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Congress pressures lenders to help nation’s troubled mortgage holders

U.S. Rep. Shelley Moore Capito, R-W.Va., said Friday that Congress is hearing a much greater willingness from mortgage lenders to help borrowers stay in their homes than the lenders displayed last year.

“There’s more of an impetus now than, say a year ago, before this became highlighted, for lenders to try to work out something with the borrower,” she said.

Distressed borrowers like Dianna Cobb (see accompanying story) would be likely to receive a much more open reception this year, she said.

As ranking member of the Housing and Community Subcommittee of the House Financial Services Committee, Capito will be heavily involved in markups on major mortgage legislation later this week.

Congress, the Bush administration and state officials are leaning heavily on mortgage lenders to help distressed borrowers.

“We have an immediate need to see more loan modifications and refinancing and other flexibility,” Treasury Secretary Henry Paulson said two weeks ago.

In mid-October, Paulson said the potential number of foreclosures during the next year threatens the national housing market, and a failure in the housing market would threaten the entire economy.

Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., said in early October that the danger to the economy is so great that immediate action is needed. She suggested that mortgage companies simply convert large numbers of adjustable-rate mortgages to fixed rate mortgages.

In the current market, the interest rates on adjustable-rate mortgages typically stay at a lower “starter” rate for two years, then climb steeply.

Freeze the rates at the affordable starter level, Bair urged lenders. Shortly thereafter, the nation’s biggest subprime lender, Countrywide, announced that it would freeze interest rates on $16 billion in adjustable-rate mortgages.

There is a reason for this level of activity. All the players are working against time.

s Americans took out a record number of subprime adjustable-rate mortgages in 2006. The payments are due to “reset” and start spiking in the next eight months, driving about 40 percent into serious delinquency.

s According to a September AFL-CIO study, about half of all borrowers don’t know their adjustable-rate mortgage payments will go up, and three-quarters don’t know how much they will go up.

s If no major changes are made, about 2 million homes nationwide will be lost to foreclosure in the next year, Moody’s Investment chief economist, Mark Zandi, predicted to the House Judiciary Committee earlier this month.

s A recent Moody’s survey of millions of adjustable-rate mortgages showed that only 1 percent of the nation’s subprime loans was being modified by the nation’s major lenders and loan servicers.

West Virginia soon will join an alliance of state attorneys general who are meeting with the nation’s 20 biggest lenders to come to a meeting of minds about loan modification, said Norman Googel, with the consumer protection division of the attorney general’s office.

“We read a lot of promises and claims in the press that they’re modifying loans,” he said, “but we’re hearing a different story out in the states.”

To contact staff writer Kate Long, use e-mail or call 348-1798.


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