A new Congressional report on rising delinquencies and foreclosures in subprime loans overstates the problem because it relies on “faulty, inflated data,” the Mortgage Bankers Association maintains.
The report, by the Congressional Joint Economic Committee, cites statistics from RealtyTrac and predictions by the Center for Responsible Lending to make the case for increased regulation of the mortgage lending industry.
The JEC report cites a prediction by the Center for Responsible Lending that one in five subprime loans issued in 2005 and 2006 will default, and that 2.2 million families have lost or will lose their homes in the next several years.
The report also relies on statistics from RealtyTrac, which claims 1.2 million foreclosures were reported in 2006 and that as many or more are expected this year.
“All predictions are that we are facing a tsunami of default and foreclosures in the subprime market as homeowners face steep increases in their monthly payments and housing values remain flat, making refinancing virtually impossible,” Rep. Carolyn Maloney, D-N.Y., said in a statement accompanying the release of the report.
Maloney is vice chairman of the Joint Economic Committee and chairs the House Financial Services Subcommittee on Financial Institutions. She said the Financial Services Committee, which is holding an April 17 hearing on subprime lending, will be looking closely at the report’s recommendations.
Mortgage Bankers Association Chairman John Robbins said the Center for Responsible Lending’s predictions are based on “unrealistic, worst-case assumptions.”
Robbins, noting that RealtyTrac is a company that specializes in marketing foreclosed properties, said it overestimates the number of foreclosures by about 30 percent.
“By relying on faulty, inflated data to draw its conclusions, the (JEC) report paints a far more dire picture of the landscape than MBA’s studies support,” Robinson said.
The JEC report recommends that Congress increase support for local foreclosure prevention programs and strengthen Federal Housing Authority mortgage insurance programs, making them available to borrowers in the subprime market.
The report also proposes that lawmakers strengthen the regulation of mortgage originators at the federal level, create a federal anti-predatory-lending law, increase loan disclosure requirements, and implement a “suitability standard” requiring borrowers to demonstrate their ability to repay mortgage loans.
The Mortgage Bankers Association and others in the lending industry have urged lawmakers not to go too far in regulating them, saying market forces have already led to a tightening of lending standards. Industry groups are particularly concerned about the imposition of a suitability standard, saying it would make it impossible for many people to obtain a home loan.
Robbins said the MBA has “grave concerns” about a suitability standard, which he said “could threaten decades of fair-lending gains.”
He said the MBA supports a uniform national standard to combat predatory lending and foreclosure prevention programs.
“We have already begun discussions with regulators, investors and other stakeholders on new products to help those borrowers who find themselves having trouble paying their loans,” Robbins said.
The JEC report looks at the impacts of foreclosure by region, citing RealtyTrac statistics as evidence that the hardest hit have been Midwestern states (Ohio, Michigan, Illinois and Indiana), “Sun Belt” states (Florida, Georgia, Texas, California, Arizona and Nevada) and Colorado.
Nearly 60 percent of foreclosures in those states are subprime loans, although those loans represent only 14 percent of total mortgage debt outstanding, the report said, citing RealtyTrac.
The MBA points to economic factors, rather than loan products themselves, as a cause of foreclosure.
The Midwest has lost more than 700,000 jobs since the middle of 2000, “and it is clearly problems with the economy in this region that are driving the ability of borrowers to repay their mortgages or sell their homes if they get into trouble,” Robbins said.
Ohio, Michigan, Indiana, Illinois and Wisconsin account for 28 percent of the loans in foreclosure, Robbins said, and subprime borrowers account for only about half of the loans in foreclosure in those states.