Feds
Written on December 13, 2007
Holders of sub-prime loans from Queens, the borough hit hardest by the mortgage crisis, will see little benefit from the federal government-backed plan to freeze interest rates on such loans for up to five years, elected officials from the borough said.
Sub-prime loans are generally offered to prospective homeowners who are turned down for traditional mortgages. Such loans feature so-called teaser rates, or low-interest rates, for an introductory period. But mortgage holders face significant rate increases when that period expires and payments can quickly become unmanageable, putting them at risk of losing their home - a process known as foreclosure.
The federal government is requesting the mortgage industry to ease the burden on holders of sub-prime loans by freezing their interest rates for five years.
Queens’ elected officials and non-profits in the borough have been warning residents about predatory lenders, including sub-prime mortgage lenders, for more than a year through seminars and town hall meetings.
Most of that outreach has been concentrated in southeast Queens, which has the highest number of foreclosures and residents with sub-prime loans in the city, although elderly borough residents and immigrants have also been targeted by predatory lenders.
Only sub-prime mortgage holders who have been late on their payments for less than 30 days, received the loan between Jan. 1, 2005 and July 31, 2007 and whose interest rates are set to increase in 2008 are eligible under Bush’s pledge to freeze rates. His plan has drawn criticism from state and city elected officials who say the rate freeze policy is too restrictive.
State Sen. Malcolm Smith (D-St. Albans) said estimates indicate that fewer than 20 percent of sub-prime mortgage holders would be helped under the rate freeze. The federal government said the plan would help 1.2 million mortgage holders.
“There’s a whole lot of people who got caught” with a sub-prime loan, Smith said. “It’s a crisis that needs to be dealt with cheap payday loans. You can’t just walk away from the problem.”
He said more should be done for those who have fallen seriously behind on their mortgage payments.
“You’re only helping out folks that were making their payments,” Smith said.
City Councilman Leroy Comrie (D-St. Albans) agreed.
“Unfortunately, there are hundreds of families that will be affected and we need to press the federal government to do more,” he said.
Mortgage companies also pledged to refinance sub-prime loans for those who qualify or move them into a federally backed loan, which gives holders a better chance at refinancing.
“While the plan proposed by the federal government is a constructive first step, it does nothing to help the thousands of homeowners in New York who are already more than 30 days in default, close to foreclosure or who have entered the foreclosure process,” said Gov. Eliot Spitzer in a statement. “Those homeowners will not benefit from this proposal, and I urge the (mortgage) industry to collaborate with the states to develop proposals that will more completely avert this crisis.”
On the heels of the deal, Washington Mutual, the largest provider of sub-prime loans in the country, said Monday it is getting out of the sub-prime market, citing profit losses. The institution has a number of offices in Queens.
The U.S. Treasury Department said the policy is not a bailout because no government money would be used.
City Councilman James Sanders (D-Laurelton) said rates should be rolled back because a freeze would only delay hardship for sub-prime loan holders.
“We bailed out the banks in the ’80s,” he said. “If we can bail out our savings and loans, why can’t we bail out the American people?”
He said he feared that the increase in foreclosures from the sub-prime market could cause an economic recession among his constituents in southeast Queens.
“If left to its own devices, we will see the largest loss of black and Latino wealth since the Great Depression, perhaps back to the Civil War,” Sanders said.