Wednesday, April 25, 2007

Chicago Sun-Times Editorial - Sensible proposals to limit foreclosures

Chicago Sun-Times Editorial - Sensible proposals to limit foreclosures
Copyright byh The Chicago Sun-Times
April 25, 2007

If owning a home is the American dream, that dream is turning into a nightmare for thousands of Chicago area homeowners. During the big housing boom earlier this decade, they took advantage of subprime mortgage loans -- loans for people with less-than-perfect credit -- to buy and especially to refinance their homes. As that boom went bust and easy terms turned hard, they started falling behind on their payments and losing their homes. Last year, there were 29,000 foreclosures in the Chicago metropolitan area, the highest in recent memory. This year is expected to be much worse.

It's a national crisis that has focused attention on the subprime mortgage industry, which has been accused of using bait-and-switch tactics, low teaser rates and/or lax standards to get people to take out loans that they can't afford. The crisis has spurred a variety of proposals, the latest of which comes from Illinois Attorney General Lisa Madigan, who aims to take the predator out of predatory lending with tighter regulation of the industry.

Her plan includes requiring lenders to verify a borrowers' ability to repay; creating a duty for mortgage brokers to find the best deal for borrowers; prohibit prepayment penalties; requiring a day's notice from lenders before any major change in terms or fees; requiring lenders to factor in the costs of insurance and taxes when quoting monthly payments; mandating that borrowers get a copy of their appraisal so they can see if it's too high, and prohibiting lenders from compounding late fees.

Those are sensible proposals, and if adopted, they would eliminate the need for a different plan to require Cook County residents who want to take out certain loans to undergo counseling to make sure they understand what they're getting into. An earlier version of that plan, which covered only certain ZIP codes in Cook County, was scrapped after complaints started pouring in from neighborhoods that were affected.

Madigan's proposal also contains a few provisions to help people facing foreclosure, including mandating that borrowers are informed of their legal rights and given full details of their loan payment history to help them defend themselves.

It might be tempting to say reforms would be unnecessary if borrowers would more carefully read the fine print. No doubt that's true, but most loan documents are difficult to understand, and most subprime loans are for refinancing, and thus less likely to involve lawyers at closing. And society has an interest in limiting foreclosures because they can shatter neighborhoods and undermine the economy.

This represents the view of Sun-Times News Group newspapers.


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