State Treasurers Urge Feds to Adopt Standard Approach to Adjustable-Rate Subprime Loans

States join forces in support of FDIC Chairman Bair’s foreclosure proposal

(Columbus, OH)-Ohio Treasurer Richard Cordray and six other state treasurers have united behind FDIC Chairman Sheila Bair’s national foreclosure proposal and asked the Secretary of the Treasury, Chairman of the Federal Reserve, and United States Treasurer and Congressional leaders to support it, as well.

In a letter (attached) sent today, the Treasurers emphasized the need for a stronger national strategy in the fight against foreclosures. While acknowledging Hope Now and the Lifeline project, they highlight the severe limitations of such efforts.

The Treasurers (from Connecticut, Delaware, Iowa, Massachusetts, Michigan, Ohio and Wisconsin) asked the federal government to adopt FDIC Chairman Bair’s proposal to require subprime loan servicers to adopt a standardized approach to all 2/28 and 3/27 adjustable-rate subprime loans. Under the plan, all owner-occupied homes where the mortgage payments are current (or even slightly behind), but an expected upward rate adjustment could cause default in the near future, would be automatically converted to a fixed interest rate for five or more years.

“No one can deny that states are in crisis mode. Our actions need to be swift and strong in order to make a significant impact,” stated Treasurer Cordray. “This plan will have an immediate effect and is essential to helping homeowners in our states.”

The plan is not a bailout for borrowers or banks. Homeowners would still make mortgage payments (at a higher rate than available today). Loan servicers would save the billions of dollars that would otherwise be wasted on foreclosure actions that often return little value to the loan holder, create vacant houses, and devastate property values in surrounding neighborhoods.

“This is a systematic approach that will assist homeowners and protect neighborhoods,” said Massachusetts State Treasurer and Receiver General Timothy Cahill. “I am pleased to work with my counterparts across the country on this reform.”

The letter was signed by Cahill and Cordray, as well as Michael L. Fitzgerald, State Treasurer of Iowa, Robert J. Kleine, Michigan State Treasurer, Jack Markell, Delaware State Treasurer, Denise L. Nappier, Connecticut State Treasurer, and Dawn Marie Sass, Wisconsin State Treasurer.