With foreclosures escalating at a record pace nationally, and several Chicago-area counties showing significant increases, Treasury Secretary Henry Paulson on Thursday pointed a finger at the players he said contributed to the housing and credit mess and outlined reforms intended to stave off future excesses.
The plan, formulated by a group of financial regulators that includes Federal Reserve Chairman Ben Bernanke, calls for nationwide licensing for mortgage brokers, new rules for credit-ratings agencies and firmer disclosure requirements for banks and Wall Street firms, all of whom have been widely criticized for lax standards that set up housing and the credit markets for a fall.
Outlining a six-part set of general policy recommendations from the President’s Working Group on Financial Markets, Paulson said, “Today’s recommendations put us on a path toward more transparent, better-functioning and better-managed markets.”
Paulson’s comments came the day new data showed that the number of homes in some stage of foreclosure jumped 60 percent in February from a year earlier. RealtyTrac, a foreclosure-data firm, said one in every 557 U.S. households received a foreclosure filing in the month.
RealtyTrac CEO James J. Saccacio said the leap suggested “we still have not reached the peak of foreclosure activity in this cycle.”
Nevada, California and Florida continued to lead the way. Nevada’s filings were more than three times the national average, with one in every 165 households receiving a foreclosure filing.
Illinois finished 12th, with filings for one in every 587 households, RealtyTrac reported. February foreclosure activity here was 32 percent higher than a year earlier, the company said. Will County leads the state in per household filings at 309, the company said.
“Most of the time we are able to help keep them in housing,” said Kris White, executive director of the Will County Center for Community Concerns, a HUD-certified counseling agency. “Unfortunately, are we able to keep them in that house that’s in trouble? No. But our goal is to keep them from becoming homeless.”
While saying “this report is not about finding excuses and scapegoats,” Paulson strongly criticized mortgage originators for a “dramatic weakening of underwriting standards” that led to the subprime collapse.
Those defaults spread through the credit markets, severely limiting lending and leading to huge write-downs of mortgage losses by financial institutions.
“Mortgage brokers will be held to strong national licensing and enforcement standards,” Paulson said. “There will be stricter safeguards against fraud, and full and clear disclosure to borrowers about home-loan terms, including long-term affordability.”
Housing counselor Elizabeth Caton said this is overdue. She has been working with Rafeek and Donna Zayed, whose home on the Northwest Side recently went into foreclosure after they fell behind on their payments in October.
When the couple, whose income is $3,900 a month, refinanced, they said their broker misstated their income as $6,600 a month — pushing their payment to $2,810 from $1,790.
The Zayeds are working with Caton, a counselor for the Northwest Side Housing Center, to try to get their monthly payments lowered.
“I’ve contacted the attorney general’s office to have them contact [the lender] to see what they can do,” Caton said, noting that the 10.25 percent rate is among the highest she has seen.
Paul Leuken, president of the Illinois Association of Mortgage Professionals, a trade group consisting primarily of mortgage brokers, said it was unfair to single out one group of loan originators.
“I think nationwide licensing is a good idea,” Leuken said. “But where people are falling short is pinning it on one group.
“Much of the blame also goes to the consumer for thinking housing would always go up, up, up. The perfect storm happened, housing values stalled and now we’re in this mess.”
Paulson, in releasing the report, also criticized investors in subprime loans, many of whom “bought products they didn’t fully understand or bought based solely on credit ratings.”
The President’s Working Group on Financial Markets was formed after the 1987 stock market crash to monitor markets. Specific recommendations from the group are still to come.
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