scale of this problem and the rise in delinquencies and foreclosure rates across the country warrants stronger action at the federal level to establish a minimum federal standard."
Due to the importance of this issue and its effect on vulnerable homeowners in their states, the governors are urging tougher regulations to curb abusive subprime lending practices, including requiring:
- an evaluation of a borrower's ability to repay the loan at the fully-indexed rate, with appropriate consideration of available income and/or assets;
- the establishment of reasonable debt-to-income and debt-to-assets standards for gauging mortgage costs against a borrower's other financial obligations;
- the establishment of an escrow account for taxes and insurance; and
- the prohibition of pre-payment penalties by all lending institutions making subprime loans.
Earlier this month, Granholm and state Democratic legislators announced new steps to address the rise of foreclosures in Michigan as a result of the subprime mortgage crisis.
"Both the state and federal governments must take action to help families keep their homes," said Governor Granholm. "We have begun to take action here in Michigan through our 'Save the Dream' initiative, but we need strong and swift federal action to ensure this situation does not strike again. The Federal Reserve should act now to prohibit lending practices that take advantage of working families."
Following legislative approval, the "Save the Dream" initiative will help qualified borrowers refinance their homes into secure, fixed-rate loan products in order to avoid foreclosure. To qualify for one of the new loan products, homeowners could be required to meet the same income and sales price limits as other MSHDA loan products require. Household income must be under $72,250, and the purchase price of the home cannot exceed $216,750. The proposal will be funded by taxable bonds.
Granholm announced a toll-free hotline to assist homeowners needing information on how to address possible foreclosure. That number is: 866-946-7432.
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