Hillary Clinton on Subprime Mortgage Market
Most folks would agree that Senator Hillary Clinton, Democratic Presidential nominee hopeful, love her or hate her, is a smart cookie.
Anyone who can trade, of all things pork bellies, without a losing trade and pocket over $100,000 in profits must have something going for themselves. And I expect it is much more than commodity trading connections.
Senator Clinton, speaking about the subprime lending market at The National Community Reinvestment Coalition, a network of 640 groups nationwide, said “This market is clearly broken, and if we don’t fix it, it could threaten our entire housing market, which in turn would threaten our entire economy,”.
On this issue Senator Clinton has it absolutely right. Unfortunately, while saying that something must be done she didn’t offer any suggestions about what should be done. Well, after all, she is a politician and a very good one at that. Like most politicians Hillary is good at identifying problem areas and even promising to fix them, but often falls short at offering and being able to implement intelligent workable solutions.
Of course, all of us seem to share in that all too human trait. It is much easier to identify problems as opposed to solving them. Perhaps at times we expect too much of our all too human politicians, including exceptional ones such as Senator Hillary Clinton.
The community groups warning about a “default tsunami” must be taken seriously. The problem has been building every since lenders decided to get creative in expanding their loan portfolios and origination fees by offering ARM’s (adjustable rate mortgages) that offered low teaser interest rates on credit offered to credit challenged home buyers.
These ARM’s had built in time bombs of upward rate adjustments that many borrowers didn’t fully understand prior to closing on the loans. Now that many of the time bombs have gone off the home owner can no longer afford to make the much higher payments.
In the final quarter of 2006 new foreclosures surged to a record high as sub prime borrowers were unable to make their mortgage payments.As foreclosed homes come back on the market they exert downward pressure on pricing within the entire residential real estate housing market. Since in the US housing activity accounts for about 10% of GNP a softening housing market has dire implications for at least the near term future of the US economy and stock market.
Let’s hope that Senator Clinton gives some serious thought about ways to at the least cushion the blow of a default tsunami engulfing the US housing market. Hundreds of thousands, perhaps millions, of American families losing their homes going into an important election is not a pleasant prospect for any of the Presidential candidates, especially those who are already near the center of power and have the opportunity to head off disaster before disaster becomes widespread.
The outpouring of anger that displaced former homeowners would likely feel towards anyone in authority who is even remotely related to the housing and housing financing industry is likely to be considerable. No doubt foreclosed home owners will feel that the subprime loan market should have been more carefully regulated with more complete loan disclosure legislation that required lenders to present a full picture of the way the loans were structured.
A record number of foreclosures going into an election year is not an issue that Presidential candidates who are already involved with national legislation will be pleased to debate about.
Not even Presidential hopeful Senator Hillary Clinton.
