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Nightmare Mortgages: More Reports From The Front

Last week we published a collection of letters and online postings regarding our Sept. 11 Cover Story "Nightmare mortgages" (Feedback, Sept. 25). Additional reader comments are posted at

I want to commend BusinessWeek for "Nightmare mortgages" (Cover Story, Sept. 11), a timely expos? on the exotic new mortgage products that have dominated the lending world for the past several years and that can be dangerous when misunderstood and misused.

As Commissioner of the Federal Housing Administration, I have been making this case for the past year in an effort to focus the attention of lawmakers, industry representatives, and the general public on this disturbing trend. Too many families have been steered into high-cost and high-risk loans, particularly minorities, first-time home buyers, and families with less-than-perfect credit. These types of home buyers have traditionally relied on FHA-insured financing as a safe and affordable means to obtain market-rate financing. Unfortunately, FHA insurance has not been a viable home financing option in recent years due to antiquated requirements and procedures, including the minimum downpayment requirement and limits on the mortgage amount.

The Bush Administration has proposed a set of changes to FHA in a bill now pending in Congress, the Expanding American Homeownership Act of 2006. It has received overwhelming bipartisan and industrywide support, passing in the House by a vote of 415 to 7, and is now pending in the U.S. Senate.

Brian D. Montgomery

Assistant Secretary for Housing

U.S. Housing & Urban

Development Dept.


Contrary to statements made in your publication, mortgage brokers, bankers, and lenders serve an important function: We help people purchase and refinance homes. Your "explanation" for the popularity of "pay option" adjustable-rate mortgages is to cast blame on mortgage brokers for steering consumers into loans that pay the highest commissions. Both accusations are false. Steering is illegal, and in fact there is no clear advantage to the broker in selling these loans. A better explanation is the simplest: Most people want the lowest possible payment, and they believe the value of their homes will increase. Although many people extend themselves to purchase the most house they can afford, they count on lenders to establish the limits of their creditworthiness. For many of the pay-option ARMs, low prices and easy qualifying underwriting guidelines (both established by the hedge funds) left little room to maneuver when interest rates rose.

The National Association of Mortgage Brokers has always suggested that improved financial literacy would be a benefit to the consumer. However, we believe this is a systemic problem that will be solved only when our elected leaders address housing affordability. In the case of pay-option ARMs, mortgage brokers and lenders represent the first point of contact with customers, but it is the Wall Street mortgage funds that set pricing and underwriting guidelines. If you want to fix the problem, that is the place to start.

Most mortgage brokers are honest, knowledgeable, well-meaning, hard-working small business owners. We can't afford to mislead, upsell, or do anything that will tarnish our reputation in our communities.

Harry Dinham, President

National Association of

Mortgage Brokers

McLean, Va.

In expectation of a surge in troubled loans, earlier this year NeighborWorks America launched the national Center for Foreclosure Solutions, operated in partnership with the Homeownership Preservation Foundation and supported by more than a dozen financial institutions. Through the Center's toll-free hotline -- 888 995-HOPE -- borrowers can obtain free foreclosure prevention services and counseling and get connected to local nonprofit organizations that can provide direct assistance. The time for homeowners to act is now, not after the loan has become delinquent or enters default.

Kenneth D. Wade, CEO

NeighborWorks America


Re "Fished out" (Special Report, Sept. 4): The vast majority of U.S. fisheries are well-managed. According to the NOAA's National Marine Fisheries Service report for 2005, 81% of U.S. fish stocks assessed are sustainably managed. In 2004, Americans consumed a record 16.6 pounds of seafood per capita. Because we need to grow enough fish to meet demand, fish farming is part of the future of the industry and a complement to wild-capture fisheries -- not a replacement for them.

We look forward to congressional passage of legislation this year to reauthorize the Magnuson-Stevens Fishery Conservation & Management Act, the law managing our nation's fisheries. The seafood industry works to ensure an abundant supply of high-quality fish for generations to come and is committed to the survival of both fish and fishermen.

John Connelly, President

National Fisheries Institute

McLean, Va.

"Fished out" overlooks an important point about Individual Transferable Quotas (ITQs): In the case of the haddock fishery, to enter the fishing business it would cost nearly $1 million to buy enough quotas to produce $180,000 in income. And that doesn't include the price of the boat. That would effectively exclude owner-operators without large amounts of money from entering the business as older ones retire. A fairer and more equitable system would issue quotas for the total amount each boat can catch rather than the number of days fished. That would have the same effect on fish supplies but would remove the bias toward corporate ownership. The quotas could be issued annually, permanently, or for multiple species.

Willis Craig

Sebastopol, Calif.

Environmental Defense is working with fishermen and managers around the country to design and implement individual fishing quotas, fishing cooperatives, and other systems to make conservation a winning business proposition.

For example, we are linking major suppliers and retailers of seafood to consumers demanding "ocean friendly" seafood. With community bankers and small-boat fishermen in California and Massachusetts, we are designing cooperatives that can aggregate and manage shared-fishing quotas, thereby transforming marginalized fishing enterprises into profitable ones. By working directly with investors, we are identifying ways in which private capital can be brought to bear (either for profit or more philanthropic investments) to accelerate the transition to well-managed fisheries. Businesses can play a key role in restoring our oceans.

David Festa, Oceans Program Director

Environmental Defense


Your story on McDonald's Corp.'s (MCD) sundial billboard ("Street stunts on the digital highway," Marketing, Sept. 11) may have caused some confusion about our Web site, As the online arm of Crain's Chicago Business, it is not a "regional trade site," as the story says, but a site that covers general business news in Chicago. Also, Leo Burnett did not place a photo of the billboard on our site. We posted the photo to our site with a story we reported and wrote on the billboard's role in McDonald's campaign to expand its breakfast business.

Joseph B. Cahill, Editor

Crain's Chicago Business


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