The chief of the Mortgage Bankers Association has defended the use of subprime loans, saying they’ve enabled millions of Americans to buy homes and urging that a fix for that sector of the market not end up hobbling the entire mortgage industry.
At the same time, MBA Chairman John Robbins acknowledged that “unethical actors” in the mortgage industry have hurt borrowers and damaged bankers’ reputations.
Subprime delinquencies have jumped as interest rates have climbed and house prices stopped rising. Subprime loans are usually extended to borrowers with blemished credit records.
But Robbins, in a speech May 22 at the National Press Club, said subprime loans remain “an extremely important tool for providing homeownership opportunities in this country. We must find a way to prevent future abuse without eliminating subprime loans,” Robbins said.
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“I want you all to remember that 3 million Americans used a subprime loan to purchase a house,” he said.
Robbins said regulators should be careful not to damage a “subtle, intricate and ingenious” mortgage-finance system by trying to fix problems in the subprime market.
Robbins noted that only 5.1 percent of homeowners are subprime borrowers with adjustable-rate mortgages. Ultimately, he said, only one quarter of 1 percent of subprime ARM borrowers are facing foreclosure.
Still, Robbins said, the industry is trying to help troubled subprime borrowers by quickly contacting those in distress and by setting up a free counseling hotline. He said his group is also setting up foreclosure “intervention programs” in cities with high rates of foreclosures.
He urged borrowers to contact their loan-servicer “if [they] even think that there is a chance” of running into some financial hardship. The faster borrowers reach out, the faster bankers can set up loan modification programs, he said.
Robbins also said there should be a national standard for mortgage brokers, not a state-by-state system. Such a standard would set rules for lending on a national basis, he said.