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October 16, 2007

Lesson from Minnesota: Tough Laws Can Prevent Future Mortgage Crisis

The nation’s home mortgage crisis has hit every corner of the country and activists, business and elected leaders are busy working to level the playing field and help mortgage borrowers keep their homes.

The combination of tight credit, high pressure subprime loans to families who could not afford them and adjustable rate mortgages with ballooning payments has led to new highs in foreclosures. In September, the national average for foreclosures was one home in 557. The rate was highest in Nevada at one in 185, but there were wide variations across the states. 

Yesterday at a press conference in Cleveland, AFL-CIO President John Sweeney and Union Privilege President Leslie Tolf released a poll showing about half the people with adjustable rate mortgages expect they’ll have to cut back on everyday expenses like groceries, clothing and gasoline when their payments increase. For families earning $50,000 or less, that number is 80 percent. They also announced the launch of the Union Plus Save My Home Hotline.

As part of a model home owner education program, the hotline will provide information and advice to help union members and their families avoid foreclosure. The AFL-CIO also sponsors a trust to assist union members with financial hardship due to disability or unemployment. Click here to learn more about the poll and the hotline.

Joining Sweeney and Tolf at yesterday’s press conference, Sen. Sherrod Brown (D-Ohio) called for legislation to protect home buyers from usurious lenders and potential foreclosure. Lawmakers in both the House and the Senate are working on bills to prevent the rash of foreclosures  The AFL-CIO is working with the North Carolina-based nonprofit Center for Community Self-Help, to develop key principles that should be included in federal mortgage protection legislation. Self Help and its financing affiliates, Self-Help Credit Union and Self-Help Ventures Fund, to provide financing, technical support and advocacy for those left out of the economic mainstream. 

Testifying before the Joint Economic Committee, Self Help CEO Martin Eakes said: 

On the most basic level, we need to ensure that lenders return to common-sense lending that is likely to produce sustainable homeownership. At the same time, we need to do all we can to minimize the damage to families who are struggling today.     

Eakes told the committee we need strong predatory lending laws to protect home owners in the future. These include a number of measures that have already been incorporated into state laws or rules issued by regulators, such as:  

• Requiring lenders to determine that their customers have the ability to repay the loan.
• Requiring lenders to verify a customer’s income using tax documents, payroll or bank records, or other reasonable documentation.
• Requiring lenders to create escrow accounts for real estate taxes and property insurance.
• Banning prepayment penalties and yield-spread premiums on subprime loans.
• Eliminating the practice of steering families into unnecessarily expensive loans.
• Holding lenders responsible for abusive lending practices, regardless of whether the loan was originated by the lender or mortgage brokers. Often large institutions such as national banks buy mortgages from brokers, but are not held accountable if the loan was gained by abusive practices.
• Holding investors accountable for the loans they support.
• Allowing the states to continue to take actions to prevent predatory lending.
• Eliminating an anomaly in the Bankruptcy Code that allows judges to modify unaffordable mortgages on a vacation home or investment property, but not on the home owner’s primary residence.

In Minnesota, a coalition of consumer advocates and business and elected leaders pushed through the state legislature a predatory mortgage lending law in April 2007 considered among the strongest in the nation. It requires lenders to verify borrowers’ ability to repay their loan, bans refinancing loans without benefit to the borrower and caps points and fees, in addition to including other provisions prohibiting unfair lending practices.

The lessons learned in the fight to get the bill passed can be useful for any group working for more corporate accountability, says Minnesota Attorney General Lori Swanson. 

Swanson told a forum at the Drum Major Institute for Public Policy last week that federal regulators were “asleep at the switch.” Some lenders were doing things that were out and out wrong, she says, such as falsifying assets on application papers. (See video above.)

The mortgage mess is a sign of larger debt crisis in the country, Swanson warned. Some 85 percent of home mortgages in Minnesota last year were cash-out refinances where the borrower got cash back to pay off credit cards, health care bills or buy items such as a new car, she says. Experts have pointed out and we have highlighted that the subprime mortgage crisis could spill over into the entire economy.  

The tragedy, Swanson says, is that home mortgages are the key to economic stability.

The mortgage is America’s savings account. Mortgages and home ownership fueled the American Dream. Mortgages built the middle class. It is what enabled people to save a nest egg for their future retirement and send their children to college. So when that is undermined by this mess that we’re in, everybody should care.

Swanson outlined the key elements in the strategy that won this landmark legislation:

• Building a coalition. Almost as soon as she was elected, Swanson created a study group on predatory mortgage lending, which included consumer advocates, bankers, business people and state legislators and union members. The coalition came to a consensus around one piece of legislation. Too often, she says, consumer and corporate governance activists cannot agree on one strategy. But to be effective, you have to compromise and speak with one voice.
• Communicating with lawmakers. The coalition made sure legislators knew the problem of predatory mortgage lenders was not just an urban problem, but one that affected everybody. “We had people from the suburbs talking about how their $700,000 homes were about to be foreclosed.”
• Lobbying lawmakers and opinion makers. The coalition focused its energy on lobbying the legislature and opinion leaders to gain support. 

Working Women: Better Educated but Still Paid Less Than Men

Women make up about half the nation’s workforce, and now, not only are outpacing men in earning college and other advanced degrees, they also make up the majority of the professional employees. But as a study by the AFL-CIO Department for Professional Employees (DPE) points out, there is one area where women workers lag far behind men.

The wage gap between the sexes still plagues the American workforce….Equal pay is a problem in every occupational category, even in occupations where women considerably outnumber men.

In fact, median weekly earnings for full-time working women dipped to 80.8 percent of men’s earnings in 2006, down from a record 81.0 percent the previous year, according to new U.S. Bureau of Labor Statistics data.

But there’s a solution: The DPE report finds that the best way to narrow that wage gap is a union card.

The wage survey says that some 7.5 million women workers are represented by unions and

The union difference is quite apparent when you look at the median weekly wages in predominantly female and consequently lesser paid occupations: Union preschool and kindergarten teachers earned a whopping 56.7 percent more than their non-union counterparts, while for elementary and middle school teachers, the union wage advantage was 34.6 percent. In 2006, union librarians earned almost 29 percent more than their non-union counterparts, while union social workers and counselors earned 27 and 26.4 percent more, respectively. For RNs, the union difference was 15 percent.

Overall, the study finds that women in professional and related occupations earn 27 percent less than their male counterparts.

The inequality continues into a woman’s retirement years. The DPE report says that in 2005, the average Social Security benefit was 32 percent less for women than for men. Compounding the lack of retirement security for women, the study finds only 29 percent of women received a pension or annuity income and the median amount was $6,420 a year. However, 44 percent of men received a pension or annuity income and the median amount was $12,000.

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