Mortgage banker defends subprime loans

May 23, 2007|By Marilyn Geewax | Marilyn Geewax,Cox News Service

WASHINGTON -- The bad apples did it.

The subprime mortgage market was spoiled by bad guys who tried to make a quick buck in an otherwise reputable business, John Robbins, president of the Mortgage Bankers Association, said yesterday.

"It's not just our reputations that have been damaged. People have been hurt ... all because of a very few unethical actors," Robbins said in a speech at the National Press Club, where he called for tougher licensing standards.

"Frankly, it's too easy to hang a shingle and call yourself an expert in mortgages," said Robbins, whose trade group represents the real estate finance industry. "We need licensing of brokers, with a threshold that will weed out those unwilling to be responsible."

But Robbins opposes any legislative attempts to outlaw subprime mortgages, which are used to help borrowers with spotty credit records or irregular income. Typically, such mortgages have provisions that keep the interest rates moving higher over time.

Because many Americans got such mortgages between 2003 and 2005, their interest rates only recently have started ratcheting higher, making mortgage payments less affordable even as home prices have flattened or fallen.

This year's weak housing market is making it hard for borrowers to sell their homes or refinance, forcing growing numbers to default.

Many members of Congress have been critical of the looser lending standards that allowed subprime mortgages to proliferate.

Robbins said he is "mad as hell" about the rash of foreclosures, but insisted the industry's problems have been exaggerated. He noted that only 5.1 percent of all U.S. homeowners have subprime, adjustable-rate mortgages. Among those, four out of five borrowers are still making their payments on time, he said.

That means the rate of foreclosures will be too small to trigger a recession, he said. "No seismic financial occurrence is about to overwhelm the U.S. economy," he said.

But he conceded that in certain areas, particularly Ohio, Michigan and other nearby Midwestern states, the foreclosure rate has become painfully high. That region has lost 460,000 jobs, causing its housing market to be exceptionally weak, Robbins said.

Still, the solution should not be a nationwide ban, he said.

"We must find a way to prevent future abuse without eliminating subprime loans," Robbins said. "I want you all to remember that 3 million Americans used a subprime loan to purchase a house. It is an extremely important tool for providing homeownership opportunities."

He recounted the story of "Judy," a longtime resident of West Palm Beach, Fla., whose divorce forced her to sell her home and incur credit-card debt. Traditional lenders refused to finance her attempt to get back into homeownership, but a subprime lender gave her a mortgage. After three years of prompt payments, she was able to refinance that loan, according to a trade association spokesman who said Judy is a real person whose last name can't be used.

"She rebuilt both her credit and her wealth," Robbins said.

Rep. Barney Frank, a Massachusetts Democrat who is chairman of the House Financial Services Committee, is pushing for Congress to establish national protections for all mortgage borrowers, regardless of where they live, and standards to make sure borrowers can afford mortgage payments beyond the first year.

Robbins said Congress should not rush to legislate when the market is fixing itself, driving out those who took too many risks. For example, New Century Financial Corp. and more than 30 other subprime lenders have gone bankrupt this year.

"Many of those who most abused the system are already out of business," he said.

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