Limited options for subprime woes, lawmakers hear

WASHINGTON (Reuters) - Federal lawmakers can take steps to protect consumers from bad mortgages in the future but have limited options in how to assist troubled borrowers today, a Congressional panel heard on Tuesday.

“Legislation going forward will not help this current group of people who are entrapped,” said Barney Frank, chairman of the House Financial Services Committee at the opening of a hearing on the subprime mortgage crisis.

Still, Frank said, lawmakers must do what they can to aid stressed borrowers and communities that could be damaged by widespread foreclosures.

“The fact is that these kinds of loans are not randomly distributed,” the Massachusetts Democrat said. “There is an element of concentration. The victims are not just the individuals but the neighborhoods. Blight can be increased and therefore it is a legitimate public policy problem.”

In recent months, subprime mortgages offered to borrowers with shaky credit have seen increased delinquencies and foreclosures as payments have risen and the nation’s housing market has cooled.

Many borrowers were drawn to the low early payments of subprime loans and their adjustable rates but they would be safer in traditional fixed-rate mortgages, several regulators and industry sources told the House panel.

“Many subprime borrowers could avoid foreclosure if they were offered lower cost, more traditional products such as 30-year fixed rate mortgages,” said Sheila Bair, chairman of the Federal Deposit Insurance Corporation.

The chief executives of mortgage finance companies Fannie Mae FNM.N and Freddie Mac FRE.N said that would each take steps to ease troubled subprime borrowers into more sturdy loans.

The nation’s two largest sources of mortgage finance said they could help borrowers with 40-year mortgages, looser lending standards and credit counseling services.

Rep. Marcy Kaptur, a witness in the hearing, told fellow lawmakers that subprime borrowers need extended payment schedules, loan workouts and protection from immediate foreclosure.

The Democrat from Ohio said that even the earnest work of consumer groups is not helping enough troubled borrowers in time to prevent foreclosure. In the last three months of 2006, she said, Ohio recorded the nation’s highest rate of foreclosure.

“People are losing their homes. They are losing everything before they have anybody even help them,” she said. “As hard as the counseling agencies are trying, and they are, the numbers they are able to help are small.”