|As they slug it out across the nation vying for their party's presidential nomination, Democratic candidates have turned their attention to the mortgage industry.
The rash of problems plaguing the industry -- foreclosures, concerns about predatory lending, fraud -- are tailor made to the populist campaigns being waged by Democrats John Edwards, Hillary Clinton and Barack Obama.
Edwards, a former U.S. Senator from North Carolina and the party's 2004 vice presidential candidate, is running on a platform to help lift people out of poverty. He has a multi-tiered approach in calling for "strong national legislation to regulate mortgage abuses and prohibit predatory lending," according to his campaign Web site.
Edwards said the law he will pass will eliminate what he sees, and what some industry experts have identified, as the worst abuses in the mortgage market: loan flipping, mandatory arbitration clauses, balloon loans, steep prepayment penalties and excessive fees.
Lenders would be regulated nationally, held to uniform licensing standards and placed in a national database that would cite, among other items, disciplinary actions. Underwriting standards would be strengthened "to ensure that borrowers received affordable loans suited to their means."
And what Edwards described as "broker kickbacks," or yield-spread premiums, would be banned.
Edwards' plan also deals with homeowners facing foreclosure.
Homeowners facing excessive debt could file for bankruptcy, paying off the full market value of their homes but shedding "excessive debt" that came about through predatory lending practices, he said. A bankruptcy judge would still have final say and a homeowner could only use this option once.
For homeowners needing mortgage payment assistance Edwards could create a national Home Rescue Fund that would offer help with renegotiating new loan terms, finding a new lender or catching up with payments, though he has not said how much money would be put into the fund.
The fund would work with non-profit groups, community financial institutions, government agencies. And the Federal Housing Administration, Fannie Mae and Freddie Mac could be used to "work with community lenders to create affordable refinancing alternative for these families."
Clinton, the former First Lady and current U.S. Senator from New York, promises a "crack down on unscrupulous brokers" and a plan to "curb mortgage lending abuses (and) assist families facing foreclosure," according to her campaign's Web site.
Under Clinton's plan, prepayment penalties -- which are used by many subprime lenders -- would be eliminated.
"These penalties can lock borrowers into loans until the rates and monthly payments escalate," she said. "Families should not be discouraged from responsibly paying of their mortgages early."
Lenders would also be required to include the cost of taxes and insurance in the underwriting assessment of subprime, Alt-A, interest-only, no-money-down, payment option ARM's and other non-traditional loans under the Clinton plan.
Brokers would have to tell customers if their compensation is tied to loans with higher rates and fees. And Clinton said she would work with states to develop licensing standards while requiring federal registration of mortgage brokers "so that prospective borrowers can easily look up a broker's employment history, violations, complaints and other information," she said.
To help homeowners facing foreclosure Clinton would earmark $1 billion to support state programs that help at-risk borrowers keep their homes. She also proposes a "foreclosure timeout" for borrowers and lenders to find alternatives to foreclosure. And the GSE's role would be expanded to also provide assistance.
Obama, a U.S. Senator from Illinois, has the least detailed mortgage platform of the three major Democratic candidates. But he has a history of dealing with the situation.
According to his campaign Web site, Obama filed legislation in early 2006 called the STOP FRAUD act. The law did not pass but Obama said he will work to implement its provisions.
Obama's plan has a heavy focus on detecting and punishing fraud. It would increase funding for federal law enforcement programs, create new criminal penalties for mortgage professionals found guilty of fraud and require "industry insiders" to report suspicious activity.
"As the number of foreclosures skyrockets and the housing market becomes more vulnerable, we must establish stiff penalties to deter fraud and protect consumers against abusive lending practices," Obama said in a statement.
Obama also proposes spending $25 million for counseling to homeowners facing foreclosure.