The Sub-prime Blues

Sorry, I forgot to post this morning. I'm at NN with Kevin and Mike and have been trying to splice the video from our Youth Caucus yesterday so we can post it here. For today however... I bring you the Sumbprime Blues - my latest Rock the Trail Blog post.

The US Senate passed a housing and foreclosure prevention bill last Friday. This is in effort to stop the growing foreclosures on homes and families in crisis. The bill would create a $300 billion government-backed foreclosure prevention program and increase oversight of major government backed lending institutes Fannie Mae and Freddie Mac.

However, this Monday the Federal Reserve announced the approval for a "final rule for home mortgage loans." The Fed says this final rule "prohibits unfair, abusive or deceptive home mortgage lending practices and restricts certain other mortgage practices. The final rule also establishes advertising standards and requires certain mortgage disclosures to be given to consumers earlier in the transaction. "

But according to a CNN report, consumer groups believe these new regulations

"contain too many loopholes, allowing reckless lending to continue. Industry executives say the proposals place too great a burden on lenders and will prompt them to further restrict credit."

Oklahoma RoseRock Bank Senior Vice President Sue Pyle says the home foreclosure crisis and new guidelines will have a major effect on new home buyers, who are often young.

"These new changes in the underwriting guidelines make things more difficult for first time home buyers," Pyle says. "When a loan application is submitted it's reviewed in much more detail with more financial documentation. What could have been approved in the past may not be today."

One monumental item Pyle says, is the increased importance of a buyer's credit score. With recent changes the minimum requirements have been increased substantially.

"If you missed a few student loan payments, which resulted in your score being lower, this could prevent you from being able to buy a house. It wasn't that tough in the past."

In addition to requiring a higher credit score, the minimum down payment required has gone up.

"We are seeing guideline changes where a great deal more financial documentation is required including deposit statements, pay stubs, with many more items being verified and re-verified than in the past," she says.

She describes a client who recently submitted 2 years of tax returns, 2 years of W2 forms, 2 recent, consecutive pay stubs, a verbal verification of the borrower's employment was completed by the mortgage processor, as well as another verification by the mortgage underwriter. This example was a home buyer that had very high credit scores and sufficient down payment funds Pyle explained.

"Even after all of that," she said, "the mortgage investor re-verified employment after the loan closed. In the past new home buyers could get a home loan with zero money down and the only verification of employment completed was one pay stub. Many changes have taken place. All home buyers, including first time home buyers, have been effected."

The changes are also causing problems for all residents who are renting homes. Investors renting homes also have stricter requirements, like bigger down payments. These end up being passed on as higher monthly rental payments. At the same time, some homeowners buy a property at an adjustable rate. This means as time goes on the interest rate on the loan fluctuates up and down and can influence the cost of the payment on the house. If someone is renting that house it means their rent can go up and down, too.

A story about local rent prices near Howard University was posted in the Hilltop Online. According to local resident R'Keim Young the cost of housing was so much that he had to go back to living in the college's dorms.

"Within the last two years, prices have risen significantly," Young said. "The same houses that were about $500 monthly have now gone up $300 more."

Housing foreclosures on younger families also have a critical impact on children. According to First Focus, a Washington DC based organization that advocates on behalf of children

"An estimated 2 million children are directly impacted by the subprime mortgage crisis as their families lose their homes due to foreclosures."

First Focus's recent report shows:

• "Due to the increasing number of foreclosures, school districts across the country are experiencing increases in the number of homeless children entering their classrooms;
• Children impacted by the mortgage crisis are likely to experience excessive mobility and as a result are only half as likely to be proficient in reading as their peers. Moreover, they are much more likely to be held back and eventually drop out of school;
• Children forced from their homes experience behavioral problems, such as increases in violence."

The crisis has inspired a number of comedic mash-ups. This one, from NauticalFilms, features the Rambo solution, and BillyBobStewart brings us The Subprime Blues.