Clinton proposes crackdown in mortgage market

By Jeremy Pelofsky

WASHINGTON (Reuters) - With the U.S. mortgage market in turmoil, Democratic presidential front-runner Sen. Hillary Clinton on Tuesday proposed clamping down on lending abuses and providing more aid to families who face losing their homes.

Her proposals were a sign that America's brewing housing crisis has become an issue facing candidates in the November 2008 election, with thousands facing the prospect of losing their homes because they accepted mortgages that are now too expensive.

The New York senator, on the campaign trail in New Hampshire, also proposed a $1 billion fund to supplement state programs that help homeowners catch up on mortgage payments, renegotiate loan terms or provide financial counseling.

She pressed for eliminating penalties for early repayment of mortgages, which are often associated with less traditional home loans to individuals who fall short of qualifying for prime loans and turn to more expensive subprime mortgages.

The proposals come as world markets have been see-sawing in reaction to problems in the U.S. subprime mortgage markets and rising defaults among less credit-worthy borrowers. Lenders in recent months have tightened their loan standards as a result.

"We can look at the statistics, wring our hands and continue to do nothing, or we can do what America has always done in times of difficulty: acknowledge that we face a real challenge, and confront it head-on with real solutions," Clinton said.

She has a 22-point lead over her closest rival, Sen. Barack Obama, in the latest USA Today/Gallup poll. Almost half, 48 percent of Democrats and Democratic-leaning independents, backed her, versus 26 percent for Obama.

OBAMA, EDWARDS CAMPAIGNS REPLY

The Obama campaign said he would pursue legislation that details the mortgage costs initially and down the road and that he "understands the tremendous impact these abusive practices are having on American families, the housing market and the overall economy."

The campaign for former Sen. John Edwards, who is third in polls of the Democratic race, quickly countered that Clinton's plan failed to go far enough and he has already offered "a real plan to punish predatory lenders and protect homeowners, and we're glad Senator Clinton has chosen to follow his lead."

Two major residential lenders who specialized in subprime loans have filed for bankruptcy protection this year, American Home Mortgage Investment Corp. and New Century Financial Corp. and dozens of lenders have closed.

The Bush administration has argued that the recent subprime mortgage market turmoil appeared to be contained and is not hurting the broader economy, but it is closely monitoring the situation.

"We need to help those facing the pain of foreclosure," Clinton said in a statement. "We need to secure the marketplace and put reforms in place right now."

Her proposal also includes requirements that mortgage brokers fully disclose their compensation to borrowers when they apply for a mortgage and require federal registration for mortgage brokers.

Clinton said $1 billion should also be set aside for state and local trust funds that help subsidize low-income housing. The plan would be paid for with savings from improving federal property management and reducing improper government payments, her campaign said.

Some lawmakers in Congress, including Democratic presidential hopeful Sen. Chris Dodd, have been looking into overhauling regulations governing the subprime mortgage market, but no concrete proposals have advanced in Congress..