Lately, the big news out of Wall Street has been the continuing problems related to the sub-prime housing market. Sub-prime borrowers are those with poor credit histories or those with limited income. In the past most of these borrowers would never qualify for a mortgage loan. But in the last decade lenders such as Household International (now owned by Buffalo’s own HSBC Bank USA), Countrywide Loans and New Century Mortgage made billions of dollars by offering loans to sub-prime borrowers.
Now many of those sub-prime borrowers are defaulting on their loans, often just mere weeks after closing on the home, leading to billions of dollars of losses and the destruction of the nations’s sub-prime housing market. HSBC recorded over $10.6 billion in losses as a result of the fiasco related to its Household International division, and New Century is near bankruptcy as it faces a potential $8.6 billion loss and legal action in Ohio and New York barring it from offering future loans.
As noted in the Washington Post , some analysts are predicting that over $225 billion in mortgage defaults could be seen within the upcoming year. Adding to the housing market’s problems are issues identified in this story from Reuters in today’s Washington Post: a predicted 1.1 million foreclosures in the next 6 years from adjustable rate mortgages.
Some are claiming that the lending practices in the sub-prime market were predatory in nature, and it is quite apparent that further federal regulation is needed and congressional leaders are answering the call. Next week the House of Representatives’ Financial Services Committee will be holding a hearing on sub-prime and predatory lending. Committee Chairman Barney Frank (D-Ma.) has discussed introducing legislation to further regulate the sub-prime market. And today presidential candidate and U.S. Senate Banking Committee Chairman Christopher Dodd (D-Ct.) announced that his committee will be holding a hearing on Thursday on the topic and he has asked senior executives from the top 5 sub-prime lenders to appear and testify. Both actions are a good start to rapidly address a serious problem.
While many may not care about the sub-prime housing market or predatory lending practices, it is important that these issues be addressed to ensure stability in the greater housing market. The country’s housing market has for some time helped drive the nation’s economy, and anything that causes serious hiccups in the housing market will negatively impact our overall economy. Any crisis in the overall housing market will impact each of us in some way regardless of whether we have no problem meeting our own mortgage payments. That’s why we all should keep track of an issue that normally would be found on page 10 of the business section, but now is often seen on page 1 of the paper.
Mark Poloncarz, a founding member of the WNY Coalition for Progress, is comptroller of Erie County, New York.
© Mark C. Poloncarz, 2007.
The opinions expressed herein are solely those of the author and do not represent those of the WNY Coalition for Progress.
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